A General Introduction to Projects and Construction in USA

Henry Scott, Karen B. Wong and Miguel Duran | Milbank

An extract from The Projects and Construction Review, 11th Edition

Introduction

The project finance market in the United States benefits from a well-developed legal framework and sophisticated financial markets. The US legal system is generally viewed as clearly codified, stable and efficient, as well as one that is enforced in a regular and open manner.2 Contractual agreements between parties are recognised by law with few exceptions related to public policy concerns. The project finance sector has strong access to both the public and the private financial markets and is in some limited areas even supported – directly or indirectly – by government policies.

This combination of a strong legal framework and financial markets has facilitated the development of a robust project finance sector in the United States. Project finance is premised on the ability of the parties to contractually allocate risks among themselves and to enforce those contractual obligations in a reliable manner. A successful project finance regime is also dependent on commercial laws that allow developers to protect themselves through special purpose entities that benefit from non-recourse financing and that, similarly, allow lenders and investors to obtain security in the project assets and to enforce their claims against the project. Likewise, a sophisticated private financial market has the flexibility to allow the developer and the financing providers to create complex financing structures and to tailor those structures to the specific needs of a particular project.

This chapter discusses various transactional structures available to projects and the legal documentation frequently used to implement them. It reviews the various risks associated with project finance transactions and how parties allocate these risks. It also examines how the US legal framework supports the ability of lenders and investors to protect their interests, including obtaining, perfecting and enforcing security interests in a manner that permits lenders to enforce their rights in the event that a project encounters financial problems. This chapter also considers how the legal framework is influenced and affected by social and environmental considerations. The role of a complex legal framework and sophisticated private financing providers and the public sector is also addressed, followed by a summary of the impact of taxes on investment, which may be of particular interest to foreign lenders and investors. The framework for how dispute resolution is processed in the United States is discussed in the final section.

The year in review

The nature and complexion of project finance in the United States has been shifting, mostly as a result of the expiry of certain government incentives, regulatory changes relating to power plant emissions, declining prices of distributed generation technologies, including battery storage, and lower natural gas prices as a result of increased domestic production. More recently, the sector has been shaped by the enactment of a package of amendments to the tax code at the end of 2017, 3 by the imposition of tariffs on imported solar cells and modules in January 2018 and the covid-19 pandemic. The issuance on 1 May 2020 of an executive order addressing national security threats facing the US bulk-power system, in particular by restricting the acquisition, installation and use of certain imported equipment essential to the power grid,4 could potentially be significant for the sector as the result of the regulatory uncertainty created by the new ban given that clarification on the scope and impact of that executive order on the development and operations of energy projects using equipment from countries deemed to be ‘foreign adversaries’ will depend on the US Department of Energy’s rulemaking process. Furthermore, while the long-term impact of the covid-19 pandemic remains to be seen, the pandemic has already impacted a number of projects with force majeure claims and construction delays, and introduced uncertainty given the turbulence in financial markets and economic recession.

Despite fears that the approval of the US tax reform (particularly the reduction in the corporate tax rate from 35 per cent to 21 per cent and the implications of the base erosion anti-abuse tax to certain international financial institutions active in the market) would curtail the availability of tax equity financing in the market in 2018 and beyond, tax equity investors have maintained a substantial presence as financing sources and renewable energy projects continue to remain a significant component of the market. In 2019, approximately 30 per cent of the total value of project finance transactions in the country was invested in the renewable energy sector.5 For example, 9,143MW of wind energy (a 20 per cent increase from the 2018 level)6 and 13.3GW of solar energy (a 23 per cent increase from the 2018 level, and including approximately 8.4GW of utility-scale installations, which represents a 37 per cent increase from the 2018 level) were installed in 2019.7 Approximately 24,690MW of wind capacity (the highest amount on record) was still under construction at the end of March 20208 and nearly 20GW of solar capacity is expected to be completed in 2020.9 Additionally, hydroelectric capacity could increase from 101GW to approximately 150GW by 2050, not only through the construction of new power plants but also through the upgrade and optimisation of existing plants and by the increase of the pumped storage hydropower capacity.10

Throughout 2019, much of the project financing activity in the United States involved energy projects that were able to qualify for a production tax credit (PTC)11 or the 30 per cent investment tax credit (ITC)12 by meeting certain requirements. Additionally, developers of clean energy projects employing new or innovative technology that was not in general use were able in 2019 to request loan guarantees pursuant to Section 1703 of the Department of Energy’s loan guarantee programme,13 including for advanced fossil energy projects that avoid, reduce or sequester greenhouse gases14 and for renewable or efficient energy technologies.15 In December 2016, the Department of Energy announced a conditional commitment to guarantee up to US$2 billion of loans to construct a methanol production facility employing carbon capture technology in Lake Charles, Louisiana, which would represent the first loan guarantee made under those solicitation programmes.16 In February 2018, Congress enacted the Bipartisan Budget Act of 2018,17 which substantially increased the value of the Section 45Q tax credit available for carbon capture, utilisation and storage projects, and significantly expanded the universe of companies that would be eligible for this federal subsidy (which was originally made available in 2008) by increasing the eligible uses, decreasing the carbon capture threshold and eliminating the prior programme’s limitation to the first 75 million tons of carbon captures. The Section 45Q tax credit will be available for eligible projects placed in service after 9 February 2018 and for which construction begun prior to 1 January 2024 and can be claimed over a 12-year period.18 In February 2020, the Internal Revenue Service (IRS) issued guidance with respect to the determination of the beginning of construction for purposes of the Section 45Q tax credit19 and the allocation of the Section 45Q tax credit by partnerships,20 which is expected to increase the development of carbon capture and sequestration projects.

Furthermore, the Protecting Americans from Tax Hikes Act of 201521 and the Further Consolidated Appropriations Act of 202022 extended the PTC programme for certain eligible facilities for which construction began before 1 January 2017 and for otherwise qualifying wind facilities for which construction began before 1 January 2021 (with a progressive phase-out reduction if construction begins after 31 December 2016) and the ITC programme for qualified solar facilities for which construction began before 1 January 2022. Current IRS guidance provides for certain safe harbour provisions with respect to the beginning of construction requirement, requiring the performance of certain specified actions (based on either physical work or the incurrence of costs) prior to the applicable qualification deadline and placement in service of the facility within four years of the qualification deadline. On 27 May 2020, the IRS modified its prior guidance and extended the four-year safe harbour requirement by one additional year to address the unforeseen interruptions experienced by developers because of the covid-19 pandemic.23

Propelled by extended federal incentives, advances in green technology that decrease investment costs, state incentives and regulatory policies implementing renewable energy portfolio standards (RPS) on utilities, and the positioning of renewable energy as a key component for strategic energy independence for the nation, the development of renewable projects is expected to continue moving forward. As at June 2019, 29 states, the District of Columbia and three US territories have enacted RPS programmes, and eight additional states and one US territory now have voluntary goals for generation of renewable energy.24 For example, California’s RPS programme, one of the most ambitious in the United States, requires that utilities derive 33 per cent of their energy from renewable sources by the end of 2020, 44 per cent by the end of 2024, 52 per cent by the end of 2027 and 60 per cent by the end of 2030 (with the ultimate goal of obtaining 100 per cent of the retail sales of electricity to end-use customers and the electricity to serve all state agencies from renewable energy resources and zero-carbon resources by the end of 2045).25 While all three of the largest California utilities have enough renewable energy capacity under contract to meet the 2020 threshold, the generation forecasts that those utilities prepared in 2019 (risk adjusted to account for a certain degree of project failure) show that, in the aggregate, there will be a deficit beginning in 2026.26 Other states, such as New Mexico and Washington, have similar 100 per cent carbon-free goals in the next few decades and Hawaii has gone further by requiring 100 per cent renewable energy generation by 2045.27 As a result, there is a need for additional renewable energy generation in California and the rest of the United States. As the existing fleets of wind generation projects developed before 2000 approach the end of their useful lives, it is also expected that repowering investment will significantly increase during the next decade.

While still in its early stages, the US offshore wind energy sector recently experienced noteworthy developments. In 2018, Vineyard Wind LLC’s 800MW offshore wind project was awarded six long-term power purchase agreements with Massachusetts utilities through a competitive process,28 which represents the largest single procurement of offshore wind in the United States.29 Besides the mere size of the award, the most significant feature of those power purchase agreements is perhaps the energy purchase price, which is substantially lower than the price in prior reported transactions and confirms the increased competitiveness of offshore wind energy. The first offshore project to be constructed and achieve commercial operations is the 30MW Block Island Wind Farm, which has a power purchase agreement with a starting price of US$244/MWh and the reported price in other subsequent offshore power purchase agreements ranged between US$132/MWh and US$160/MWh.30 In contrast, the starting price under the Vineyard Wind power purchase agreements is US$74/MWh for the first 400MW phase and US$65/MWh for the second phase.31 While the Vineyard Wind project experienced an unexpected permitting delay in the summer of 2019, the US Bureau of Ocean Energy Management anticipates its final decision by 18 December 2020.32

Fuelled in part by improvements in technology (lowering costs and reducing risk) and government support, particularly on the north-east coast of the United States,33 offshore wind is becoming widely seen as a notable opportunity;34 it was brought to the industry’s attention with Ørsted’s acquisition of Deepwater Wind (the owner of the Block Island Wind Farm) in November 2018.35

In recent years, the US Environmental Protection Agency (EPA) has attempted to implement regulations aimed at limiting greenhouse gas emissions from existing fossil fuel-fired electric generating units in part by setting state-specific goals for reducing emissions from the power sector. The final rules were released in August 2015 (the clean power plan) but were confronted by immediate legal challenges from a large number of affected states and state agencies, utility companies and energy industry trade groups. After a protracted legal process (including actions before the US Supreme Court), the EPA’s final repeal rule became effective on 6 September 2019.36 Numerous affected parties (including 22 states, multiple cities, power companies and non-profit organisations) immediately filed petitions for review before the US Court of Appeals for the DC Circuit. The petitioners’ opening briefs were filed on 17 April 2020 and the briefing is expected to continue until 13 August 2020.37

Going forward, most renewable energy projects will increasingly rely upon commercial banks and capital markets to satisfy capital demands. For larger projects, mixed bank–private placement transactions with two or more tranches of funds may provide a preferred financing structure. In the past couple of years, the market has seen an increase in the amount of available capital for project financings combined with a reduction in the number of projects seeking funding, as a result of which financiers have been driven to offer almost unprecedented conditions (including a significant downward trend in pricing for capital) to remain competitive. This environment has allowed sponsors to refinance existing facilities with inexpensive long-term capital sources and has fostered an increased interest in the acquisition of operating assets.

New financing tools have also become increasingly important for renewable energy projects, particularly in the field of structured finance. For instance, approximately US$1,600 million was raised in 2019 as part of the securitisation of thousands of residential and commercial solar energy contracts.38 As other solar developers increase their portfolios, they may choose to follow this lead to secure financing.

After several years of uncertainty and doubt about its staying power, the ‘yieldco’ model has started to gain stability and remains a prominent feature of the US market. A yieldco is a publicly traded corporation similar to a publicly traded master limited partnership (MLP) vehicle except that its assets do not qualify for MLP status. In the renewable energy sector, a yieldco is expected to obtain stable cash flows from ownership of operating projects that have entered into long-term power purchase agreements and minimise corporate-level income tax by combining recently built projects that are still producing tax benefits with older projects. Yieldcos started achieving prominence in 2013 for energy companies and increased their presence exponentially until the downfall of prominent sponsors of yieldcos, such as SunEdison (TerraForm Power Inc and TerraForm Global Inc) and Abengoa (Atlantica Yield, formerly known as Abengoa Yield), turned investors’ attention to, and increased investors’ concerns about, yieldcos. After years of sharp declines in the value of shares of yieldcos and a flurry of dispositions by sponsors that led to the conversion of some yieldcos to private entities,39 some of the remaining yieldcos have shown improved health.40

Outside the renewable energy space, the retirement of coal and nuclear facilities generated renewed interest by sponsors in the development of new gas-fired power plants. Since 2016, natural gas-fired generation in the United States has surpassed coal generation every year and the gap keeps increasing.41 Natural gas-fired electric generation is expected to grow to a forecast level equal to over 36 per cent of the total generation by 2050 while coal-fired electric generation is expected to decrease to less than 14 per cent of total generation by 2050.42 The introduction of new capacity markets may further spur investment in gas-fired projects, which have been challenged by lower wholesale electricity prices in some markets, such as Texas. Additionally, project developers have devoted more attention on gasification facilities, which convert feedstock into a synthetic gas that is used as fuel or further converted into a variety of products, including hydrogen, methanol, carbon monoxide and carbon dioxide. These projects have commonly used fossil materials such as coal and petroleum coke as feedstock, although there are several gas-to-liquid projects in development and there is an intensified interest in the use of biodegradable materials, including municipal solid waste and forestry, lumber mill and crop wastes. The bankruptcy filings of Westinghouse Electric Company in March 2017 43 and FirstEnergy Solutions Corp in April 201844 may be a harbinger of further headwinds in the nuclear sector.45

Although still in its infancy from a technological and economic perspective, the nascent sector of electro-chemical energy storage (batteries that store electrical energy in the form of chemical energy) is beginning to attract the attention of a broad range of project finance participants.46 Reliable and cost-efficient battery energy storage systems have the potential to shake up the energy sector. Significantly, this type of storage system could become an ideal complement for intermittent resources such as wind and solar energy power plants and facilitate power grid balancing efforts. As a consequence, natural gas ‘peaker’ plants (those that are used when there is high demand for electricity) may become less significant and the electricity generation mix could be reshaped further.

Another development in the energy sector involves an ongoing transformation in the identity of the power purchasers in the market. As electricity prices have been declining, it has become more difficult for developers to secure long-term offtake agreements with investment grade utilities, and businesses, universities and other non-traditional offtakers gradually have been taking their place. Additionally, in some states, communities have started forming Community Choice Aggregations (CCAs) to source electricity.47 CCAs purchase electricity from a utility and sell it to their residents and businesses. While only eight states have legislation governing CCAs,48 these entities may become more significant in the near future. Utilities, especially those in western states, face increasing difficulty in maintaining their credit standing, as they confront a declining customer base due to the emergence of CCAs and distributed generation technologies, legacy pension liabilities, and the implications of climate change, including liability for utility-caused wildfires.

In addition, constrained state and local fiscal budgets, limited federal transportation funding, decreased tax revenue and the considerable need for new infrastructure assets and the refurbishment, repair and replacement of existing assets may hasten the further use of the public-private partnership (PPP) project finance structure (further described in Section IX). While most large infrastructure projects in the United States, at least since the introduction of the interstate system in the 1950s, have been completed using public funds rather than through the participation of private entities, a confluence of factors may be creating a fertile ground for the development of increased government and public acceptance of PPPs. According to the latest report card by the American Society of Civil Engineers, the infrastructure of the United States has a D+ grade point average49 and an estimated investment of approximately US$5.1 trillion (in addition to the approximately US$5.6 trillion currently contemplated to be funded) will be required by 2040 to maintain a state of good repair.50 The Trump administration’s infrastructure plan, published in February 2018, is intended to stimulate at least US$1.5 trillion in new infrastructure investment over the next 10 years 51 and 12 federal agencies agreed on a framework to expedite the environmental review and approval of infrastructure projects.52 Given that existing legislation has been insufficient to satisfy the country’s needs for infrastructure funding, state and local governments started to turn to the private sector to fill the gap. Recent significant PPP projects include the up to US$4.9 billion Automated People Mover project and US$2 billion Consolidated Rent-A-Car facility at the Los Angeles International Airport,53 the approximately US$3.7 billion I-66 Outside the Beltway project in Virginia,54 and the approximately US$5.7 billion Gordie Howe International Bridge connecting Detroit (United States) and Windsor (Canada).55 While in some jurisdictions developers will need to navigate uncharted legislative and regulatory waters, and may also have to overcome negative public perception regarding the private management of public infrastructure, the opportunities for growth may be unprecedented.

Outlook and conclusions

In the long term, project finance is expected to continue to be a popular vehicle to finance the necessary energy and infrastructure assets in the United States, particularly to replace the ageing fleet of coal-fired plants, nuclear plants and other public infrastructure, given the support of the strong legal framework and a strong, sophisticated private financing market (in addition to political support and other factors).

The US Energy Information Administration (EIA) estimates that energy consumption, across all sectors, will increase by 0.3 per cent per year between 2019 and 2050.95 While additions to power plant capacity are expected to slow from the construction boom years in the early 2000s, it is expected that there will be more long-term growth in certain sectors, such as projects from renewable sources and natural gas. For example, the EIA projects that electricity generation from renewable sources will grow so that its share of total US energy generation will increase from approximately 19 per cent in 2019 to approximately 38 per cent in 2050 in the reference case, or as high as 40 per cent based on a high oil price case.96 Additionally, projections from industry sources foresee that the United States may need close to US$5.1 trillion in additional funding to support its standard infrastructure needs in the coming years.97 With the enduring need for energy and infrastructure, the United States will look to project finance structures as one of the tools for satisfying this need.

Understand the Dispute Resolution Provision you are Agreeing to

David Adelstein | Florida Construction Legal Updates

When negotiating a contract, do not overlook the dispute resolution provision.  It is one of the more important provisions in your construction contract.   This provision will come into play and have ramifications if there is a dispute, which is certainly not uncommon on a construction project.

In dispute resolution provisions in subcontracts on federal projects, it is not unusual for that provision to include language that requires the subcontractor to STAY any dispute that concerns actions or inactions of the owner pending the resolution of any dispute between the owner and prime contractor relating to that action or inaction.   A provision to this effect should be included for the benefit of the prime contractor.  For instance, the provision may say the subcontractor agrees to stay any such claim against the prime contractor or prime contractor’s surety pending the outcome of any pass-through claim (or otherwise) submitted under the Contract Disputes Act.

For example, in U.S.A. f/u/b/o Ballard Marine Construction, LLC v. Nova Group, Inc., 2021 WL 3174799 (W.D. Wash. 2021), a prime contractor hired a subcontractor to perform a scope of work at a naval shipyard.  A differing site condition was encountered and the subcontractor was directed to continue performance and track its costs.  The subcontractor completed its work and submitted its approximate $13 Million claim from the prime contractor and its Miller Act payment bond surety.  The prime contractor and surety refused to pay until the resolution of the pass-through differing site conditions claim to the federal government.  The prime contractor had submitted a claim under the Contract Disputes Act to the federal government.  The subcontractor was not interested in waiting until the resolution of the Contract Disputes Act claim and filed suit against the prime contractor and Miller Act payment bond surety.  The prime contractor and surety moved to stay pending the outcome of the Contract Dispute Acts claim.  The trial court agreed with the prime contractor explaining, “It is not fruitful to require [the prime contractor] to fend off [the subcontractor’s] claim against it, and the [Miller Act] sureties [the prime contractor] agreed to indemnify, while simultaneously advancing [the subcontractor’s] claim for additional payment from the government through the ongoing CDA process.  [The subcontractor] agreed to such a dispute resolution procedure, and it does not claim that the increased costs were [the prime contractor’s] fault.”  Nova Group, supra, at *8.

A subcontractor with such a provision is still required to timely perfect and preserve its rights by timely filing a lawsuit against the Miller Act payment bond surety.  However, the subcontractor is now beholden to the Contract Dispute Act procedure which requires an initial decision by the contracting officer and, then, certain appeal rights.   This is not what the subcontractor wanted because it elongates any potential resolution.  However, this is what the subcontractor agreed to in the dispute resolution provision and benefits the prime contractor so that it does not have to fight the fight on two fronts, particularly when it is supporting the pass-through claim under the Contract Disputes Act claim process.

Remember, the dispute resolution provision in your contract is important and should not be overlooked; the provision has ramifications as shown in the above case!

Dispute Resolution in Construction Projects

Robert S. Peckar and Denis Serkin | Peckar & Abramson

Disputes are as integral to the construction process as the preparation of plans and the placement of concrete. However, most industry participants yearn for the reduction – if not the elimination – of project disputes. They correctly argue that disputes disrupt and often irrevocably poison relationships between project participants. While this is a noble goal, it is unlikely to be achieved any time soon. Hence, it is important on any project, especially an international project, to understand, and have in place, appropriate dispute resolution mechanisms. Indeed, adhering to contractual dispute resolution mechanisms may lead to an amicable solution, avoiding a contentious resolution all together.

Construction industry disputes take on lives of their own and usually result in further exacerbation of the project’s underlying problems, causing delays and costs. Certainly, the dispute resolution processes involve expenditure and diversion of valuable company resources – attention, time as well as cost – but we must never forget that construction companies are in the business of building, not litigating. Disputes are an accepted part and parcel of many major international projects and, as a result, the project participants include allocations in their budget for this eventuality.

The covid-19 pandemic, unfortunately, continues. Last year was difficult for the construction industry, especially in early 2020. Many countries mothballed all except the most essential projects. Naturally, most project participants provided their counterparties impact notices, force majeure and otherwise. It is certain that the next few years will bring a large number of covid-related claims.

However, how lawyers engage in dispute resolution while travel and in-person meetings are sometimes forbidden, scrutinised and certainly strongly discouraged remains to be seen. To help mitigate the new normal, major dispute resolution organisations such as the International Chamber of Commerce (ICC), the International Centre for Dispute Resolution (ICDR), the London Court of International Arbitration (LCIA) and others all worked or continue to work remotely. Moreover, these organisations modified, reinterpreted or issued new rules to make virtual meetings, mediations and arbitrations a reality. In fact, most practitioners were likely involved in at least several fully remote matters with one of the main dispute resolution organisations – 2020 made videoconferencing, meetings and hearings the new norm. The question will become whether virtual hearings will become the norm and, more importantly, can a party object to a virtual hearing? On that last point, in late 2020 and 2021, the International Council for Commercial Arbitration (ICCA) has issued several reports where they surveyed New York Convention countries, primarily focusing on whether there is a right to physical hearing. While each country has its particular requirements, overwhelmingly it appears that in most jurisdictions a right to hearing does not necessarily mean a physical hearing.

How, will these technologies and means of communication replace the dynamic of a face-to-face meeting or a traditional working session? Will remote witnesses be coached during testimony without the knowledge of the arbitrators or opposing counsel? Will arbitrators be able to evaluate the credibility of a witness through a television monitor, and will arbitrators be able to get control of their proceedings if one or more legal counsel insist upon talking over others in an effort to control the video screen? Will members of a dispute review boards (DRB) continue to conduct remote site visits? And how effective will the DRBs be? All these and other related factors are going to impact the timing, cost and, to some degree, substantive content of dispute resolution processes in ways not yet predictable.

I Construction disputes in domestic and international projects

Complications are a normal, everyday component of the construction process; indeed, it is the constant challenge of diverse problems on construction projects that makes the process as exciting as it is. The people who lead projects, on all sides of the agreement, tend to be smart, tough, demanding and self-confident – and having such strong personalities, more often than not significantly complicates any possibility of reaching an amicable resolution in the first instance.

Resolving disputes at the project level typically prevents negative impacts on both schedule and budget. When disagreements escalate from problem to claim and then to dispute status, those potentially valuable project-level benefits are lost to processes that have little to do with the construction process and tend to take on a life of their own.

On an international project, in which the strong players who represent their companies come from different cultures, speak different languages and consider contractual issues against the backdrop of different legal systems, the challenge to work through problems to a solution at the project or even at the executive level is challenging, but critically important. Moreover, fully understanding the dispute resolution mechanisms, accounting for local laws that may bar normally accepted contractual provisions, and taking into account the background of the DRB, mediator, arbitrator or conciliator – is it an engineer or architect, a civil code-trained lawyer or someone from a common law jurisdiction? – is critically important to properly evaluating and managing risk. Finally, if an enforcement of or a challenge to an award may need to be pursued, mechanisms and barriers must be addressed with an increased level of diligence, even before a contract is executed.

II Solving problems at the project level

The best place and time to resolve claims, or even potential claims, is at the project level. On projects in which the parties fail to engage, regularly, in constructive and pragmatic discussions and thereby resolve issues at the field level whenever they arise, unsolved problems tend to accumulate quickly in substantial numbers as claims beget more claims. The larger the number and value of unresolved problems, the greater the amount of money in dispute and the more difficult it becomes for the parties to resolve matters amicably without a formal dispute resolution process. Therefore, it is extremely important to construct a well thought out dispute resolution mechanism that will, if necessary, effectively, quickly and economically resolve disputes while giving the parties an opportunity to cool down and reassess situations. In recent years, the trend of including mandatory cool-down periods in contract documents, both bespoke and form, before a commercial dispute can commence has only accelerated.

III The role of alternative dispute resolution in early problem-solving and dispute avoidance

Fortunately, the participants in international construction projects are typically sophisticated and not afraid to use the various dispute resolution techniques that have proved to be effective in achieving an early solution to problems – processes that are timely, cost-effective and provide added value. These processes fall within the moniker of alternative dispute resolution (ADR). The ‘alternative’ in ADR refers to alternatives to arbitration and litigation. These processes may occur as early as during pre-construction and may occur as late as the 11th hour before formal hearings are held in arbitration or court. To address concerns of cost and efficiency, most of the national and international arbitral bodies have adopted expedited resolution processes for both small and large projects. The key is to understand the many available options and properly match them to the specifics of a particular project.

IV The growth of adr

It is true of many industries, but especially of construction, that anyone legitimately involved in major domestic and international projects has, at least once, participated in an extensive and costly dispute resolution process. This is especially so in the international arena. The mandatory resolution of disputes in the employers’ national courts, or in arbitration administered by local arbitration providers of the employers, is often not the preferred venue for resolving open issues. In some jurisdictions, proceedings in the local courts can be biased, and very costly, and may take on a life of their own. In fact, arbitration, which is generally billed as being a faster and cheaper alternative to litigation, has proven to be anything but, hence the rise in the use of ADR processes around the world and the criticality of fully understanding and properly structuring the ADR mechanisms.

V Adr mechanisms

i Partnering

Despite its name, partnering does not create an economic or legal partnership between the project participants. Rather, it is a process led by a trained neutral facilitator in which the representatives of project participants (e.g., employer, main contractor, professional design team) gather together for a day, or perhaps more, with their counterparts to create personal relationships and understandings that should result in collegiality and dispute avoidance, notwithstanding the different responsibilities and risks that each has in the project. Although partnering was created in the United States by the Corps of Engineers to address the adversarial nature of normal construction project interactions, it has enormous potential for international projects in which culture, language, personal history, business conduct and other essential differences can lead to disharmony. As can be seen below, the structure of a partnering agreement, by its open and collaborative nature, can overcome most differences by encouraging open discourse and cooperation.

The parties will typically adopt a project ‘treaty’ or ‘credo’ in which they express their dedication to the goals they have set to work together in the best interests of the project and to avoid disputes. That document is signed by each of the participants and posted in their project and regular offices. There have even been instances of a partnering logo being adopted. From a practical perspective, the best value and results are achieved when participants meet regularly to review past and current project issues. These meetings, if properly guided, will result in increased collaborative effort and camaraderie among the participants. Ultimately, success is measured by issues resolved or discussed and prepared for future resolution. An added value of partnering is the end-of-project review and lessons-learned evaluation to improve future processes.

The process of partnering should result in fewer disputes when properly carried out with a trained, or at least experienced, professional facilitator. For the international project, the potential value of partnering is clear.

ii The decision tree analysis

Whether the result of partnering or otherwise, each project should benefit from the establishment of a decision tree, in which the key project participants set out the names of their decision makers at project level, project executive level, company executive level and then the chief executive officer (CEO) of the company, on the understanding that the resolution of problems should be made at the lowest possible level. In the absence of a resolution within a stated time, however, the problem-solving responsibility shifts upwards to the next level for a stated time until it reaches the level of the company CEO.

This process has enjoyed success for several reasons:

  1. decision makers at each level are identified at the beginning of the project;
  2. decision makers at each level tend to get to know each other before they are confronted with a problem to solve;
  3. decision makers at each level are reluctant to see problems go to a higher level as many such situations could reflect poorly on their performance;
  4. the mere imposition of time limits at each level assures focused prompt attention rather than deferral to a later time (which often leads to no resolution at all);
  5. the successful resolution of problems becomes part of each participant’s responsibility, rather than the creation of claims as a measure of success; and
  6. the successful resolution builds upon itself and creates an atmosphere of success that benefits the project.

iii Alliancing

Alliancing is the delivery method pursuant to which the diverse key parties to a project create a project team from their people with the most relevant and substantial experience, and challenge that team to operate with the singular purpose of on-time, on-budget completion of a high-quality project. While project participants can readily see advantages to participating in an alliance, it requires a major leap of faith on the part of the employer as the traditional separation of responsibilities with their attendant contractual protections must yield to the more collaborative model in which greater trust must be placed in the alliance team to achieve high-quality performance at the best cost based upon the best interests of the project. While there is likely to be a project budget that may not be exceeded, the team members are not limited to fixed-price contracts for their work, and the project budget will be used by the team members as they decide collaboratively. Thus, the selection of the alliance team members is perhaps the most important decision that the employer can make as they must not only bring leading technical expertise to the table, but they must be capable of working effectively in this collaborative team arrangement, placing the interests of the team and the project ahead of what would normally be their own interests.

Because of the nature of the contract between the project employer and the alliance team, and because of the collaborative relationships that must be formed by the team members to work together to achieve the project goals, this model encourages the resolution of any and all disputes among the project participants in a prompt and business-like fashion, rather than through the customary dispute avoidance and dispute resolution techniques relied upon by parties in traditional contractual relationships. This result is enhanced by the presence of an alliance leadership team, with each participant represented by a senior colleague and the inclusion of the employer’s senior representative. Trust, relationships and personnel commitment to the successful outcome of the project are irreplaceable elements of any alliancing arrangement.

In June 2018, the NEC, as part of its fourth suite of contracts, released the NEC4 Alliance Contract, formalising the alliance model in a suite of documents. This new document codifies traditional principles of collaboration and sharing of risk and award as well as providing a structure and definition to the major players (i.e., client, alliance board, alliance manager, among others).

iv Dispute review boards

The use of dispute review boards (DRBs) has become more prevalent. Indeed, in some more complex projects where there are multiple layers of significant legal exposure, more than one DRB may be in place dealing with specific contractual relationships. In fact, most major international projects require DRBs, whether for Olympic stadium construction or infrastructure upgrades. Moreover, most major multilateral development banks now require the DRB to be in place before a project is funded.

The DRB model can be whatever the parties want it to be. However, a typical model would look something like the following:

  1. Prior to project commencement, two parties each select a member of the DRB who may be independent and neutral (independence and neutrality are preferred, even for the party-appointed members). Those two appointed parties select a third who must be independent and neutral.
  2. The DRB will meet either at the call of either party or periodically to hear and resolve disputes between the parties that the parties have not resolved themselves. For best results, it is preferable to keep the DRB members apprised of project developments through regular, planned updates and, if possible, site visits.
  3. The DRB hearing is usually informal and may or may not include attorneys; the purpose of the hearing is for the DRB panel to understand the dispute sufficiently to render a decision.

The DRB will render a decision within the contractually defined time periods. Normally, the finality of the DRB’s decision will depend on its authority under the parties’ contract. Typically, the DRB’s decision will be binding on the conduct of the parties while the project is under construction but not binding upon their legal rights. In other words, if the DRB directs the employer to pay the contractor additional compensation for claimed extra work, the employer must do so. However, after the project, the employer may assert that it had no legal obligation to make that payment and seek reimbursement from the contractor. Experience indicates that few project participants challenge DRB decisions at the end of the project simply because there have been no unresolved disputes, and the incentive to go to arbitration or litigation, with all the accompanying disruption and expense, is far less attractive under those circumstances. Additionally, if the DRB functions as it should, its decision is likely to be respected by the parties.

The parties can also ask the DRB to issue advisory opinions to engender project-level negotiation and resolution. In fact, by fostering communications during the project, a well-informed DRB may prevent a formal DRB hearing or determination, or a subsequent litigation or arbitration.

The use of DRBs has become so prevalent that at the end of 2020, the Dispute Review Board Foundation created a new region, Region 4, to address the great interest in and growing need for DRBs in Latin America. Region 4 is currently in the interim phase with its official launch scheduled for May 2022.

v Planned early negotiation

Typically, litigators prefer a later resolution, believing that their clients’ best interests are served by first ‘beating up’ the adversary a bit. However, most clients typically prefer the security of an earlier resolution – again, construction companies are in the business of building, not litigating. Planned early negotiation (PEN) is unique in that the parties agree to negotiate at the outset instead of focusing on contentious resolution. This approach is atypical, because offering to negotiate at an early state of a dispute is traditionally considered a sign of weakness. Parties committed to PEN agree to forgo the typical posturing and instead agree to focus on early case assessment, business concerns, costs and time, and ways to resolve disputes (i.e., mediation, a neutral or a conciliator). To avoid derailing the process, the parties are best served by entering into an agreement that should set forth the parties’ desire to negotiate and the steps and mechanisms the parties will use to achieve that goal. It is important that the parties understand each other’s risks and commercial considerations during their discussions, and these factors should drive a positive business outcome. Key to a successful PEN process is the parties’ understanding of their respective positions, and a joint effort to identify potential third-party claims and similar other obstacles to a negotiated resolution.

vi Mediation

Mediation is an extremely valuable process, which, while not adjudicative, is basically an enhanced negotiation aided by a neutral facilitator, known as a mediator, who assists the parties in their negotiation and helps them achieve resolution and closure. The key advantage of mediation is that the process focuses on finding a practical resolution of a dispute as opposed to adjudicating the parties’ contentions and rights.

Unless agreed otherwise by the parties, a mediator makes no rulings and has no power to command that the parties act in a particular way. The process is voluntary and, when properly established, is completely confidential so that what is said by the parties during the process is not allowed to be repeated in arbitration or litigation. Often mediation is designated as a prerequisite to arbitration to provide a non-contentious resolution mechanism before the parties harden their positions. With the soaring costs of litigation, even in arbitral forums, mediation is becoming more important as parties seek to avoid contentious dispute resolution when possible.

In the international construction world, the fact that parties speak different languages and have differing cultural attitudes and prejudices (particularly as regards the obvious need for a commitment to compromise) adds to that scepticism as one or more parties refuse to believe that a mediator who is not from their country and culture can lead them fairly through a negotiation process; many reject mediation because they refuse to accept that what they tell the mediator in confidence will remain in confidence. Another factor to consider when agreeing to mediation is the good faith of the parties participating in the process. Because of mediation’s non-binding nature, there is no pressure on the parties to be fully prepared, as in arbitration or DRB proceedings. Hence, it is especially important that parties mediate, and prepare for mediation, in good faith to avoid a situation in which one of the participants chooses to treat mediation as a mere formality and not as an opportunity to resolve the dispute.

vii Ad hoc ADR

An ad hoc arbitration is a creation of the participating parties. It can be modelled on and follow the rules and procedures of a particular ADR organisation, such as the ICC, but without that body’s actual administration and oversight – alternatively, the participants may choose their own script. For example, the parties may determine the number of arbitrators and the process for appointing the arbitrators, as well as the conduct and procedure of the arbitration, by referring to an ADR organisation’s rules and procedures. The immediate and most obvious benefit of the ad hoc process is the lack of a – generally substantial – filing fee and the subsequent maintenance fees. Naturally, this process places a heavy burden on the project participants to adequately describe the ADR mechanism in such a way that the locale, composition or identity of the tribunal, the applicable law and procedures, and the method for negotiation of arbitration fees, are adequately encapsulated in the underlying contract documents. The ad hoc approach places a significant burden on the arbitrator, and to some extent the parties, to make sure that the proceeding is timely and adequately and thoroughly administered – functions usually handled by an ADR organisation’s professional staff.

VI Conciliation

Conciliation is an ADR mechanism whereby the parties retain the services of a conciliator. The conciliator, unlike a mediator, will typically work with parties individually to frame relevant issues and come up with a list of ranked, desired outcomes to be reconciled in a negotiated settlement agreement. Typically, the parties never meet face to face, which can be helpful in an industry such as international construction, which is dominated by strong personalities.

VII Neutral evaluation

As the name suggests, the parties can retain the services of a neutral evaluator, either independently or through one of the several international ADR organisations, to evaluate their dispute. Typically, this permits the parties to quickly exchange their claims and backup materials without fully committing to a contentious proceeding. Normally, the neutral will evaluate the parties’ positions and issue either a binding decision with an explanation or a non-binding report that can serve as a framework for a negotiated settlement. Alternatively, a neutral could also be tasked with evaluating the parties’ position before providing a recommended course of action that is the least disruptive to the project and the parties’ relationship. Using a neutral is especially beneficial on construction projects in which long-term cooperation between participants is especially important. As with any ADR method, it is important to make sure that the proceeding and any generated report are kept in confidence.

viii Arbitration

The preceding sections have addressed methods designed to avoid the necessity of submitting a mature dispute to a finder of fact, be that an arbitrator or a judge. All the foregoing methods have in common the ability of the project participants to control the resolution of problems without yielding that control and authority to the ultimate adjudication of a binding award or judicial edict. However, there are some circumstances for which, for a vast variety of reasons, the intervention of an arbitrator or judge will be needed to achieve resolution. There is little point in discussing litigation in the international construction context here as treatises have been written about litigation in each jurisdiction. However, there are some observations that can usefully be made about international arbitration of construction disputes.

The complexities of international arbitration continue to expand as contracting practices change. In this ever-developing global world of construction, many international arbitration proceedings are faced with challenges that in some respects can make the process more complicated, time-consuming and expensive than was the case in past decades. Many project teams now comprise parties from around the globe, not just regional participants. It would not be unusual for engineering and design to be performed by a team of, say, US, French or British designers with designers from the country in which the project is located, while construction is led by a consortium of Spanish, French, Brazilian, Italian, Chinese, Korean, Japanese, US or other lead contractors with subcontractors also coming from diverse countries.

Because of the variety of languages and experience brought by companies from around the globe, it is not unusual for contracts to be some form of the International Federation of Consulting Engineers contract (known as FIDIC) but modified by local practice and local legal perspectives. Contractual choice-of-law clauses may designate a jurisdiction that may have as one of its prime virtues the fact that it is not the law of any of the participating parties. For example, it is not unusual to have New York law as the choice of law when none of the project participants is from the United States, or even the state of New York. It is also not unusual for project participants to have little more than a very generic understanding of what New York law, or the law of any other designated jurisdiction, really provides for in the context of disputes that may arise until they are actually facing arbitration. The designation of locales for hearings that are not home to any of the project participants or the law of arbitration may not have been considered by the parties when the designation was made. However, the parties must have a very clear understanding of the law where the project is located and how that jurisdiction treats foreign forum selection and choice-of-law clauses. In 2018, in the context of bilateral investment treaties, the Court of Justice of the European Union refused to enforce an arbitration clause because it had, in the Court’s opinion, an adverse effect on EU law and was therefore incompatible with European law. The matter to watch is whether this type of rationale will extend to purely commercial transactions, such as construction contracts, and the ADR provisions contained therein. The worst possible outcome is conducting an arbitration only to learn that the award is invalid or unenforceable.

Many arbitration clauses are customised by the parties and may include party-appointed arbitrators with no reference to their independence or neutrality, schedules for the hearing process that bear no resemblance to reality, and references to standard arbitration rules (such as those of the ICC, ICDR, LCIA, China International Economic and Trade Arbitration Commission and the many other providers of arbitration throughout the world) but with customised clauses inconsistent with those rules, which create ambiguity or confusion as to how the process will work.

The variety of nationalities participating in the project team among whom the disputes arise is accompanied by very different perspectives on the arbitration process, and the role of lawyers in that process can result in the creation of complex procedural and substantive issues that interfere with the efficiency of the arbitration process.

The arbitrators who have been selected may know nothing of the law of the choice-of-law jurisdiction and may not speak the language (both the idiom and the culture) of the other arbitrators, never mind the participants.

Although it could be argued that the development of document management through electronic databases, and software that can sort and facilitate analysis of documents and other electronic communications, aids the fair resolution of project disputes, it can also be convincingly argued that this development has added to the complexity of arbitration as some parties seek to engage in large-scale document and communication discovery within the arbitration process, and other parties passionately resist such discovery. This type of confrontation is understandable in the international context, particularly as practitioners from common law countries tend to be far more accepting of discovery in arbitration, while those from civil law countries consider broad discovery invasive and unacceptable in arbitration. When emails are included in the scope of what one party seeks to obtain from the other, the volume and associated costs of the electronic data that could be exchanged and then analysed can result in very substantial expense and the consumption of many months of discovery, all of which is part of the debate on this issue. It tends to be one of the challenging complexities facing project arbitration.

In the past year, the major arbitral bodies have adopted changes to streamline their procedures and make them virtual friendly. The LCIA’s amended arbitration and mediation rules were expanded to accommodate virtual hearings, transmission of electronic documents, electronic signing of awards as well as specific provisions concerning data protection. Most major arbitral bodies have rules in place that allow or can be interpreted to allow virtual hearings. ICC provided guidance that its in-person hearing requirement does not preclude a virtual proceeding if so required. Similarly Rule 26(2) of the 2021 ICDR Rules allows virtual hearings if the parties agree or the tribunal determines if it would be appropriate and would not compromise the parties’ positions.

Arbitration remains a popular method to resolve international disputes. ICC announced that it registered its 25,000th case in early 2020. In 2020, ICC registered a record 946 cases, of which 929 were requested under the ICC Rules of Arbitration, slightly more than the 869 cases filed in 2019. In 2020, the ICDR managed 9,538 cases, with 9 per cent coming from the construction industry. In fact, the construction industry tied for the largest ICDR claim of 2019, at US$1 billion. In 2020, the LCIA handled a record 407 arbitrations, 407 under its own rules.

Clearly, the nature of international construction arbitration has not in itself become a more complex process, but rather reflects the increased complexity of global construction projects and the differences brought to the table by parties from different nationalities and different legal systems. Thus, the need for the parties and their legal counsel to reflect on the challenges specified above – as well as others that may be more specific to the particular project and its participants – is key to creating an arbitration process that can be efficient, effective and responsive, and one that will credibly resolve their disputes.

Furthermore, perhaps the time has come for greater standardisation of international construction dispute arbitration, with a single arbitration provider taking the lead in developing well thought out rules, procedures and administration that will respond to the new model of the truly international project.

iX Data protection and cybersecurity

As a practical matter, cybersecurity and data protection are especially important when a part of or the entire ADR proceeding is virtual. For an international practitioner, determining applicable laws and security protocols, and complying with them, is paramount. The most well-known data protection law is the European Union’s General Data Protection Regulation (GDPR). However, depending on the applicable law and project location, the underlying construction project and the ADR proceeding could be the subject of data protection laws of, just to name a few, the United Kingdom, Dubai, Brazil and, if in the United States, California or New York. Each of these laws has its own particularities that will affect most aspects of an ADR proceeding, i.e., witness statements, ability to obtain emails, transferring data in and out of a jurisdiction, and the list goes on.

Attention to data security will only increase. For example, the ICDR has published Best Practices Guide for Maintaining Privacy and Cybersecurity to help ADR practitioners address data protection, while the LCIA’s latest rules now address data protection. In November 2019, the ICCA, New York City Bar and International Institute for Conflict Prevention & Resolution jointly issued a Protocol on Cybersecurity in International Arbitration. The purpose of the Protocol is ‘to provide a framework to determine reasonable information security measures for individual arbitration matters’. Specifically, Schedule A to the Protocol sets forth baseline security measures arbitration participants should consider when deciding how to protect, present and share data. In addition, in February 2020, the ICCA, jointly with the International Bar Association, issued a draft Roadmap to Data Protection in International Arbitration to ‘help arbitration professionals better understand the data protection and privacy obligations to which they may be subject in relation to international arbitration proceedings’. A revised, and final, version of the Roadmap will be officially launched in September 2021.

X Costs and confidentiality

There are several considerations that must be carefully thought out before using mediation and arbitration to resolve project disputes. An agreement to arbitrate is, by its very nature, a contract; this means that the parties can agree and define the terms of the arbitration or mediation proceeding beforehand.

To conduct mediation or use DRBs, the parties must retain – and pay – a neutral or several neutrals, depending on the contract agreement and the size of the dispute, and retain lawyers and experts in most cases. While that cost can be significant, it is generally lower than the costs associated with formal legal processes before the courts. More important, however, is the value added by those processes when they successfully resolve disputes in a timely manner that benefits the project and helps avoid the true costs of formal dispute resolution in the courts, which go beyond fees, and may include an adversarial relationship between the parties as the project progresses, which in turn may lead to yet more disputes.

Arbitration, while known as an ADR process, is a substitute for litigation with many benefits. Cost savings may or may not be among them, however, depending upon the manner in which the arbitration is administered by the sponsoring organisation (e.g., the ICC or the ICDR), or by the conduct of the parties and their lawyers. Notwithstanding that fact, the parties do have the advantage of being able to control these costs through their contracts. The parties can agree to limit the number of hearings, witnesses and neutrals, and – especially – the extent of discovery. Similarly, a contractual provision can be negotiated to determine, based on the size of the dispute, how the aforementioned factors will be addressed.

Another issue to consider when engaging in ADR is confidentiality. While in many jurisdictions the record of court proceedings may be obtained by a third party, because of the contractual nature of ADR, the parties can provide that the proceeding will be confidential. The extent of confidentiality could range from an agreement that the proceeding will not be recorded in any way to destruction of exhibits and documents exchanged after conclusion of the hearings, or a full-blown confidentiality agreement binding all parties, including any neutrals. Depending on the nature of the dispute, the potential benefits of true confidentiality are numerous, especially where trade secrets, pricing information and other proprietary data are involved.

XI Integrated project delivery systems and building information modelling

The use of integrated project delivery systems, in which project designs, data and other information previously segregated among the various project team members in a manner consistent with their contractual responsibilities and rights are now shared through a secure website, is considered by many to be a revolution in the industry likely to reduce disputes simply because of increased communication and collaboration among those team members. Similarly, the use of building information modelling, whereby team members collaborate by inputting designs and information traditionally communicated through shop drawings into a common database resulting in three-dimensional renditions and analyses of those locations where elements conflict with each other, is starting to reduce disputes. With significant advances in pure 3-D modelling and the introduction of artificial intelligence, it is likely that clashes or inconsistencies in coordination may soon become a thing of the past. Notwithstanding the virtues attributed to these developments, the legal landscape in terms of contractual and other legal responsibilities among the project participants when there is a disagreement, is largely untested in the courts and arbitration. When an employer elects to pay for the use of such systems, with the goal of increasing collaboration and reducing or eliminating disputes, the benefits of using an ADR process when problems and disagreements are encountered seem all but self-evident.

XIi The role of construction lawyers

When it is clear to a project team member that arbitration or litigation must be commenced, there is no doubt in that party’s mind of the need to retain and be represented by legal counsel. However, that timing hardly presents that party with the best value that can be achieved with legal counsel: that best value occurs when legal counsel is part of the team from the very beginning of the project, as a guide through the various options and processes set out in this chapter, while also guiding the client with regard to the appropriate protections provided by contractual and legal rights, so that the client is in a position to obtain the relief to which it is entitled. Much is said and written about the unhappiness of the construction industry with the costs associated with legal processes and thus with their lawyers; however, the simple reality is that sound legal advice from qualified construction lawyers who are familiar with all these processes, and who share with their clients a passion for successful construction projects, is the least expensive and best use of construction lawyers.

Xiii Conclusion

Problems arising during construction projects should not automatically develop into claims and disputes. Methods are available to help the project team avoid solvable problems becoming formal dispute resolution processes. These methods allow the participants, indeed with the aid of their attorneys, to maximise the opportunities to solve problems efficiently from the first days of the project, to build on those solutions to establish problem-solving as the norm for the project, and to focus more of their efforts on the achievement of a successful project rather than successful arbitration or litigation.

Enhancing Efficiency in Construction Disputes: Innovative Techniques for Presenting Evidence to Get to a Faster, More Cost-Effective Resolution

Laura Abrahamson | JAMS

The rapid growth of construction arbitration over the last 20 years is a testament to its advantages over traditional litigation: speed, cost and flexibility. But as parties submit larger and more sophisticated disputes, they are looking for ways to ensure the process can still provide those advantages. The good news is that arbitrators and counsel can agree on procedures to structure the presentation of evidence that both suit complex construction cases and enhance efficiency. At a recent roundtable discussion, JAMS neutrals and construction heavyweights discussed using the following techniques to reduce the time and cost to resolve construction disputes:

Construction Law

Written Witness Statements

Submitting direct testimony through written witness statements—a practice common in international arbitration—can dramatically reduce both the time and cost of construction arbitration. It eliminates the need for depositions, since the parties know what testimony the other parties will introduce, and allows them to prepare better, targeted cross-examination. It also significantly cuts down the length of the hearing, as time is only spent on cross-examination and re-direct. Arbitrators also welcome it because it provides the opportunity for a better understanding and appreciation of the parties’ positions in advance of the hearing.

Expert Reports

Submitting expert reports to the arbitrators in advance as their direct testimony, and then allowing them to then make a short (30-to-90 minute) visual presentation (PowerPoint or other format) at the hearing can improve the efficiency and efficacy of expert testimony. 

Joint Expert Meeting Without Lawyers

At the request of a party, or on their own initiative, the arbitrator can order the parties’ respective experts to meet outside the presence of lawyers to explore where they agree and disagree, and then produce a report listing the agreed-upon and disputed issues. This allows the parties and the arbitrators to understand what area(s) and points of disagreement between the experts exist and to limit the examination to those points, significantly cutting down preparation and hearing time.

“Hot Tubbing” of Experts

Either as an alternative to the experts meeting outside the presence of counsel and issuing a joint report, or in addition to them, the parties can agree, or the arbitrator(s) can order, that the parties’ respective experts on any given topic appear together for questioning by the tribunal. This technique, which is also more common in international arbitration (and often referred to as “hot tubbing”) can uncover why the experts disagree, thus helping the arbitrator focus his or her questioning and reducing hearing time. This process can be particularly helpful for technical issues.

Arbitration of construction disputes must continue to meet the parties’ needs. If counsel and arbitrators continue to ensure that the process is fast, cost-effective and flexible, it will.

JAMS Announces Updated Construction Rules

JAMS

JAMS, the largest private provider of alternative dispute resolution (ADR) services worldwide, is pleased to announce it has revised and updated its Construction Arbitration Rules & Procedures and Expedited Construction Arbitration Rules & Procedures, effective June 1. These Rules were updated to reflect the latest developments and trends in construction arbitration.

In response to the transition to virtual and hybrid proceedings, Rule 22 makes explicit the arbitrator’s full authority to conduct the hearing in person, virtually or in a combined form, as well as with participants in more than one geographic location. To support access to case documents throughout the proceedings, Rule 8 aligns electronic filing and service with the functionality of JAMS Access, a centralized, secure online case management platform.

Additional rules were created or revised to clarify and strengthen the authority of the arbitrator. Key changes include allowing an arbitrator to withhold approval of any intended change in party representation that could compromise the proceedings or the final award, to set a hearing without consulting a party that he or she reasonably believes will not participate and to permit a party to file a motion for summary disposition of a claim if the arbitrator believes that party has demonstrated the motion is likely to succeed.

Summaries of the key changes to each set of Rules, as well as the complete rules, can be viewed on the Construction Arbitration Rules & Procedures and Expedited Construction Arbitration Rules & Procedures pages on the JAMS website.