by Mark A. Cobb
Beginning this summer, there is a new set of supplementary rules for the arbitration of construction cases. The American Arbitration Association (AAA) promulgated these rules in an attempt to lower participants’ costs and to fast-track certain construction matters.
The new rules do not apply to arbitration claims less than $75,000; similarly, they do not apply to arbitration claims more than $5 million. Thus, the intentions are to make the process more efficient for the middle ground claims. Some of the changes include the following:
- there are schedules (based upon the amount of the claim) which cap the AAA Administration fees
- statements of claims and counterclaims are limited to five pages or less
- amendments to the complaint must be completed within 30 days of the counterclaim (unless the arbitrator extends this time)
- within 3 days of the filing of the Demand for Arbitration, the AAA and the parties will participate in an administrative conference
- the AAA has 2 days following the administrative conference to provide a list of at least 10 potential arbitrators to the parties
- the maximum days for an arbitration hearing is limited to 10 days
- the arbitrators’ study hours are capped at 40 hours
- arbitrators’ study hours have a maximum rate of $350 per hour
- an award must be given within360 days of the date the claim is filed
- total arbitrator fees are capped at $52,000 (not including travel, costs & expenses)
- conference call arbitration fees are capped
- post-hearing reviews fees are capped
- site visit fees are capped (for claims over $1 million, for example, site visits are limited to 8 hours of time at a maximum rate of $350 per hour)
- parties are to provide the name of a representative (other than their attorney) to be included in all communications (it may be an officer, in-house counsel, etc.)
How Do I Claim the Benefits of the AAA Supplemental Rules? If you are interested in taking advantage of the new supplemental arbitration rules for your construction claims, then we suggest that you include a specific provision in your construction contract which states that the fee caps of the supplemental rules will apply to matters originating from your contract.
If you are already involved in an arbitration matter, then the parties to the arbitration may choose to proceed under the supplemental rules by a joint submission to the AAA.
This is just a very general overview of some of the changes which contractors involved in arbitration will see in the future, and it will take some time to determine whether the AAA’s goals of shortening the arbitration process and capping the fees on certain construction claims has been met.
If you have any comments regarding arbitrating claims between $75K and $5M with the new rules, please let us know below.
Many construction contracts have provisions that parties must arbitrate–rather than litigate–their claims. Although these mandatory arbitration provisions can be useful, saving the parties time and money, they can also cause hiccups in the enforcement of materialmen liens. For example, in order to perfect a mechanics lien in Georgia, a lawsuit must file within one year of the date the lien was filed; failure to do this voids the lien. But, if the supplier or sub-contractor files suit, then he might lose the benefits of the arbitration provision of his contract.
Recently, the Georgia Court of Appeals helped to clarify that a lienholder did not waive his rights to compel arbitration even if he files suit to perfect and foreclose a lien. The court goes on to state that the construction company was required by law to file suit in order to perfect and foreclose its mechanics lien, and other claims were expressly alternative, rather than separate and cumulative, claims for recovery.
What do you think about using arbitration provisions in construction contracts? What benefits have you experienced or what pitfalls should be avoided?