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The American Arbitration Association’s Construction Rules have been updated to help return arbitration and mediation processes to the simpler and more cost-efficient proceedings they once were.

Construction contractual and tort disputes are often resolved in a world of their own. Principals and attorneys alike regularly opt out of traditional litigation forums, instead resolving disputes before neutral arbitrators and mediators familiar with both construction law and trade practices. As a result, many commonly used private and public works contracts call for construction disputes to be resolved by binding arbitration before arbitrators appointed by the American Arbitration Association (“AAA”) and administered in accordance with the AAA’s Construction Rules.

As arbitration has grown, arbitrators are more frequently presented with counsel as familiar with the courts (and discovery and procedural processes they bring with them) as they are with the historic speed (and corresponding simplified procedures) that once came with arbitration. As a result, arbitrations have become more like court proceedings. Where arbitrators once directed all parties to simply exchange documents and witness lists in advance of evidentiary hearings, parties to arbitrations can now face scores of depositions, written discovery, “pretrial” motions and other procedures historically unseen in an arbitration. As a result, parties who elected to opt out of litigation, in search of a speedy and less costly remedy to construction disputes, have complained that arbitration has failed to meet those goals.

Customer feedback, such as that described above, was one of the sources the AAA used during its most recent review and revision of its Construction Rules. The AAA also sought comments from its executives, case managers, parties, counsel, and neutrals, individually and as part of focus group discussions, as well as AAA’s National Construction Dispute Resolution Committee. The AAA announced new Construction Rules, effective as of October 1, 2009, that should provide all participants with clearer expectations and structure, shorter time frames, and enough flexibility for arbitrators to resolve construction disputes while meeting the original goals of providing a fair, cost-effective and efficient process.

Mr. Phillippi is Director of Knapp Petersen & Clarke and a member of the American Arbitration Association’s Panel of Neutrals, where he serves as an arbitrator on its Construction, Large Complex Case, and Commercial Panels. Email: jmp@kpclegalcom

Regular Track Procedures

R-1 Agreement of Parties and Designation of Applicable AAA Rules: The Construction Rules were changed so that parties may agree to use the Fast Track, Large and Complex Case (“LCC”) Rules or the Procedures for the Resolution of Disputes Through Document Submission on any size dispute.

R-4 Filing Requirements Under an Arbitration Agreement in a Contract: Paragraph (b) states when the AAA will acknowledge receipt of a filing and how the filing date is established. Additionally, a process for handling deficient filings is now included in this section.

R-6 Changes of Claim or Counterclaim: A requirement for parties to provide written notice to the AAA and all parties of any change of claim amount was added. The time frame for a response to a new or different counterclaim was changed from ten days to fourteen calendar days.

R-7 Consolidation or Joinder: Subparagraphs (a)(i) and (a)(ii) were added to include the process for the filing of a request to consolidate arbitrations or a request to join parties. The role of an R-7 arbitrator appointed under this section for the limited purpose of deciding whether related arbitrations should be consolidated or parties joined has been further defined.

R-10 Mediation (formerly R-9): In paragraph (a), “[u]nless requested by all parties” and “the arbitrator’s consent to do so is also required” was added to the statement that the mediator shall not be an arbitrator appointed to the case. Paragraph (b) was added stating that, unless the parties agree otherwise or by decision of the arbitrator, the arbitration shall not be stayed while the mediation is pending.

R-11 Administrative Conference (formerly R-10): The purpose of the administrative conference was expanded, and the administrative conference may be convened at any point during the case.

R-12 Fixing of Locale (the city, county, state, territory and, if applicable, country of the Arbitration) (formerly R-11): A new deadline for filing a locale dispute was added. The process for resolving a locale dispute is set forth in paragraphs (a), (b), and (c), and the processes are guided by the extent to which locale is addressed by the parties’ arbitration agreement. The section also clarifies that an arbitrator may determine the locale for special hearings, such as hearings established for the production of documents.

R-13 Date, Time and Place Of Hearing (formerly R- 23): The period of time for the AAA to send notice of the hearing date has been changed from ten calendar days to at least seven calendar days in advance of the hearing date, unless otherwise agreed by the parties or directed by the arbitrator.

R-14 Arbitrator Appointment from National Construction Panel (formerly R-12): The parties are not to exchange their arbitrator selection lists, and if a party fails to return its own list, all names on the list will be deemed acceptable to that party. Paragraph (e) states that the parties shall attempt to agree on the professional composition of the panel. If they are unable to agree, the section authorizes the AAA to make the determination, taking into account the preferences expressed by the parties. The section also states that the AAA has the discretion to provide the parties with multiple lists, separated by profession.

R-18 Number of Arbitrators (formerly R-16): Paragraph (b) states that a party has seven calendar days after receiving notice of the change in claim or counterclaim to request a change in the number of arbitrators serving on the case. If the parties are unable to agree on the number of arbitrators, the AAA shall make the determination.

R-21 Communication with Arbitrator and the AAA (formerly R-19): Paragraph (a) outlines the limited circumstances where ex-parte communication between a party and an arbitrator may be permissible. Paragraph (c) states that in the course of case administration, the AAA may communicate with the parties or anyone acting on a party’s behalf either jointly or individually. Paragraph (d) states that unless the AAA or arbitrator instructs otherwise, any documents submitted by a party to the AAA or the arbitrator must be simultaneously provided to the other party or parties to the arbitration.

R-23 Preliminary Management Hearing (formerly R-21): Paragraphs (a) – (i) outline the issues to be considered at the preliminary hearing. The section states that it will be presumed that the preliminary hearing will be conducted by telephone unless the parties agree otherwise or if the arbitrator specifically directs otherwise. The arbitrator is required to promptly issue written orders reflecting the arbitrator’s decisions on the matters discussed during the preliminary hearing.

R-24 Exchange of Information (formerly R-22): The due date for exchanging exhibits was changed from five business days prior to the hearing to seven calendars days. Paragraph (d) states that there should be no other discovery except as ordered by the arbitrator in “exceptional cases.”

R-32 Conduct of Proceedings (formerly R-31): Paragraph (b) provides that the arbitrator may allow for alternate means of evidence presentation. The arbitrator’s authority to entertain motions was moved to paragraph (c).

R-35 Inspection or Investigation (formerly R-34): Unless the parties so agree, the arbitrator may not undertake a site inspection without all parties present. An exception was established to address the situation where a case is proceeding in the absence of a party pursuant to R-31.

R-36 Interim Measures (formerly R-35): Paragraph (d) was added to allow the arbitrator to apportion costs, in either the interim award or the final award, associated with the application for any interim relief.

R-37 Closing of Hearing (formerly R-36): Paragraph (b) establishes the due date for receipt of the final submission of documents as of the close of hearings when posthearing filings have been ordered. Paragraph (c) allows the AAA to extend the time limit for rendering of the award in unusual and extreme circumstances.

R-40 Extensions of Time (formerly R-39): Paragraph (a) makes extensions of time agreed upon by the parties, which adversely affect the efficient resolution of the dispute, subject to arbitrator review and approval.

R-41 Serving of Notice (formerly R40): Paragraph (b) added e-mail as a method of giving notice required by the Rules.

R- 42 Majority Decision (formerly R-41): In a multiarbitrator case, if all parties and all arbitrators agree, the chair of the panel may make procedural decisions.

R-44 Form of Award (formerlyR-43): Paragraph (b) states that the arbitrator shall provide a “concise written financial breakdown” and that the award shall address any nonmonetary components of the claims or counterclaims. Paragraph (c) addresses the form of the award.

R-50 Withdrawal of Claims or Counterclaims: This is a new rule stating that no claim or counterclaim may be withdrawn unless the parties agree or the arbitrator consents and that the arbitrator decides whether or not a claim or counterclaim is withdrawn with or without prejudice.

R-54 Neutral Arbitrator’s Compensation (formerly R-52): A reference was added to the R-7 arbitrator. Paragraph (b) states that for the purposes of allocating arbitrator compensation, the AAA may consider multiple parties being represented by the same representative as one party. Paragraph (e) states that the arbitrator’s requests for payment shall be made available to the parties upon request.

R-56 Remedies for Nonpayment (formerly R-55): Paragraph (b) expands the range of options available when one or more parties has not paid its share of administrative charges or deposits for arbitrator compensation. Paragraph (d) gives the arbitrator the authority to terminate a proceeding for nonpayment after the issuance of an order suspending a matter for nonpayment.

Procedures for the Resolution of Disputes Through Document Submission

These new procedures, based on party agreement, outline a process for arbitration where there is no in-person hearing.

Fast Track Procedures

F-2 Answers and Counterclaims: An answer or counterclaim must be filed within seven calendar days after notice of the filing of the demand is sent by the AAA.

F-3 Limitations on Extensions (formerly F-1): In the absence of extraordinary circumstances, the AAA may grant no more than one seven-calendar-day extension of the time in which to respond to a demand for arbitration. All other extensions are governed by R-40 and F-12.

F-4 Changes of Claim or Counterclaim (formerly F-2): The timeframe for changing the amount of a claim or counterclaim is seven calendar days prior to the first scheduled hearing. Parties have seven calendar days to respond to the notice of any new or different claim.

F-5 Appointment and Qualification of Arbitrator (formerly F-4): Parties may strike two names each from the list if they cannot agree upon an arbitrator.

F-6 Serving of Notice for Hearing (formerly F-3): Notice for hearings may be sent by email.

F-7 Preliminary Telephone Management Hearing (formerly F-5): The title has been changed. The conference must be held within ten calendar days of the confirmation of the arbitrator’s appointment. The arbitrator shall organize the hearing to keep to the time standards established by the rules.

F-8 Exchange of Information (formerly F-6): The title has been changed. The deadline for exchanging copies of exhibits and any other information to be presented at hearing is now five business days before the hearing.

F-9 Discovery (formerly F-7): Except as provided in F-8, there shall be no other discovery except as ordered by the arbitrator in “exceptional cases.”

F-10 Date, Time, and Place of Hearing (formerly F-9): Hearing shall be set so as to meet the requirements of F-12.

F-11 The Hearing (formerly F-10): Language provides for flexibility in completing the presentation of the parties’ cases.

F-12 Time Standards: The hearing shall be closed no later than 45 calendar days after the date of the preliminary telephone conference. If the time is to be extended, the arbitrator shall memorialize the reasons in writing. The AAA may extend the time standards if the parties agree to AAA mediation.

Procedures for Large, Complex Construction Disputes

L-1 Applicability: A new section was added to state when these procedures are directly applied. The threshold for direct application was raised from $500,000 to $1,000,000.

L-2 Administrative Conference (formerly L-1): The purpose of the administrative conference has been expanded to include a discussion of cost effective case management and any other items which may facilitate management of the complex case.

L-3 Arbitrators (formerly L-2): Paragraph (a) states that if the parties are unable to agree on the number of arbitrators, three arbitrators shall hear the case.

L-4 Preliminary Management Hearing (formerly L-3): A reference to R-23 was added. Paragraphs (a) – (k) outline items which may facilitate the efficient and cost-effective management of the case. The arbitrator may issue an agenda in advance of the preliminary management hearing.

L-6 Form of Award: This section requires a reasoned award unless the parties agree otherwise.

For a complete copy of the American Arbitration Association’s Rules effective October 9, 2009, click here: http://www.adr.org/sp.asp?id=22004