{"id":894197,"date":"2018-05-16T12:29:58","date_gmt":"2018-05-16T18:29:58","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894197"},"modified":"2018-05-16T12:29:58","modified_gmt":"2018-05-16T18:29:58","slug":"2-dispute-resolution-choices-construction-contracts","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/2-dispute-resolution-choices-construction-contracts\/","title":{"rendered":"2 Dispute Resolution Choices For Construction Contracts"},"content":{"rendered":"

Stacy La Scala | JAMS<\/a> | May 7, 2018<\/p>\n

It was the best of provisions; it was the worst of provisions, crafted by the wise
\nand well-meaning alike. For years, construction documentation has been
\nprimarily sourced from the American Institute of Architects. The AIA provided
\nguidance through the publication of contractual provisions involving many
\naspects of the construction process, including alternative dispute resolution, or
\nADR. It has been observed that the documentation provided by the AIA generally
\nfavored both owners and architects, whose forms, as used by contractors,
\ntypically required amendment and modification. So much so that in 2007 a group
\nof owners, contractors, subcontractors, designers and sureties came together
\nand published their own set of construction contract documents called
\nConsensusDocs, and updated it in 2017.<\/p>\n

For construction practitioners, serious consideration must be paid to the ADR provisions up front, as a failure to understand and allocate the tail risk can have dire consequences; hence, a tale of two\u00a0approaches to ADR.<\/p>\n

ConsensusDocs \u2014 ADR<\/strong><\/p>\n

The ConsensusDocs ADR provisions provide a multi-step process by which party representatives are\u00a0initially required to negotiate with one another. Failing resolution, senior executives are then required\u00a0to meet in good faith to attempt resolution of the dispute. The ADR path in the ConsensusDocs then\u00a0forks depending upon the needs of the parties at the time of contracting. One path sends the parties a\u00a0mitigation procedure involving a nonbinding finding by either a project neutral or a dispute review
\nboard, whose determination may be introduced in subsequent litigation.<\/p>\n

If the parties did not choose to go through the mitigation procedure at the time of contracting, the\u00a0second path leads to mediation. The mediation option includes the ability to select mediators from\u00a0AAA, JAMS or a body of the parties\u2019 choosing. The provision provides that the parties choose mediation\u00a0through one of the following:<\/p>\n

\u2022 The current Construction Industry Mediation Rules of the American Arbitration Association, or\u00a0AAA, administered by the AAA
\n\u2022 The current Mediation Guidelines of JAMS, administered by JAMS
\n\u2022 The current rules of [_____] administered by [_____]<\/p>\n

If the mediation or mitigation processes fail to resolve the dispute, the ADR paths merge, sending the\u00a0parties to binding arbitration or litigation. If arbitration is selected, the parties are given the option to\u00a0determine which rules will be applied to their dispute. Article 12.5.1.2 provides that the arbitration shall\u00a0use one of the following:<\/p>\n

\u2022 The current AAA Construction Industry Arbitration Rules administered by the AAA; AAA\u00a0Construction Fast-Track Rules shall apply to all two-party cases when neither party\u2019s disclosed\u00a0claim or counterclaim exceeds $250,000. If arbitration is selected but no rules are selected, then\u00a0this subsection shall apply by default.
\n\u2022 The current JAMS Engineering and Construction Arbitration Rules and Procedures, administered\u00a0by JAMS
\n\u2022 The current Arbitration Rules of [_____] administered by [_____]
\n\u2022 AIA ADR<\/p>\n

Like the ConsensusDocs ADR provisions, the AIA ADR provisions were also updated in 2017. Of particular\u00a0interest in the new AIA ADR provisions are new time restrictions, which, if not followed, may severely\u00a0restrict a party\u2019s rights, including a potential waiver.<\/p>\n

In contrast to ConsensusDocs, there are no requirements that the parties meet in order to resolve the\u00a0matter. Instead, the AIA ADR provisions have two separate dispute resolution paths determined by the\u00a0time that a claim arises. Claims are defined broadly to include all disputes and matters in question\u00a0between the owner and contractor arising out of or relating to the contract.<\/p>\n

For claims that arise prior to the first year following substantial completion, the owner and contractor\u00a0are required to submit their dispute to an initial decision-maker, or IDM, \u201cwithin 21 days after\u00a0occurrence of the event giving rise to such claim, or within 21 days after the claimant first recognizes the\u00a0condition giving rise to the claim, whichever is later.\u201d The AIA form, by definition and default, designates\u00a0the architect of record as the IDM.<\/p>\n

If a dispute remains following the IDM\u2019s decision, there is a demand-shifting procedural step, new to the\u00a02017 form, that gives either party the power to compel the other party within 30 days to proceed to\u00a0mediation. Failure to timely proceed to mediation signifies a mutual waiver of rights for that claim.<\/p>\n

For claims that arise after the first year following substantial completion, the parties go directly to\u00a0mediation. This new demand-shifting provision appears once again in the mediation provisions. Should\u00a0the matter fail to resolve at mediation, either party may demand, within 30 days following mediation or\u00a060 days following the demand to mediate, that the other party proceed with arbitration or litigation.\u00a0Should the party receiving the demand fail to file a demand or suit, then both parties waive their rights
\nto proceed to arbitration or litigation.<\/p>\n

It should be noted that, where neither party triggers the demand-shifting provisions contained within\u00a0the AIA ADR provisions, there is apparently no waiver of the right to proceed to future mediation,\u00a0arbitration or litigation. Of course, this does not foreclose later arguments that known claims may be\u00a0barred by shortened statute of limitations periods.<\/p>\n

Comments and Considerations<\/strong><\/p>\n

The new AIA ADR provisions appear to build upon case law enforcing modified and \u201cagreed upon\u201d time-bar\u00a0limitations of actions between the owner and contractor. In particular, in Brisbane Lodging LP v.\u00a0Webcor (2013), limitations on the \u201cdelayed discovery\u201d rule[1] were upheld in the 1997 version of the\u00a0AIA standard form agreement between the owner and contractor. The same provision found\u00a0enforceable in Brisbane has been renumbered as Section 15.1.1 and relocated within the ADR provisions
\nof the 2017 form. In conjunction with the broad-based definition of claim, and the new \u201cdemand\u00a0shifting\u201d provisions discussed above, there appears to be a clear intent by the AIA drafters to further\u00a0identify and restrict potential future claims among the contracting parties.<\/p>\n

Parties considering the use of either ConsensusDocs or AIA forms need to understand that each set of\u00a0construction documents requires thoughtfulness and upfront risk assessment. The decisions at the time\u00a0of contracting will have a significant impact on both the timing and resolution of any future dispute.<\/p>\n

——————————————————————–<\/p>\n

Stacy L. La Scala is a mediator and arbitrator at JAMS.<\/p>\n

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or\u00a0Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.<\/p>\n

[1] prior Section 13.7
\n[2] Section 15.1.1<\/p>\n","protected":false},"excerpt":{"rendered":"

Stacy La Scala | JAMS | May 7, 2018 It was the best of provisions; it was the worst of provisions, crafted by the wise and well-meaning alike. For years, construction documentation has been primarily sourced from the American Institute of Architects. 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