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By Mallory McKnight Fuller

Parties to a construction contract often expressly agree that any disputes shall be resolved through arbitration. Traditionally, construction entities have placed these “arbitration clauses” into their contract under the belief that arbitration would lead to the resolution of a dispute in a manner quicker and cheaper than a state or federal lawsuit. In recent years, however, critics have noted that arbitrations can often get “out of control” in the same manner as lawsuits, with blown deadlines, overbroad discovery, and other unpredicted twists and turns that ultimately add to the costs and timeline required to reach a final resolution.

Perhaps in response to this criticism, effective July 1, 2015, the American Arbitration Association (“AAA”) significantly amended its Construction Industry Arbitration Rules and Mediation Procedures (“Construction Rules”) for the first time since October 2009. The amendments are an effort by the AAA to bring the Construction Rules more in line with construction industry contracts and to facilitate a more streamlined, cost-effective and tightly managed procedure. The amendments are a result of input received from all industry sectors, through focus groups held throughout the country and the AAA’s National Construction Dispute Resolution Committee.

While the new changes do not drastically alter the course of the arbitration procedure, construction entities and practitioners should note the newly increased power provided to arbitrators and certain other changes summarized below.

Expanding the Arbitrator’s Authority

A primary focus of the 2015 amendments to the Construction Rules (the “Amendments”) was to provide arbitrators additional tools and authority to better manage the arbitration process. To that end, the AAA amended and/or added the following Rules:

Preliminary Management Hearing: In order to get the arbitration process started off on the right track with more structure and organization, amended Rule R-23 now gives discretion to the arbitrator, depending upon the size and complexity of the matter involved, to schedule the preliminary management hearing as soon as practicable after the arbitrator’s appointment. Rule R-23 further provides a detailed checklist of what the AAA proposes should be addressed during the preliminary hearing.

Pre-Hearing Exchange and Production of Information: Amended Rule R-24 gives the arbitrator greater control over the exchange of information between the parties in order to achieve a balance between an economical resolution and the ability of each party to fully present its case.

Enforcement Power of the Arbitrator: New Rule R-25 gives specific enforcement authority to arbitrators, who now have the power to issues orders they find necessary to accomplish a fair and efficient arbitration process. Under the new rule, arbitrators now can: issue orders related to confidentiality, impose reasonable search parameters when parties cannot reach an agreement, allocate costs of document production, and take certain actions when there is willful non-compliance with an order of the arbitrator.

Sanctions: New Rule R-60 increases the authority of the arbitrator to take action against objectionable/abusive conduct. The arbitrator now has the authority, upon a party’s request, to order sanctions (i.e. a fine or other penalty) against a party who fails to comply with either the AAA Rules or an order by the arbitrator. The requesting party can provide evidence and legal argument, and the party subject to the sanction is given the right to respond to the allegations before the arbitrator determines whether to impose the sanction or not.

Other Changes to the Construction Rules

In addition to the significant expansion of the arbitrator’s powers, other noteworthy changes made by the Amendments are focused on a more cost-effective and streamlined arbitration process.

Mandatory Mediation: New Rule R-10 provides that, upon the AAA’s administration of the arbitration or at any time while the arbitration is pending, the parties shall mediate the dispute in all cases where a claim or counterclaim exceeds $100,000. However, unless the agreement between the parties requires mandatory mediation, either party can unilaterally opt out of Rule R-10.

Consolidation and Joinder: Amended Rule R-7 now has additional time frames and filing requirements to help streamline the increasingly complex consolidation and joinder issues.

Dispositive Motions: New Rule R-34 was added to address dispositive motions in arbitration and under which circumstances such motions would be considered. Under Rule R-34, the arbitrator can permit motions disposing of all or part of a claim upon prior written application.

Emergency Measures of Protection: New Rule R-39 enables parties to apply for emergency interim relief if the contract was entered into on or after July 1, 2015. Once a party seeks emergency interim relief by providing notice to the AAA and the other parties to the arbitration, an emergency arbitrator is quickly appointed by the AAA to establish a schedule for consideration of the emergency relief sought.

The Amendments made various other, less significant, changes to the Construction Rules, as follows:

Conflicts Disclosure: Amended Rule R-19 now provides that a party or representative’s failure to disclose potential conflicts can result in a waiver of the party’s right to object to an arbitrator.

Arbitration in the Absence of a Party or Representative: Amended Rule R-32 clarifies the authority of the arbitrator related to how the hearing is conducted in the absence of a party or a party’s representative.

Evidence by Affidavit and Post-Hearing Filing of Documents or Other Evidence: Amended Rule R-36 grants additional authority to the arbitrator with regards to the examination of witnesses unable or unwilling to testify at the hearing.

Majority Decision: Amended Rule R-45 allows the chairperson of the panel to delegate another member of the arbitration panel to resolve procedural/exchange of information disputes without consulting the full panel, in an effort to streamline decisions related to discovery issues.

Fast Track Procedures: Amended Rule F-1 increased the applicability of the Fast Track Procedures from $75,000 to $100,000 and increased the presumption of a documents-only hearing from $10,000 to $25,000. Amended Rule F-12 gives the arbitrator the authority to extend time frames in the interest of justice, under extraordinary circumstances.

According to the AAA, the newly amended AAA Construction Rules will provide better control of the high expense of litigation in construction industry disputes by producing a more streamlined, cost-effective and tightly managed arbitration process. Is such an improved arbitration process still a distant reality, or will the grant of additional authority to the arbitrators be the answer the construction industry has been asking for?