On June 15, 2014, the American Arbitration Association (AAA) released its Supplementary Rules for Fixed Time and Cost Arbitration. These new optional Supplementary Rules were promulgated by the AAA as part of the AAA’s ongoing effort to contain the time and cost of arbitration and respond to concerns that arbitration costs in terms of dollars and time may have become unpredictable. The AAA developed the Supplementary Rules in conjunction with the National Construction Dispute Resolution Committee (NCDRC) to provide an arbitration process that, hopefully, will be more predictable in terms of total time and cost.
The NCDRC was founded in 1966 by the AAA, in cooperation with the American Institute of Architects and other industry trade and professional associations. Industry trade association members include the American Association of Airport Executives, American Council of Engineering Companies, American Institute of Architects, American Public Works Association, American Society of Civil Engineers, American Subcontractors Association, Inc., Associated Builders and Contractors, Inc., The Associated General Contractors of America, Associated Specialty Contractors, Inc., Construction Financial Management Association, Construction Management Association of America, Construction Owners Association of America, Construction Specifications Institute, Design-Build Institute of America, Dispute Review Board Foundation, Engineers Joint Contract Documents Committee, National Association of Home Builders, National Association of Minority Contractors, National Association of State Facilities Administrators, National Association of Surety Bond Producers, National Society of Professional Engineers, National Utility Contractors Association, The Surety & Fidelity Association of America, and Women Construction Owners & Executives USA.
Owners, contractors, subcontractors, suppliers and other construction project participants should consider using the Supplementary Rules for cases with discrete issues that would benefit from limited document exchange and limited discovery. For new projects, consider writing the Supplementary Rules into the dispute resolution provisions of your contractual agreements, including any form contracts that you typically use. For existing projects already under contracts that do not incorporate the new rules, parties to a dispute can draft and file an agreed “submission agreement” with the AAA reflecting the parties’ subsequent agreement to use the Supplementary Rules. When considering whether to use or adopt the Supplementary Rules for your project, keep in mind some of the key features and provisions of the Supplementary Rules.
- Two-party limitation. The Supplementary Rules only apply in arbitrations where there are two parties to the arbitration. The two-party limitation, however, does not apply to a surety that (a) is represented by the same counsel as its principal, and (b) has not asserted in the arbitration an independent claim against either its principal or the other named party.
- Complementing rules. The Supplementary Rules complement the AAA’s Construction Arbitration Rules & Mediation Procedures (often referred to as the “Construction Industry Arbitration Rules”), and both sets of rules will apply to disputes arising out of contracts or agreements providing for arbitration under the Supplementary Rules.
- Exclusive administration. The AAA requires that arbitrations administered under the Supplementary Rules be exclusively administered by the AAA and that all arbitrators appointed to such arbitrations, including any arbitrator appointed by the parties, be members of the AAA’s National Roster of Construction Neutrals.
- Party collaboration. Parties and their representatives are expected to work in a collaborative manner to move cases along within the timeframes required by the Supplementary Rules with minimal or no preliminary hearing work by the arbitrator. The Supplementary Rules allow parties to calculate the maximum time to complete the arbitration from the initial filing date through the award, the maximum number of hearing days that the arbitration will run, the arbitrator costs, and the AAA administration fees. If arbitrator assistance is required during the pre-hearing or the post-hearing phase of the case, the arbitrator will receive additional compensation based on an established Cost Schedule that is contained in the Supplementary Rules.
- Failure to keep on track. If the parties do not adhere to the hearing days and time limitations set forth in the Supplementary Rules or otherwise fail to comply with the Supplementary Rules, then, at the discretion of the AAA, the case may revert to administration under the Regular Track or Large, Complex Case Track Procedures found in the Construction Industry Arbitration Rules, and the associated Regular Track or Large, Complex Case Track fees will apply.
- Requirement for a succinct statement of claim. A Claimant’s initial Demand for Arbitration must include a statement of claim, limited to five pages in length, which describes the claim and the relief sought. The Respondent’s answer and counterclaim, if any, is also limited to five pages in length.
- Administrative Conference. Within three business days of the Claimant’s filing the Demand for Arbitration, or as soon as practicable, the AAA will conduct an Administrative Conference with the parties. The Administrative Conference is intended to expedite the arbitration, explore administrative details, establish an efficient means of selecting an arbitrator, ascertain the parties’ preferred arbitrator qualifications, and address other issues raised by the parties regarding the conduct of the arbitration.
- Number of arbitrators. All arbitrations administered under the Supplementary Rules will proceed with a sole arbitrator.
- Meet and Confer Conference. Fourteen days after the Administrative Conference, the parties must meet and confer in-person, by telephone, or by video conference. During the Meet and Confer Conference, the parties are expected to discuss and determine (1) their selection of three prospective arbitrators based on a list of at list ten prospective arbitrators provided by the AAA, (2) the time, date and place of the evidentiary hearing, (3) the number of hearing days required and the allocation of days to each party, and (4) a discovery plan addressing the extent of document exchange and discovery including the time period for discovery, deadlines for discovery, and limits on the amount of discovery. Within five business days following the Meet and Confer Conference, the parties must report the results to the AAA. Within one business day following receipt of the parties’ report, or as soon as practicable, the AAA will invite one of the three prospective arbitrators to serve. Within seven days of the arbitrator’s appointment, either party may request an administrative call with the appointed arbitrator to address any issues that were not resolved in the Meet and Confer Conference. Involving the arbitrator in resolving such issues will result in additional fees to compensate the arbitrator at established rates that are set forth in the Supplementary Rules.
- Review of the parties’ discovery plan. Upon appointment, the arbitrator will review and approve (or modify, if necessary) the parties’ discovery plan to ensure that the discovery plan adheres to (1) the tenets of arbitration as a time-effective and cost-effective process, and (2) the applicable timeframes referenced in the Supplementary Rules. If a party later fails to comply with the approved discovery plan, then the arbitrator may exclude certain evidence, or take whatever other measures that the arbitrator deems appropriate.
- Form of the arbitrator’s award. The Supplementary Rules provide for an award that is commonly referred to as a “standard award.” In a standard award, the arbitrator provides a concise written financial breakdown of any monetary award and a line item disposition of any non-monetary claims or counterclaims. The Supplementary Rules limit the length of this standard award to three pages. If instead of the standard award the parties require a reasoned award or findings of fact and conclusions of law, then the arbitration will be administered under the Regular Track or Large, Complex Case Track Procedures found in the Construction Industry Arbitration Rules, and the associated Regular Track or Large, Complex Case Track fees will apply. Thus, if the parties require other than a standard award, the Supplementary Rules will no longer apply and the parties will be subject to higher AAA fees. For additional information regarding specific forms of arbitration awards, see the article What Will the Arbitrator’s Final Award Look Like? Send me an email, and I will send you a copy.
- Remedies for nonpayment of AAA fees and default award. The AAA’s Construction Industry Arbitration Rules provide for arbitration in the absence of a party where a party fails to be present or otherwise obtain a postponement of the proceeding but requires that an award not be made solely on the default of a party. Instead, the Construction Industry Arbitration Rules require that the party who is present “submit such evidence as the arbitrator may require for the making of an award.” The Supplementary Rules expressly provide that: “Failure of a party to pay requested fees or deposits without good cause shown shall result in a default award.” To obtain a default award under the Supplementary Rules, the party seeking the default award must file a request for default with the AAA, arbitrator, and opposing party. The arbitrator’s entry of a default award, however, is not automatic. The opposing party must be given an opportunity to be heard and the party requesting the default award must prove its damages. Once the request for a default award is submitted, the opposing party has seven days to respond. If the arbitrator grants the request, the party seeking a default award must then prove its damages to the arbitrator at a later scheduled hearing.
When drafting a contract provision agreeing to arbitrate future disputes there are a variety of other issues to consider and address in addition to the issue whether to incorporate the AAA’s new Supplementary Rules. For example, should the arbitration clause provide for arbitration of all disputes, or should the arbitration be limited to disputes arising out of the contract? Should the arbitration clause be further limited to only certain types of disputes that might arise out of the contract? Should the number of arbitrators be specified in advance, and should the number be dependent on the amount in controversy? Should a particular arbitrator be appointed in advance? Should the parties be entitled to submit names of potential arbitrators? Should the arbitrators be allowed to select the location of the arbitration? Should particular legal rules of evidence or civil procedure be specified? Should the length of any hearing be limited? Should a contractual time limitation for initiating a claim or a demand for arbitration be specified? Should the arbitrator be allowed to award costs and attorneys’ fees? Should a “prevailing party provision” be included within the agreement to arbitrate in which the prevailing party is entitled to an award of its costs and attorneys’ fees? Should the arbitration be administered by the AAA? Finally, should the arbitration be governed by other than the standard rules published by the AAA? The answers to these and similar questions may require very carefully tailored and deliberate revisions to your contract’s dispute resolution provisions, as well as very carefully tailored and deliberate revisions to other interrelated contract provisions, in order to ensure that such provisions are valid and enforceable when the time comes to resolve a dispute. Accordingly, getting the advice of an experienced construction lawyer may be essential.