Mitigate Construction Risk Through Use of Contingency

Laurie A. Stanziale | Construction Executive

Mitigation of risk and costs in a construction project are always priorities for owners. In some contracts, in particular, Guaranteed Maximum Price contracts, some of those monetary risks are shifted to the contractor. Contingency is important because it allows for money to be in the budget for the unexpected and to keep the project moving, which benefits everyone.

WHAT IS CONTINGENCY?

Contingency is an amount of money built into the contractor’s price to complete the project to address unforeseen (although sometimes very common) costs that arise. This sum of money is generally referred to as the contractor’s contingency. The amount of the contingency is a balance struck between having money on hand to address the unexpected while also not unnecessarily tying up money that could otherwise be used for the project. Contingency is typically 5-10% of the hard costs. However, how the money is actually allocated during the project is not always well thought out, which can be the source of problems during the project. 

The contractor’s contingency is not to be confused with an owner’s contingency (or reserve) which is outside of the contractor’s budget and generally used for owner driven changes to the project, such as changes to scope, design and schedule. 

WHO OWNS (FUNDS) THE CONTINGENCY?

In a fixed-fee contract, the risk represented by the contractor contingency is the contractor’s. The owner typically is not involved in setting or accounting for contractor contingency in a fixed-fee contract. Unless the contingency is disclosed in the schedule of values, the owner may not even know that a contingency exists. Any money left unused in the fixed-fee contract contingency simply becomes profit for the contractor at the end of the project. In this scenario, the contractor controls the contingency and essentially owns and funds it from the contractor’s profit built into the contract price. This scenario, however, could lead to contractors cutting corners when problems arise in order to save money, which presents risks to the owner. 

Contractor contingency in cost-plus-fee contracts, with or without a GMP, are where many disputes arise. Contractor contingency is a disclosed budget line item. In such a scenario, the owner funds the contractor contingency, from which costs arising from the enumerated risks are drawn until the contractor contingency fund is exhausted, at which point costs that exceed the GMP that do not constitute a change order, are the contractor’s responsibility. Even in a contract without a GMP, the contractor may be responsible for costs that exceed the contingency.

WHAT COSTS CAN BE PAID FROM THE CONTINGENCY?

Failure to clearly set forth in the contract the permitted uses of the contingency can lead to disputes, which can lead to delays. Some common contingency uses in contracts include the following:

  • abnormal weather caused delays; 
  • cost overruns where the actual cost of an item exceeds the amount allocated to such item in the GMP;
  • incomplete designs or design errors;
  • minor changes in the work;
  • concealed conditions;
  • regulatory change;
  • unanticipated price of materials or interest rate increases;
  • overtime and premium time or multiple shift or weekend time not due to unexcused delays of contractor or its subcontractors;
  • scope gaps between trade subcontractors;
  • costs of completing the work of a bankrupt or insolvent subcontractor or supplier in excess of the subcontract price where such subcontractor or supplier has not provided surety bonds; 
  • costs incurred due to force majeure delays to the extent that such costs are not reimbursed by Change Order;
    warranty costs prior to final completion; 
  • costs to address safety items;
  • cost overruns of general conditions;
  • contractor coordination issues and errors; and
  • costs incurred to repair defective, damaged or non-conforming work executed by the contractor or any of its subcontractors which are not otherwise reimbursable.

There are certain of the foregoing which can lead to debate during contract negotiations. For instance, design errors could be argued by the contractor to be an owner cost to come from owner’s reserve. Whereas, defective work of the subcontractors could be argued by the owner to be squarely the responsibility of the contractor and not a use for contingency. 

Further, items on the list are sometimes qualified by whether they arise due to the negligence of the contractor or its subcontractors and sometimes the frequency of the cost or amount is qualified. For example, if the same trade commits safety violations repeatedly, which result in regulatory violations causing additional safety procedures and fines, the owner could provide a “free pass” on the first or second occurrence (i.e. contingency can be used) but thereafter it is a not reimbursable and comes out of the contractor’s pocket or they have to figure out a way to charge it back to the subcontractor.

Contractors may argue that no project or contractor is perfect and there will be errors that should be paid from contingency while owners may argue their money should not pay for the contractor’s or its subcontractor’s negligence. The list of uses, any qualifications to such uses and, at times, express provisions of items for which contingency cannot be used can be contentious, but flushing them out in the contract, as best as possible, will benefit all.

WHAT NOTICE AND APPROVAL ARE NECESSARY?

The contract should also be clear as to how a contingency request is made, the owner’s timing for review, approval or rejection and the method for dispute resolution. It is not uncommon that the architect acts as the initial decision maker of a dispute (as is standard in an AIA document) but whomever the arbiter of disputes, it should be clear what the process is for submitting a dispute and whether that decision will be binding. Like all disputes, it is always preferable to keep the project moving, so some potential options (similar to disputes over change orders) are that: 

  • the contractor continues to work, provided the owner pay the undisputed sums; 
  • the owner escrows the disputed amount so the contractor has comfort that the money will be available should they be found to be correct about the use of the contingency; or 
  • the owner pays the full contingency request to the contractor and if the funds are found not to be due, the amounts can be withheld from a future payment. 

Even with the delineation of the uses in the contract, in most instances, use of the contingency still requires the owner’s approval, which is often qualified by not being unreasonably withheld. In some instances, a certain amount that the contractor can use before requesting approval is set in the contract, requiring the contractor only to advise owner of the use, but not seek approval. 

WHAT HAPPENS IF ALL OF THE CONTINGENCY IS NOT USED? 

Any unspent contractor contingency funds at the end of the project either: 

  • revert to the owner; 
  • there is a sharing of savings between the owner and the contractor; or 
  • as an incentive to the contractor, all savings go to the contractor. 

Whether there are savings is dependent on the proper uses along the way but also whether the contractor can move savings from one line item to another during the project or if those savings go into the contingency, where the owner may get the money back. Owners at times attempt to restrict the contractor’s ability to move money among the line items in the schedule of values, but ordinarily the contractor can use those cost underruns to fund cost overruns in other line items without the owner’s prior approval. 

At least one court has acknowledged that the GMP equals all line items listed in the schedule of values as a whole, not that each line item is a separate GMP, effectively allowing the contractor to shift savings to an overrun item to maintain the aggregate GMP (and avoid saving pour over into the contingency). In the case of Nason Construction Co. v. Bear Trap Comm., LLC, 2008 WL 4216149, (not reported in A.2d)(Del. Super 2008), the developer was withholding payments due and owing to a contractor, arguing that each line item in a GMP is its own GMP and money could not be shifted. The court disagreed with the owner and held that the GMP is viewed as a whole, which enables a contractor to shifts savings from one line item in the schedule of values to another. This ability to shift savings and avoid pour over into the contingency can help the contractor to stay within the GMP.

Proper drafting of the contingency clause is critical and should not be overlooked. Best practices are to clearly delineate: 

  • the permitted or prohibited uses of contingency; 
  • whether owner approval is required and how obtained; 
  • how to resolve disputes; and 
  • what becomes of contingency savings.

Clearly Determining in Contract Who Determines Arbitrability of Dispute

David Adelstein | Florida Construction Legal Updates

As you know from prior postings: “Arbitration provisions are creatures of contract and must be construed ‘as a matter of contract interpretation.’ ”  Fallang Family Limited Partnership v. Privcap Companies, LLC, 46 Fla.L.Weekly D639e (Fla. 4th DCA 2021) (citation omitted).    Thus, if you prefer to arbitrate potential disputes, instead of litigating potential disputes, you want to include an arbitration provision in your contract.  While there are positives and negatives to arbitration, no different than litigation, these positives and negatives should be considered during the contract negotiation process when dealing with the dispute resolution process in the contract.

Generally, under the law, the arbitrability of a dispute is determined by the court.  However, this can be deferred to the arbitrator with clear and unmistakable language in the contract.

By way of example, the American Arbitration Association includes a rule that allows an arbitrator to rule on the arbitrability of the dispute, i.e., the claims asserted are subject to the governing arbitration provision in the contract.   Recent law has suggested that if the objective is to authorize an American Arbitration Association arbitrator to make this determination, the contract clearly and unmistakably needs to state this intent and generally referring to the American Arbitration Association rules is not good enough.  For this reason, I have included in arbitration provisions language that specifically states, “In the event of any dispute as to the arbitrability of any claim or dispute, the parties agree that an appointed arbitrator within the American Arbitration Association shall make this determination.”  I have also included in arbitration provisions the converse so that if there is a dispute as to the arbitrability of a claim or dispute, the court, and not the arbitrator, will make this determination.

In Fallang Family Limited Partnership, the arbitration provision simply read: “In the event of any dispute under this agreement the parties agree to submit to binding arbitration in the state of Florida with a panel of one arbitrator. The arbitrator shall be chosen by the AAA [American Arbitration Association] and the AAA rules and procedure shall apply, and the arbitration will be governed by the law of the state of Florida.”  A lawsuit was filed and the court compelled certain claims to arbitration finding that such claims were arbitrable; however, the court authorized the arbitrator to make the final determination as to the arbitrability of the claims.

As mentioned, the rules of the American Arbitration Association allow the arbitrator to rule on the arbitrability of claims subject to the arbitration provision.  However, the simple arbitration provision did not clearly and unmistakably specify this intent.  The Fourth District concluded “that the general reference to the ‘AAA rules’ in this case left ambiguity as to whether the arbitrator has authority to decide arbitrability to the exclusion of the trial court.” Fallang Family Limited Partnership, supra.  Based on this ambiguity, the Fourth District held that the trial court’s ruling was right making the initial determination as to which claims were arbitrable with the final decision left to the arbitrator.  Fallang Family Limited Partnership, supra (“[W]e conclude that the trial judge’s order in this case properly made a preliminary decision as to which counts of the complaint are covered by the arbitration agreement, based on a limited showing of the facts in this multiple count, factually complex case, and properly left the final decision as to what was arbitrable to the arbitrator.”).

The bottom line is that, naturally, it may not be the most efficient for the trial court to make a preliminary determination as to the arbitrability of the claim with a final decision left to the arbitrator.  However, this ruling was due to the fact that the American Arbitration Association’s rules were incorporated into the contract but did NOT clearly and mistakably say that the arbitrator, and the arbitrator alone, would rule on the arbitrability of claims.  For this reason, there is value taking the extra step in the contract to clearly and mistakably reflect this intent, one way or the other.

Uniwest And Virginia’s Anti-Indemnification Statute: The Trap For The Unwary Should Be Closed

James P. Bobotek | Virginia State Bar

When preparing commercial contracts, parties strive for certainty to prevent post-execution risk allocation surprises. This is particularly true when drafting indemnification clauses in construction-related contracts. To prevent downstream parties with little contracting leverage from being asked to indemnify upstream parties for those upstream parties’ own negligence, the vast majority of states have enacted “anti-indemnity” legislation limiting the breadth of indemnification clauses in contracts touching on construction projects.1 These statutes generally fall into two camps: (i) 16 states permit a party (the “indemnitee”) to be indemnified for its own negligence as long as it is not solely negligent;2 and (ii) 28 states do not permit the indemnitee to be indemnified for its own negligence under any circumstances, whether in whole or in part.3 Six states and the District of Columbia allow broad indemnity whereby an indemnitee can be required to indemnify the indemnitor even if the indemnitor is solely at fault.4

Virginia’s anti-indemnity statute states, in relevant part: Any provision contained in any contract relating to the construction, alteration, repair or maintenance of a building … by which the contractor performing such work purports to indemnify or hold harmless another party to the contract against liability for damage … caused by or resulting solely from the negligence of such other party … is against public policy and is void and unenforceable.5

Inclusion of the word “solely” in Section 11-4.1 leads most readers to conclude that it was drafted to fall into the first camp (bringing Virginia within those states barring indemnification for an indemnitee’s negligence only when the indemnitee is solely negligent). But therein lies the trap. Presumably unintentionally, the drafters of Section 11-4.1’s 1991 amendment structured the operative language in a manner similar to, but slightly different from, the anti-indemnity statutes that fall within the first camp. Almost all statutes included in the first camp use identical causation language, as follows: “caused by or resulting from the sole negligence of the … indemnitee.”6 But Section 11-4.1’s operative language reads: “caused by or resulting solely from the negligence of [the indemnitee].”7

To provide context, while Section 11-4.1’s language is slightly different from the other first camp’s statutes, it is very different from the language of those falling in the second camp (that do not permit indemnification for an indemnitee’s own negligence under any circumstances). The major difference is that none of the statutes falling within the second camp include the limiting words “sole” or “solely.”8 There is no need to include the word “sole” or any variation thereof because these second camp statutes are broader, precluding indemnification for an indemnitee’s negligence whether the indemnitee is solely or only partially negligent.9

Without this context, Section 11-4.1’s placement of “solely” after “resulting” permits a reader to more easily interpret the clause in at least two manners: (i) that “solely” modifies the entire phrase “caused by or resulting”; or (ii) that “caused by or resulting solely from” is disjunctive, meaning that there are really two disconnected phrases, “caused by” and “resulting solely from.” These alternate interpretations make a significant difference. Analysis under the first example results in the clause falling within the first camp; a limitation on indemnity for the indemnitee’s negligence only when the indemnitee is solely negligent. To the contrary, scrutiny under the second example leads to a broader bar; the indemnitee cannot be indemnified for its own negligence, whether sole or partial.

The Supreme Court of Virginia interpreted Section 11-4.1 in Uniwest Construction, Inc. v. Amtech Elevator Services, Inc.10 Uniwest, the prime contractor, engaged Amtech as a subcontractor to perform elevator work.11 One Amtech employee was injured, and another died as a result of a scaffolding collapse.12

Various lawsuits arose involving indemnification and insurance, all of which made their way to the Court in a consolidated appeal.13 Without discussion, or reference to any legislative intent, and without comparing Section 11-4.1’s language with other states’ anti-indemnity clauses to gain context, the Court concluded that the phrases “caused by” and “resulting solely from” in the statute are disjunctive, meaning that they must be treated as separate clauses.14 From this, the Court found that the statute precludes indemnification for two types of damages: (i) those that are “caused by”; or (ii) those that “result[ing] solely from” an indemnitee’s negligence.15 In other words, under Section 11-4.1 an indemnitee can never be indemnified for its own negligence whether it is solely negligent or only partially negligent. The Court held that the indemnification provision at issue “clearly reaches beyond the negligence of other parties and indemnifies [the indemnitee]. Therefore, it violates Code 11-4.1 and is void.”16

Many practitioners, fifty-state compendia, and even some treatises, review Section 11-4.1 and, finding the language so similar to those other jurisdictions that permit an indemnitee to be indemnified for its own negligence as long as it is not solely negligent, conclude that Virginia falls within that camp. Indeed, an internet search for anti-indemnity statutes results in myriad compendia and articles interpreting Section 11-4.1 and Virginia’s law on construction-related contractual indemnification clauses as permitting an indemnitee’s indemnification for its partial negligence, and precluding such indemnification only when the indemnitee is solely negligent. Thus, the trap is sprung.

The result in some cases has been a finding that flies in the face of the contract certainty for which parties yearn — that the indemnification clause the parties agreed to, permitting a party to be indemnified for its own partial negligence, is in fact void ab initio and cannot be reformed.17 Other jurisdictions with statutory language similar to Section 11-4.1 do not preclude indemnification for an indemnitee’s concurrent or partial negligence, instead limiting the statutory prohibition to damages arising out of an indemnitee’s sole negligence.18 Yet after Uniwest, despite the similarity in language to these other statutes where indemnification is prohibited only for an indemnitee’s sole negligence, Section 11-4.1 is interpreted in a more expansive fashion, also precluding indemnification for the indemnitee’s partial negligence.

It is high time for the General Assembly to correct the uncertainty created by the statute’s ambiguous language. If Section 11-4.1’s intent is to preclude an indemnitee’s indemnification only when it is solely negligent, as many states do, then it should modify Section 11-4.1 to read “caused by or resulting from the sole negligence of such other party.” Alternatively, if the intent is really as the Court found in Uniwest, then the General Assembly should remove Section 11-4.1’s current ambiguity by modifying it to read “caused partially or solely by, or resulting partially or solely from, or arising partially or solely out of the negligence of such party.” Further, given some of Uniwest’s progeny, the revised legislation should clarify that savings clauses inserted in indemnification clauses, such as the commonplace “to the fullest extent permitted by law,” will permit reformation of a non-conforming clause rather than a finding that it is void ab initio. At the end of the day, contractual certainty is best for all.

James P. Bobotek, a partner in Pillsbury’s McLean office, guides clients through all phases of development and construction of office, multifamily housing, hotel, and other commercial properties, including preparation, review and negotiation of development, design, construction, design-build, and related agreements. Bobotek also counsels clients in analyzing insurance coverage claims, formulating risk management strategies, and developing contractual insurance requirements. He has secured many favorable outcomes for commercial policyholders on CGL, builder’s risk, commercial property, business interruption, cyber, professional liability, D&O, pollution, fidelity, and other claims.

Top 10 Things To Like About Virtual Insurance Mediations

Andrew S. Nadolna | JAMS

Virtual mediation is the newest tool in the insurance alternative dispute resolution (ADR) toolbox, and it is here to stay. Here are 10 reasons to use virtual mediation for insurance-related matters.

1. Inventory reduction—now

Right now, there is a window of opportunity. COVID-19-related insurance cases are arising quickly. They will soon swamp lawyers, clients and insurance companies in multiple lines of insurance. These cases will take a disproportionate amount of time. Those working in claims for insurance companies, or as in-house counsel and risk managers, or for law firms working in the insurance space are seeing a massive influx of business interruption claims under property policies; but other lines, such as employment practices liability, directors and officers liability insurance and commercial general liability, are not far behind. The increase in volume will be monumental. In the meantime, every other case will be put on the back burner. Virtual mediations led by experienced neutrals can help. With no need to travel, or even commute, it is much easier for even the busiest mediators to be available, and you don’t need to schedule them months in advance. Go ahead. Settle some cases—virtually.

2. Scheduling convenience

Scheduling is a lot easier. Part of the reason for this is because you don’t have to worry about travel. Once travel has been eliminated, you don’t have to worry about the day before and/or the day after for participants or the mediator. You also don’t have to worry about commuting. You also don’t need to wait for an available room in a busy dispute resolution facility. Virtual rooms are virtually unlimited.

3. Ease of starting

See above: no commuting. I rarely hit traffic when I am walking down the hallway to get to my laptop. Virtual mediations tend to have everybody present and ready to go on time. Leveraging virtual platforms, there is the option to book as many as 50 rooms or only a few—at no additional cost. This means that matters involving complicated towers of coverage can have breathing room. Everyone gets their own room, and various participants can be assigned easily to that room. Participants just need to dial in, and the administrator or mediator will instantly put each participant in the appropriate room.

4. Geography doesn’t matter— so you can focus on skills

You can look nationally or even globally for the appropriate neutral with the kind of expertise you need, without any travel expenses. The participants can be anywhere. I’ve had cases with participants in four time zones. Many policyholder and insurer law firms have national (or international) practices aligned to the needs of their clients. Some mediators have a similar focus. Drawing on their skills is now easier than ever.

5. More meaningful mandatory ADR

There are now more mandatory alternative dispute resolution (ADR) clauses in more insurance policies (and other contracts) than ever before. If you are required to mediate, do it well and do it now, before you get inundated. A good mediator can help transform a session from a “check the box” exercise into a meaningful discussion and risk-analysis session. The worst-possible outcome is that your views of the facts, the law and the policy language will be thoroughly tested. The best thing that could happen is discovering that your idea of a reasonable settlement is not far off from the other side’s idea, so you settle. It’s worth a try.

6. Increased intensity of focus

There is something about being on camera that creates an unusual and helpful level of focus, but it can be extremely draining for any length of time. However, the benefit is that we tend to get to the point in a different—more considered and concise—way. Things are happening quicker in online insurance mediations. That isn’t necessarily always a good thing. Some cases require a more leisurely unfolding of events. Being aware of this can lead to more productive sessions.

7. Flexibility and creativity

The processes for conducting a virtual mediation will rapidly evolve. The global mediation community is now using online meeting platforms for mediation. We are engaged with the technology. We are thinking about how to do it better. We are thinking about the range of processes and structures that might benefit our clients and our cases. There are many possibilities.

8. The efficiency of a disaggregated mediation

A mediation can be separated into segments over the course of a few days or weeks, and the time in between can be used for assessment. Maybe the magic of the day can be transformed into bite-sized pockets of magic. Why is this important? Many insurance mediations have become multiday efforts, allowing each side the opportunity to regroup and consider what happened. Often there is a lot of downtime. Now we have the chance to have separate caucuses without keeping everyone else sitting in a room waiting for their turn. We can schedule it.

9. The new and improved opening session

We may be communicating more effectively now than ever before, which may mean that a substantive joint session can be productive and lead to negotiations. The strange intimacy of the technology— it can feel like you are very close to the people on your screen—enhances civility in discourse. With some guidance from the mediator—structured around a few issues and rules about time and types of discourse—we can get so much more accomplished at the beginning of a session. The other possibility is that the joint session becomes a two-part presentation over a couple days, and before the individual caucuses or bargaining begins, each side has the opportunity to consider whether there is anything new in the other side’s presentation that requires an alteration to its mediation strategy.

10. Technology choices

Pick your platform. Although Zoom seems to be the default option given its range of mediation- appropriate features, cost and ease of use, there are many other options. Many clients prefer platforms such as Microsoft Teams, Cisco Webex, Endispute or BlueJeans. Similar to any other detail concerning the mediation process, the selection of a virtual platform and any additional communication modalities is a matter that can be tailored to the needs and specifications of the parties. The time it takes to master the controls of any of these platforms is minimal. Mediators can work through any technology issues by using the platform for presession activities and can arrange for a brief practice session to get everyone comfortable with the technology.

As you can see, this tool belongs in your case resolution toolbox.

AAA Releases Discovery Best Practices for Construction Arbitration

Patrick McKnight | Forum on Construction Law

The American Arbitration Association (“AAA”) recently released an important new document, “Discovery Best Practices for Construction Arbitration: Recommendations for AAA Construction Advocates and Arbitrators.” These best practices are intended to “educate advocates and arbitrators to better manage pre-hearing exchanges of information in construction disputes.” 

Generally, the seven-page document seeks to promote the speed and efficiency of resolving construction disputes through arbitration. While observing that construction disputes are often very document-intensive, the best practices note that the format of arbitration does not allow for unlimited discovery:

Therefore, arbitrators should, consistent with their authority, manage arbitration proceedings to achieve the goal of providing a simpler, less expensive and more expeditious process, and discovery decisions should be proportional to the size and complexity of the matter being heard. The arbitrator should stress how, due to the number of documents, discovery in a construction dispute is different than in a typical commercial dispute.

These best practices were developed in conjunction with the AAA’s National Construction Dispute Resolution Committee (“NCDRC”), advocates, arbitrators and construction industry professionals. The guidance and suggestions in the best practices are recommended for use in all construction cases administered by the AAA under the Construction Industry Arbitration Rules or Commercial Arbitration Rules. It is important to note that these best practices are in no way intended to replace the Rules.

Document Exchange

The best practices suggest filing a detailed statement of claims and defenses as early as possible. This can help narrow the focus of discovery, identify critical documents, and avoid disputes. Whenever possible, “the scope of documents should be narrowly tailored and proportionate to the disputes at hand.” Further, a scheduling order can be an effective tool to establish deadlines and avoid delays.

The best practices also address the growing importance of e-discovery. Today’s construction disputes commonly involve a high-volume of emails, drawings, submittals, and other electronically stored information (“ESI”). The new guidance suggests addressing e-discovery during the pre-hearing conference. The size and complexity of the dispute should be the driver of the ESI protocol. In situations where the cost to produce electronic documents appears excessive, arbitrators are encouraged to consider requiring the party demanding that production to pay for the costs.

Site Inspections

Site inspections can play an important role in resolving construction disputes. They can also be expensive and time-consuming. The best practices suggest arbitrators carefully weigh the benefits of agreeing to a site inspection and establish a protocol in advance. Likewise, arbitrators are encouraged to consult photographs of the site prior to a visit to help become familiar with the project. Any tour of the project site should be conducted without attorney commentary.

Disputes and Sanctions

Discovery disputes happen. Parties should make a good-faith effort to meet and confer to resolve these disagreements. If these consultations are unsuccessful, arbitrators are encouraged to schedule a telephonic conference. Hopefully many of these disputes can be precluded from arising in the first place through appropriate planning and communication.

It is important to remember that arbitrators have the authority to order sanctions. Courts may uphold these sanctions when sufficient cause exists. Arbitrators can choose to order sanctions either immediately at the time of the action, or they can choose to wait to do so in the final award. However, precluding proof should only be considered in the most extreme circumstances.

Other Considerations

The new AAA guidance suggest that depositions be used only when there are clear and compelling grounds to demonstrate they will contribute to the speed and efficiency of the arbitration process.

Third-party discovery can be a complicated and thorny issue in an AAA arbitration. Courts have reached different conclusions as to whether Article 7 of the Federal Arbitration Act allows for an arbitrator to subpoena a third-party to produce documents prior to a hearing. In any event, third-party discovery should be limited to the largest, most complex cases.

Conclusion

These best practices seek to balance the almost inherently complex nature of construction disputes with the efficiency offered by AAA arbitration. This new document is a valuable resource for arbitrators, attorneys, and construction professionals. The summary contained in this article discussed only a few of the highlights and is not meant as a comprehensive survey.

Parties interested in more information on AAA construction arbitration rules and procedures are encouraged to visit adr.org/construction.