When You Are the Arbitrator|
Design and Construction Professionals Participating in the Dispute Resolution Process
Arthur O'Leary, FAIA, MRIAI
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Experienced architects and engineers possess valuable expertise and insight that is helpful in resolving construction industry disputes. Many have an even-handed judicial demeanor developed over years of administering construction contracts, showing favoritism to neither owners nor contractors.
They also have a deep understanding of how building materials and systems function and know how to interpret construction documents. They are conversant with industry customs and standards.
Mediation and Arbitration in AlA Documents
All of the AlA standard form construction documents recognize mediation and arbitration as the preferred approach for resolving disagreements that arise on or about the construction site or between architects and their clients or consultants. These are referred to as Alternative Dispute Resolution methods, or simply as ADR.
The AlA general conditions provides for mediation under the Construction Industry Mediation Rules of the American Arbitration Association (AAA) and arbitration under AAA’s Construction Industry Arbitration Rules. (Note 1) Copies of AAA's rules may be obtained at no cost from any of AAA's regional offices.
The AAA maintains up-to-date lists of highly qualified design and construction professionals who are available to serve on construction industry arbitration panels. It provides courses and seminars for the training and continuing education of mediators and arbitrators.
Although the arbitration process is essentially a legal proceeding, arbitrators do not have to be lawyers. Similarly, the parties presenting their cases may be represented by counselor, if they wish, may self - represent.
Arbitrators who are not legally trained are often assigned to three-member panels. Usually, a three-person construction dispute panel will consist of a lawyer, a contractor, and an architect or engineer. Tt-1e contractor might be replaced with an accountant, a subcontractor, another construction industry expert, or a second lawyer.
Non-lawyer arbitrators are included in three-member panels on account of their expertise and experience in the construction industry, not necessarily because of their knowledge of legal principles and practices. Some, however, are sought because of their extensive experience as construction arbitrators and their reputations for fairness.
The characteristics most valuable in all arbitrators are an open mind and the ability to sublimate prejudices and preconceived opinions. They must be willing to listen and to learn. Additionally, non-lawyer arbitrators should have sufficient knowledge of their own profession, the construction industry, and the technical issues at hand to truly understand and fairly judge the assertions and positions of litigants.
Arbitrators must be studious, methodical, - and capable of keeping adequate notes and records to understand the case and keep it straight in mind over the sometimes extended period of hearings.
Those who accept appointments as arbitrators should make themselves available for all reasonable scheduling of hearings. Sometimes it becomes extremely difficult to coordinate the schedules of hearing rooms, the arbitrators, the parties, their counsel, and the required experts and witnesses. If an arbitrator were excessively busy with business and professional commitments and other obligations then it would be best not to accept the arbitration assignment. It is unfair to the other participants for one of the arbitrators to be an obstruction to orderly and continuous scheduling of hearings.
Disclosure and Disqualification
Prospective arbitrators are required to disclose all prior connections with the parties, their counsel, the witnesses, and the project. Remote relationships and previous dealings no matter how trivial they may seem should be disclosed even though they may not be sufficient to disqualify the arbitrator. Disqualifying matters are those that are inherently conflicts of interest or that create the appearance of bias. The more prominent contractors, architects, and engineers serving as arbitrators will be widely acquainted and well known within the construction community and their disclosures will be numerous.
Panels of Three Arbitrators
As most three-person panels will include the comprehensive expertise mix provided by a lawyer and two non-lawyer arbitrators, there is a tendency for advocates inexperienced in construction industry arbitration to assume that the panel is homogeneous. Nothing could be further from reality. The panel members could possibly have never met each other prior to their current appointment. Even if they formerly knew each other in their construction industry roles, they may never have served together as arbitrators. They do not share the same offices. They come from different educational and vocational backgrounds. They are usually an untried combination.
It is a serious mistake to assume that the three arbitrators will stay in their predetermined specialized slots. The reason for having a vocationally diverse panel is to obtain a -balanced judgment and to assure that the subtle technicalities of the claim and counterclaim are recognized and understood.
Sometimes it is thought that the lawyer member of the panel will make all legal decisions, the contractor I will make all contracting decisions, and the architect will make all architectural decisions. In reality, this is seldom the case. Each panelist has an equal vote as well as independent opinions, unique thought processes, and diverse previous experience. As a matter of fact, the two non-lawyer arbitrators have the voting power to overrule the lawyer member on a legal issue. Similarly, the two non-contractors can outvote the. contractor on contracting matters and the two non-architects can prevail against the architect on architectural subjects. Each of the arbitrators can provide guidance, counsel, and even cajolery to the others but does not have the power to force acceptance or concurrence. Advocates would be well advised to consider each arbitrator as an independent entity and to direct all communication and persuasion to each of the three as autonomous individuals. It would be erroneous to conclude that the arbitrators will not intrude into their associate arbitrators' areas of specialty.
Another tactical error is to ignore the two non-lawyers when preparing legal briefs or oral arguments that are based on legal principles or on decided and published cases. The non-lawyer arbitrators do not normally have access to .law libraries nor the expertise to find the referenced texts and authorities. If the precedent cases are important to the advocate, a summary or copy of each case should be provided for the p non-lawyer arbitrators.
Technical legal terms should be explained at the time of use although the expert arbitrators can always obtain a private explanation from their legal colleague. Failure to recognize and understand uncommon legal expressions raises the possibility of loss of communication. The non-lawyer arbitrators should not let terms they do not understand go by unquestioned. It is easy to ask for an explanation.
When Acting as Sole Arbitrator
Design professionals sometimes act as sole arbitrators when they are highly experienced, in cases involving their specialized expertise, or where the amount in controversy does not wan-ant a three-member panel.
AAA staff administrates the arbitrations, ] issues notices to parties, schedules the hearings " and hearing rooms, clerks the hearings, and , promulgates the award. They are also available to give advice and counsel to non-lawyer arbitrators.
The hearing can be as informal or as formal as the arbitrators wish. Legally trained arbitrators tend to be more formal and in some cases are as ritualistic as a courtroom procedure. Non-lawyer arbitrators, being largely unaware of court rules and customs tend to be more casual.
The non-lawyer sole arbitrator will rely quite heavily on a clear opening statement from each - side, the exhibits, the testimony of witnesses, and argument by counsel. The architect or engineer will not be alert to courtroom regime and formal rules of evidence but will be sensitive to a fair procedure. The design professional will not recognise or rely on arcane legal principles but will be more influenced by the layman's innate sense of justice, equity, and fair play.
The arbitrator's rulings on objections will have to be based on common sense and fairness rather than on legal technicality. The lawyers presenting cases to non-lawyer arbitrators tend to speak in more direct language and usually avoid legal terminology and technicality.
Although the arbitrator is not required to know the law or to apply it, the non-lawyer arbitrator should uphold the -contractual requirements and applicable law to the extent elucidated and persuaded by the respective advocates. Whenever opposing legal counsel appear to be urging different conclusions on legal points, the non-lawyer arbitrator will most likely resolve the question by applying customary construction industry practices or by what appears to be most fair and equitable.
The non-lawyer arbitrator will probably accept at face value any unchallenged legal principles offered by either side. When lawyers use technical legal terms without definition, the arbitrator should ask for an explanation.
Hearing and Considering Evidence
Lawyers presenting cases to the arbitrators treat the hearing as a communication opportunity -to educate the arbitrators to their client's position. They -will present documentary evidence and the oral testimony of witnesses. Graphs and drawings depicting the chronology of events, overall accounting, construction defects, or repair systems are often used effectively and rapidly communicate the problem and its context. Models, mock -ups, videos and other visual aids will also be used. These demonstrative visual aids, even though not proof, are very useful in bringing the arbitrators into the setting of the construction project quickly and render the proofs presented through documents and witnesses more readily understandable.
Should opposing counselor the lawyer arbitrator object to the use of summaries and other visual aids, the two non-lawyer arbitrators might be persuaded to allow their use.
The construction environment is conducive to a great variety of misunderstandings and disputes, the most common being based on time or cost overruns and defective construction. To prove either violation of or compliance with any of these issues requires comparison with relevant standards such as the contract, building code, industry or trade standard, or the opinion of a qualified expert.
Many construction industry lawyers experienced in the arbitration process will present a meticulously organized notebook or binder to each arbitrator at the onset of the first hearing. A carefully prepared notebook will contain a brief overview statement summarizing the claim or counterclaim, all of the key documents, a summary of the relevant accounting, and a form of award. The notebook can be supplemented during the hearings as new documents or summaries become available. A separate notebook should be provided for each arbitrator as they do not share offices and probably will not study together. When the notebook system is used there will be a separate notebook for each side. Although there will be considerable duplication of documents, each is prepared to show a different point of view and a different conclusion.
After the final arguments are heard and the hearing is concluded, the arbitrators will study the evidence and their notes and then meet for deliberation and discussion with the other arbitrators. After the close of hearing, the arbitrators have 30 days within which to arrive at their decision. The award does not have to be unanimous, signatures of two of the three arbitrators being sufficient. The award can be corrected by the arbitrators, if necessary, during the next 30 days. After that the arbitrators are irrevocably out of office and are powerless to modify the award in any way.
The award is final and binding on the parties and may be enforced by petition to the court that has jurisdiction. In case of a court appeal, awards may not be set aside by reason of misapplication of law but can be annulled or sent back for rearbitration for limited specified reasons, all based on fraud, corruption, and unfair process.
Arbitrators, in the course of the hearings, will hear much information that is expected by the parties to be kept confidential. Arbitrators should respect the privacy of the disputing parties and should not release any confidential information to anyone. The case and its information should not be discussed with professional colleagues and associates. The only instance in which an arbitrator is free to discuss the case with an outside consultant is when the parties have given prior approval.
One of the most productive communication aids in a voluminous or complex construction case is the pro-forma award. Often, awards do not include any explanations or breakdowns into component parts, being most generally in the form of a single monetary sum to be paid by one party to the other. This is not very useful to a general contractor, for example, who then has to settle up with various subcontractors and suppliers depending on how each element of the claim fared in the ruling. Also, when a multiplicity of claims is resolved in a single lump sum award, it is difficult or impossible for the parties to check for errors or omissions.
It is impractical and often ineffective for the parties or their counsel to go back to the arbitrators after the award is promulgated and ask for a breakdown. The arbitrators are not obligated to explain or itemize the award and many will not do it. In some cases the arbitrators will have already dispersed to the four winds. Therefore it is advisable to determine in advance if a breakdown is needed, preferably at the beginning before any evidence is heard. A sample breakdown should be provided showing each side's version of the accounting so the arbitrators will know each side's position. The arbitrators can then make their decisions with the confidence that they have completely and accurately understood the positions of both sides and have properly handled the accounting.
Arbitration Is Valuable Continuing Education for Design Professionals
Design professionals who serve as construction industry arbitrators will find that the information gleaned from the arbitration process will cause them to improve their own practices and procedures. Their project ~ documentation will probably become more realistic and their contract administration techniques less likely to produce or sustain disputes. (Note 2)
1. General Conditions of the Contract for Construction, AlA DJcumentA201- 1997, Paragraphs 4.5.2 and 4.6.2.
2. For a more complete explanation of the arbitration process, see Chapter 22, Resolution of Construction Disputes, in " A Guide to Successful Construction -Effective Contract Administration, Third Revised Edition," 1999 by Arthur E O’Leary, F AlA, MRIAI, published by BNI Publications, Anaheim, California, 1-800-873-6397.
“A Guide to Successful Construction: Effective Contract Administration” by Arthur F. O’Leary, FAIA, MRIAI or “Construction Nightmare Jobs From Hell & How To Avoid Them” by Arthur F. O’Leary and James Acret are available from
bookworkz.com or call DCD at 800-533-5680.
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