Tuesday, July 7, 2015

How New AAA Construction Arbitration Rules and Mediation Procedures Are Enacted

As you may have heard, on July 1, 2015, the American Arbitration Association announced the release of updated Construction Arbitration Rules.  Briefly, those changes include:
  •  an automatic referral to mediation for all cases with claims exceeding $100,000 (though each party has the ability to opt out of this process);
  • time limits and additional filing requirements for consolidation and joinder to limit the use of these time-consuming processes to delay proceedings;
  • increased arbitrator control over the exchange of information, particularly electronic documents;
  • new preliminary hearing rules providing detailed guidance to all involved parties and arbitrators as to what issues should be considered at the preliminary hearing;
  •  emergency relief rules for contracts entered on or after July 1, 2015, to appoint an emergency arbitrator within one day of filing the demand for emergency relief; and,
  •  additional authority for arbitrators to respond to parties refusing to comply with the Rules and/or the arbitrator’s orders.

To read more about these rule changes, go to the Construction Industry Arbitration Rules and Mediation Procedures page on the AAA's website.

I had the opportunity to speak with John Bulman of Pierce Atwood LLP about these rule changes. John has been a construction lawyer for over twenty-five years and, in that time, has served frequently as a mediator and arbitrator through the AAA.  He is a past member of the AAA Board and has been involved in the AAA rulemaking process for over a decade.

For this most recent revision of the rules, John served as the American College of Construction Lawyers liaison to the National Construction Dispute Resolution Committee (NCDRC), an organization founded in 1966 by the AAA and other industry and trade organizations.  Currently, thirty different industry organizations including the Forum are represented in the NCDRC.  It is tasked with analyzing proposed rule changes to the AAA Construction Arbitration Rules in addition to creating and providing input on program content and faculty for proposed neutral training and in recruiting qualified neutrals.

The way that rules are changed involves a multi-year process.  The AAA is always gathering comments, feedback, objections, and insight about the rules.  On a periodic basis, the AAA will consider whether to revise its commercial arbitration rules or one of the industry specific rule sets. In addition, the NCDRC intermittently provides its own comments or proposals for possible rule changes.

With respect to this particular set of changes, the rule changes were adopted previously by the AAA for the Commercial Arbitration Rules.  From there, the NCDRC was tasked with determining whether to adopt  similar rules for the Construction Industry. In making this determination, the AAA Vice Presidents held eighteen different focus groups across the country to discuss the rule changes and seek input.  

After receiving input from these focus groups and incorporating comments accordingly, the NCDRC developed and vetted the rules in December of 2014.  From there, the Chair of the AAA’s Practice Committee reviewed and approved the changes. Once that approval was received, the AAA’s senior counsel and staff review the rules to ensure that they are acceptable and consistent with AAA policies and procedures.  After that, the rules were released to the public.

With regard to the current changes, John believes that the checklist for preliminary hearings set forth in Preliminary Hearing Procedures Rule P-2 are extremely important in keeping a particular arbitration proceeding on schedule. Reviewing this checklist, one can see what John means – the checklist is attempting to bring the parties to as early an agreement as possible regarding the key procedural issues in the case. 

It combines the most important parts of an early conference of counsel in federal court – such as dealing with ESI at the beginning of the case – and of a pretrial conference – discussing witnesses, exhibits, the forms of testimony to be provided, and the form of the award.  As John stated to me, failing to address these issues at the beginning of the case only leads to problems and delays down the road.

John also highlighted how important the consolidation provisions are. Too often, he has seen parties wait until late in the proceedings to try to join new parties to an arbitration or to consolidate one arbitration with another. That procedural decision causes a separate arbitrator to be appointed to determine whether consolidation is appropriate – a “Rule 7 arbitrator” – and waiting until late in the process to seek consolidation only serves to delay proceedings.  To address this issue, the Rules have been revised to provide a cutoff date by which the parties must seek consolidation and still get the benefit of having a Rule 7 arbitrator appointed to determine if consolidation is appropriate. Otherwise, if the request comes later in the process, the arbitrators called the “Merits Arbitrators” – the panel appointed to decide the case – will make the determination on consolidation. 

As John noted, the AAA continues to seek feedback regarding its rules and any improvements that you might have.  To that end, Michael A. Marra, who is a Vice President with AAA in Philadelphia, welcomes your telephone calls to discuss any rules issue you might have.  He can be reached at (215) 731-6136.

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