Nicholas V. Fox, George E. Rahn, Jr. and Frederick D. Strober – June 19, 2014
The American Arbitration Association (“AAA”) unveiled supplementary rules for construction proceedings that seek to remove some uncertainty from the resolution of construction disputes. The new rules, which took effect on June 15, 2014, permit the parties to predetermine certain aspects affecting the cost and time necessary to resolve their construction dispute. The parties may elect to place limits on the time within which the arbitration must be completed and the number of days to hold hearings. Perhaps most important, the cost of the arbitration may now be capped in advance of the proceedings.
On June 15, 2014, the AAA rolled out new supplementary rules for construction disputes. The new rules, known as the “Supplementary Rules for Fixed Time and Cost Construction Arbitration” were promulgated with input from AAA’s National Construction Dispute Resolution Committee ― an advisory committee comprised of approximately 30 industry groups.
Under the supplementary rules, the limits on cost and time are a function of the amount in controversy, with the time allowed and maximum fees corresponding to certain ranges of disputes. If there are multiple claims, the amount of the larger of claim or counterclaim is used to determine the maximum length of the arbitration, the maximum number of days to be dedicated to hearing the case, and the maximum costs for arbitrator and AAA fees. These factors are established by the several “Time/Cost Schedules” embedded in the supplementary rules.
For example, where the arbitration demand is for an amount between $500,000 and $1,000,000 the supplementary rules provide for a maximum of 270 days between filing the demand for arbitration and the arbitrator’s issuance of an award. Under this scenario, the hearing is limited to five days, and the arbitrator is limited to 20 hours or study time at a predetermined rate ― $300 per hour. The administrative fees paid to the AAA are similarly capped at $7,500.
The limits on cost and time are a departure from the existing custom in the construction industry, whereby arbitrators establish their own hourly rates, and the length of the proceeding is often extended (sometimes unnecessarily) by one of the parties. The new optional rules complement the existing AAA offerings available to construction litigants, which includes programs for Mediation, Regular Track, Fast Track, and Large-Complex cases.
The industry acceptance of these optional rules is, of course, yet to be seen. The decision whether to provide for the arbitration of disputes, and if so, under what terms, should always be carefully considered. Parties should discuss the pros and cons of arbitrations with their legal counsel. These new rules may provide yet another option for alternate dispute resolution under appropriate circumstances.