Mediation & Arbitration—A Look at the AAA Rules

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

Reprinted from June 2006 ohioconstructionlaw.com

This month, we continue to examine the Construction Industry Rules and Mediation Procedures of the American Arbitration Association (known as “AAA” or “Triple A”). If you have a dispute that goes to mediation or arbitration, the odds are good that these rules will come into play. They are widely referenced by name in the various standard form construction contracts, but what do they specifically require?

Which set of rules do we follow?

The Construction Industry Arbitration Rules and Mediation Procedures are separated into four distinct areas: (1) mediation, (2) regular track arbitration, (3) fast track arbitration, and (4) large, complex construction disputes. All of these can be found on the AAA website.

How do you know which set applies? That depends on the type of dispute and how the parties intend to settle it.

Often the answer depends on the contract. Subparagraph 4.5.1 of AIA Document A201, General Conditions of the Contract for Construction, makes mediation a condition that must be met before arbitration or litigation. Similar provisions are frequently included in the other standard form contracts. The AAA rules for mediation will be discussed below.

The next set of rules detailed is the Construction Industry Arbitration Rules, “Regular Track.” Looking again to the AIA A201, we see that Subparagraph 4.6.1 contains this requirement: any “Claim not resolved by mediation shall be decided by arbitration.” These rules apply to the majority of arbitration proceedings in construction disputes but depend on the amount in controversy. Again, similar provisions can be found in other standard form contracts. We will discuss these rules in detail in future columns.

Fast track procedures, the third set of rules, are designed for disputes involving less than $75,000. In general, the Fast Track procedures follow the Regular Track rules. Additional rules are added in order to complete the process in 60 days. How do these rules allow a ruling in such a short period of time? We will answer that in future columns.

The final set of procedures is for Large, Complex Construction Disputes. These rules are designed to supplement the Regular Track procedures, and unless the parties agree otherwise, they will apply to arbitration of disputes involving claims of more than $500,000. Again, we will discuss these procedures in more detail in future columns.

It should be noted that, pursuant to Rule R-1(a), the parties may vary the rules by written agreement. That decision will be the subject of a future column as well.

The basic processes

Before we review the rules in detail, we need to step back and review a few basics of alternative dispute resolution to understand how the rules and procedures work together. Most ADR practitioners break the ADR spectrum into three different processes: negotiation, mediation, and adjudication (this may take the form of arbitration, summary jury trial, etc.).

Most people have practiced negotiation since childhood. Whether it was convincing your friends to play football or getting your parents to allow you to stay out late for a special event, the process was similar to negotiating a construction dispute. The parties discuss resolutions that can meet the interests of all parties involved. You can find a detailed discussion of the negotiation process in Negotiation – Some More Basics.

Mediation is nothing more than a facilitated negotiation that involves a neutral third party to help the parties reach a resolution. The neutral third party does not decide who prevails. In Mediation: Principles and Practice 17 (1994), Professor Kimberlee K. Kovach describes how mediation works:

Mediation is the process by which a third-party neutral, whether one or more, act as a facilitator to assist in the resolving of a dispute between two or more parties. It is a non-adversarial approach to conflict resolution where the parties communicate directly. The role of the mediator is to facilitate communication between the parties, assist them on focusing on the real issues of the dispute, and generate options for settlement. The goal of this process is that the parties themselves arrive at a mutually acceptable resolution of the dispute.

A more detailed discussion of the mediation process may be found in Mediation – Pros & Cons.

The big difference between mediation and arbitration is that the third-party neutral in arbitration renders a decision about the issues in dispute. Except for judicial arbitration proceedings, this decision is binding, meaning the parties must accept the decision and generally do not have the right to turn to the courts if they do not agree with the reasons behind the arbitrator’s decision. (Of course, the award may be attacked on other grounds, as numerous articles over the past year have explored.) You can find a detailed discussion of the arbitration process in “Arbitration – First, Some Basics” (ohioconstructionlaw.com for September 2004).

Most of the standard form contracts presume that the parties will attempt to negotiate any dispute before resorting to formal dispute resolution processes. In the AIA Form A201 General Conditions scheme, after obtaining the Architect’s decision, the parties turn to the formal dispute resolution process, and mediation is the first step employing an outside third-party to resolve the dispute. This is the first time a “stranger” to the project will enter the fray.

AAA Mediation Rules – What, Who, Where, & When?

Rule M-1 through M-3 of the AAA Construction Industry Mediation Procedures Rules answer the question of “what.” Under the unmodified standard form contracts, the parties have already agreed to mediate any disputes in accordance with the AAA procedures. Any party to the dispute can initiate the mediation by filing a written request, along with the current filing fee ($325 as of May 2006), with the AAA.

The written request must contain a brief statement of the nature of the dispute and the names, addresses, and telephone numbers of all parties to the dispute. In addition to filing two copies of the request with AAA, the party initiating mediation must send a copy to every other party in the dispute.

Rules M-4 to M-7 address the “who” of the mediation. One possible source of additional dispute between the parties is the selection of the mediator. AAA resolves this issue by reserving the power to select the mediator unless the parties’ agreement specifies another method of selection. Rule M-5 tempers this power.

No person who has a financial or personal interest in the dispute is allowed to serve as a mediator unless all the parties agree in writing to the selection. Additionally, any prospective mediator must disclose any circumstances that may create a presumption of bias or prevent the mediator from meeting promptly with the parties. This information is passed on to the parties for their comments. If the parties are not able to reach an agreement in regards to the potential conflict, AAA will appoint another mediator.

The parties are typically known to each other prior to the mediation. However, under the AAA, each party may be represented at the mediation. Rule M-7 requires the parties to communicate to all the other parties the name and address of any person representing them during mediation.

The last two questions—“where” and “when”—are answered in Rule M-8. The mediator shall fix the date and time of each mediation session. The default location under the rule is the appropriate regional office of the AAA. By agreement of the parties and the mediator, the location may be changed to any other convenient location. While it is not necessarily desirable under most circumstances, the rule does allow the mediation to be conducted by telephone or other means of electronic communication if all the parties agree.

As with many other items in construction, most of the rules for mediation may be altered by the agreement between the parties. In future columns, we will continue our examination of the AAA rules, looking at those most likely to affect your alternative dispute resolution processes.