Bricker & Eckler LLP: Contractual Requirements for Dispute Resolution

Contractual Requirements for Dispute Resolution —
& A Bit of History

By: David S. Riddle, P.E., Guest Author and Bricker & Eckler Construction Law Fellow
and Samuel Wampler

Reprinted from May 2006 ohioconstructionlaw.com

Recently, this column has been focusing on events that occur after the arbitration is complete. This month we shift back in the process and start an examination of the rules involved in alternate dispute resolution under standard form construction contracts.

Standard Form Contract Provisions

The General Conditions from the American Institute of Architects (called the “AIA”), form A201, requires mediation and arbitration as part of the dispute resolution processes. You can find a detailed discussion of the dispute resolution process under Article 4 of the AIA A201 in The ADR Dance — Doing the AIA Three-Step from ohioconstructionlaw.com for November 2002.

Paragraph 4.5 of the AIA A201 provides that, unless the parties agree otherwise, the mediation is to be conducted “in accordance with the Construction Industry Mediation Rules of the American Arbitration Association.” Subparagraph 4.6 of the AIA A-201 mandates arbitration and provides that, unless the parties agree otherwise, the arbitration is to be conducted “in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.”

The Engineer’s Joint Construction Document Committee (the “EJCDC”) took a different approach. You can find a detailed discussion of the dispute resolution process under the EJCDC C-700 in The EJCDC & Dispute Resolution from ohioconstructionlaw.com for March 2006.

Paragraph 16.01 of the EJCDC C700 allows either the Owner or the Contractor to request mediation of any claim. The mediation under this section is “governed by the Construction Industry Mediation Rules of the American Arbitration Association.” Arbitration is included as an optional dispute resolution procedure under the Supplementary Conditions of the C-700. However, the standard form general conditions do not dictate the rules governing the arbitration; the parties must insert these before executing the contract.

The Design Build Institute of America (the “DBIA”) Document No. 535 is the reverse of the C-700 in that it requires that mediation be “governed by and conducted pursuant to a mediation agreement negotiated by the parties,” but provides that arbitration will proceed “in accordance with the Construction Industry Rules of the AAA.” However, Section 10.2.4 resolves the problem of the parties’ inability to agree on a mediator this way: a mediator is to be designated by the American Arbitration Association to conduct the mediation.

The standard form documents of the Associated General Contractor’s (the “AGC”), like the others, also contain alternate dispute resolution provisions. Paragraph 12.3 of the AGC 200 provides that “the parties shall endeavor to settle the dispute by mediation under the current Construction Industry Mediation Rules of the American Arbitration Association.” The AGC 200 is silent on arbitration.

The common thread running throughout these documents is the American Arbitration Association (“AAA”). To understand the role the AAA plays in dispute resolution today, we need to examine the role it played in the development of alternate dispute resolution.

History of Alternate Dispute Resolution and the AAA

Prior to the 1920s, arbitration agreements did not receive support for enforcement from the courts. New York was the first state to change the common law approach to arbitration when, in 1920, it passed a statute providing for court enforcement of agreements to arbitrate. Shortly after, in 1922, the Arbitration Society of America formed to advocate the usage of arbitration.

By the mid 1920s, the Society had expanded its mission from educational to a full service dispute resolution organization. During this timeframe, support for arbitration had advanced sufficiently to allow for passage of the Federal Arbitration Act. The support for arbitration also led to the formation of another organization in 1924 designed to advance the use of arbitration: the Arbitration Foundation. In 1926, the two organizations merged to form the American Arbitration Association, known as “triple A” or “AAA.”

During the next 80 years, AAA and support for arbitration have continued to grow. Almost all states—all but Alabama, Georgia, Mississippi, and West Virginia—have now adopted some form of the Uniform Arbitration Act. AAA has also advanced and supported other means of alternative dispute resolution. The Uniform Mediation Act, first introduced in 2001, has been adopted by seven states and has been introduced into the legislatures of five other states.

What is the mission of AAA? Its mission statement answers that question:

The American Arbitration association is dedicated to the development and widespread use of prompt, effective and economical methods of dispute resolution. As a not-for-profit organization, our mission is one of service and education. We are committed to providing exceptional neutrals, proficient case management, dedicated personnel, advanced education and training, and innovative process knowledge to meet the conflict management and dispute resolution needs of the public now and in the future.

The “exceptional neutrals” are, of course, trained mediators and arbitrators.

Development of Uniform Rules

In 1926, there were no uniform standard procedures for arbitration, no national panel of arbitrators and no national administrators. The first year of its existence, AAA formed the Rules of Arbitration Committee to formulate the basic framework for parties nationwide to be able to arbitrate their disputes. These rules later evolved into the AAA’s Commercial Arbitration Rules. Over the years, AAA has developed rules for specific categories of cases, including the following:

Accident Claims Arbitration Rules

Employment Dispute Arbitration Rules

Health Care Claim Settlement Procedures

Alternative Dispute Resolution Procedures for Insurance Claims

Commercial Mediation Rules

International Mediation Rules

Wireless Industry Arbitration Rules.

These rules are available for use as part of the public domain and may be used with or without AAA administration.

The rules referenced in the standard form contracts above are contained in the Construction Industry Arbitration Rules and Mediation Procedures (Including Procedures for Large, Complex Construction Disputes). A copy of these rules is available for downloading on the AAA website.

AAA continues to revise and update the rules. As part of the revision process for the Construction Industry rules, AAA formed the National Construction Dispute Resolution Committee. The members of this committee include representatives from the American Institute of Architects, the American Bar Association, the National Society of Professional Engineers, the Engineers Joint Contract Documents Committee, the Associated General Contractors, the Associated Builders & Contractors, and the Design Build Institute of America. The purpose of this committee is to provide industry feedback to AAA on the needs of the parties in a construction dispute. This feedback provides part of the basis for later revisions.

The rules cover all aspects of the dispute resolution process from initiation of the process to allocation of expenses. In future columns, we will review some individual rules and their application.