AAA Revises Construction Industry Arbitration Rules and Mediation Procedures

The American Arbitration Association (AAA) recently revised its Construction Industry Arbitration Rules and Mediation Procedures (“the Rules”). Several notable changes went into effect March 1, 2024, involving the scope of confidentiality, regular and fast track procedures, and updates to certain monetary thresholds.

I.  Revisions to Regular Track Procedures

Rule 45: Confidentiality

For the first time, confidentiality is now the default standard. Under Rule 45(a), arbitrators must keep all matters confidential unless otherwise required by law, court order or the agreement of the parties. Rule 45(b) allows a mediator to issue confidentiality orders and “take measures for protecting trade secrets and confidential information.”

Rule 7: Consolidation and Joinder

Under the new provisions, consolidation and joinder requests must be filed before confirmation of the Merits Arbitrator’s appointment. This language eliminates a previous option that allowed confirmation up to 90 days after filing of such requests. A failure to timely respond to a joinder request will result in a waiver of objections. Now, a party must establish both good cause and prejudice for a successful joinder request after confirmation of the arbitrator.

Rule 34: Dispositive Motions

For this first time, arbitrators must consider the cost of a dispositive motion in determining whether to grant leave for a party to file such a motion. According to Rule 34(b), the goal of this change is “achieving an efficient and economical resolution of the dispute[.]”

Other Changes to Regular Track Procedures

In total, fifteen Regular Track Rules have been revised under the 2024 amendments. Some of the significant changes include, but are not limited to:

Rules 14-15. Arbitrator Appointments: Rule 14 now provides the AAA with authority to limit the parties’ strikes. Rule 15 is revised to specify that, unless the parties agree otherwise, party appointed arbitrators must be selected from the AAA National Construction Panel. 

Rule 52. Modifications of Awards: Arbitrators may “clarify” their awards, but the merits of the award cannot be reconsidered. Under the old Rule 51, an arbitrator could only revisit issues pertaining to clerical, typographical, technical, or computational errors in awards. 

Rule 60. Sanctions: Arbitrators may now impose sanctions on their own initiative, but the recipient must be given an opportunity to be heard before any such order is issued.

II. Revisions to Fast Track Procedures

Many Fast Track Procedures have undergone renumbering under the 2024 amendments. Substantive revisions include:

F-1. Fast Track Applicability: Fast Track Procedures now apply in any case where no disclosed claim or counterclaim exceeds $150,000. This is an increase from the prior $100,000 threshold.

F-8. Exchange of Information and Discovery: Two previous procedures, F-8 and F-9, have been combined into one Rule. Under the new rules, motions are not permitted absent a showing of good cause. A case may be removed from the Fast Track if discovery is permitted.

F-13. Form of Award: If the parties request a reasoned award, an abbreviated opinion or findings of facts and conclusions of law, the case will be removed from the Fast Track. In such a scenario, the arbitrator is permitted to charge their regular rates.

III. Procedures for Large, Complex Construction Disputes

L-3. Arbitrators: The 2024 amendments raise the threshold for appointment of a three-arbitrator panel from $1 million to $3 million.

Conclusion

These 2024 amendments are the first updates to the AAA Construction Rules since 2015. Accordingly, the AAA website contains a helpful summary of changes and announcement documents providing additional details beyond the highlights discussed above.

The recent revisions change important details and monetary thresholds, so understanding these changes is critical for evaluating their applicability to a given project or dispute. Because many widely used form construction contracts designate the AAA as the preferred arbitration administrator, these revisions may have significant implications for construction-related dispute resolution for years into the future.

Patrick McKnight is a member of Fox Rothschild’s national Construction Practice Group. For more information, please contact him at pmcknight@foxrothschild.com. 

This article is provided for informational purposes only—it does not constitute legal advice. Readers should consult legal counsel before taking action relating to the subject matter of this article.

 

 

A Tuesday With Lisa Colon

As a seasoned construction lawyer, I've always prided myself on being independent and tough. However, my toughness was tested when my life took an unexpected turn. In 2013, I was diagnosed with a genetic cardiomyopathy, a condition which made it harder for my heart to pump blood. That diagnosis in itself was devasting since I had to change many things about the way I lived, including having to abandon running, my favorite hobby.  After living 10 years in this new normal, in May 2023, I was told my right ventricle was no longer working and there were no further therapies available. I needed a heart transplant. The journey was long, arduous, and filled with both physical and emotional challenges. This life-altering experience not only gave me a new lease on life but also profoundly changed my perspective on practicing law. In this post, I will share three key lessons I learned from my heart transplant journey that have significantly impacted how I approach my legal practice.

Lesson 1: The Importance of Patience and Persistence

The journey to receiving a heart transplant is often fraught with uncertainty and long waiting periods. My new heart came quickly. I waited 22 days on the transplant list, but for me, the wait seemed interminable, filled with numerous hospital visits, medical tests, and moments of despair. Then came the recovery. The early days were filled with weekly biopsies, unimaginable nerve pain, and days of wondering if things would ever get better. During this time, I learned the true meaning of patience. Each day was a test of my resolve, and giving up was never an option. I had to persist through the toughest days, believing that a positive outcome was possible.

This experience has translated into my legal practice in profound ways. In the legal field, cases can drag on for months, sometimes even years. The wheels of justice often turn slowly, and clients may become frustrated with the pace. My heart transplant journey has taught me we are often in a rush to go nowhere. Everything in its own time. Maintain patience and persistence, both for myself and my clients. I now approach prolonged cases with a steady demeanor, reassuring my clients that while the system is imperfect, perseverance will ultimately lead to favorable results. This lesson in patience has made me a more resilient and empathetic lawyer.

Lisa at a 5K in March 2024...post-heart transplant

Lesson 2: The Value of Empathy and Understanding

Undergoing a heart transplant made me acutely aware of my vulnerability and dependence on others. During my recovery, I had to depend on my family and friends for my most basic needs. Being unable to drive for months humbled this independent, tough lawyer. I experienced firsthand the importance of empathy and understanding from those around me. The compassion shown by my family, friends, and medical team was invaluable, and it underscored the significance of empathy in human interactions.

As lawyers, we often deal with clients who are going through some of the most challenging times of their lives. Whether it's a contentious divorce, a criminal defense case, or a complex business dispute, our clients are frequently under immense stress and emotional strain. My experience has heightened my ability to connect with my clients on a deeper level, offering not just legal advice but empathy and understanding. I also have empathy for opposing counsel. I no longer get angered by opposing counsel’s outbursts or unprofessionalism. Instead, I feel a great sense of empathy. When approached with dealing with a difficult client or opposing counsel, I remind myself that every person has a personal battle. By showing genuine empathy, you can disarm and build trust.

Lesson 3: The Necessity of a Strong Support System

Throughout my heart transplant journey, I was fortunate to have a robust support system. My family, friends, and my law partners played crucial roles in my recovery. Their unwavering support, encouragement, and assistance were pivotal in keeping me calm and positive.

As lawyers, we can’t do this alone; having a supportive team is equally critical. Law can be a demanding and thankless profession, and no lawyer can succeed in isolation. Whether it's collaborating with colleagues, seeking mentorship, or leaning on administrative staff, a supportive network within the legal community is essential. This takes a certain level of vulnerability, which I can write an entire book about. My personal experience has reinforced the value of teamwork. I strive to foster a supportive environment in my practice, encouraging open communication, mutual respect, and teamwork. I thank my assistant, create bonds with my colleagues, and make friendships with my clients. By doing so, we can collectively tackle problems in the most creative and collaborative way.

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My heart transplant journey has been a life-altering experience that has reshaped my perspective on both life and law. The lessons of patience and persistence, empathy and understanding, and the importance of a strong support system have profoundly influenced how I approach life. I encourage my fellow lawyers to reflect on their own personal experiences and consider how these can inform and enhance their professional lives. By doing so, we can become not only better lawyers but also more compassionate and resilient individuals.

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Lisa Colon is a partner with Saul Ewing and focuses her practice on deals involving public and private construction projects and real estate development. Licensed in both Florida and New York, Lisa is known for her negotiation skills and her track record in resolving complex construction disputes. Lisa can be contacted at lisa.colon@saul.com.

The Dispute Resolver was proud to work with Lisa in connection with this inaugural installment in the blog’s “Tuesdays With” series. This series recognizes that, whether gleaned from a lifetime of learning or a life-changing moment in time, we all have something worthwhile to teach each other. If you believe you have a perspective to share, please contact Marissa Downs for more information on how to contribute to this series.

Toolbox Talk Series Recap – Maximizing Profits while Experiencing Changes During Project Performance

In the May 30, 2024 edition of Division 1's Toolbox Talk Series, John Wolf and Jose Pienknagura presented on using a contract management control process to help maximize profits on construction projects.  While their guidance is useful on all construction projects, it is particularly applicable towards federal contracts.

The contract management control process should be geared towards:

• Identifying potential issues that could affect profitability when bidding on a contract (i.e. omissions, ambiguities, etc.);
• Timely recognition of both directed and constructive changes to provide contractually required notices and documentation to preserve rights; and
• Assuring project team is sufficient at all times to handle claims submissions and prepare for any potential dispute resolution process.

Wolf and Pienknagura focused primarily on the second and third aims of the contract control process.

Regarding recognizing and responding to directed and constructive changes, they first discussed the distinction between formal Directives and Constructive Change Directives (CCDs).  A formal directive is initiated from the Owner down and has the contractually required documentation.  On the other hand, CCDs are where means and methods are used that are different than what is called for in the contract – so-called “handshake deals.”  There are various challenges associated with CCDs that make resolution difficult, including recognizing that there is a CCD and assuring the proper contractual procedures are followed.  Generally, informal deals like CCDs make it more difficult for a contractor to enforce its rights.

Wolf discussed how he sometimes finds that contractors are too worried about “winning the next job” and that mindset impacts their performance on the current job.  He emphasized that a contractor should insist on following the contract and notice provisions without concern for being perceived as unfriendly or uncooperative.  Instead, following the contract provisions is the best way to minimize claims during and after a Project, which is often more important in winning the next job.

Wolf and Pienknagura also discussed strategies to employ during a Project to minimize a backlog of pending change orders, including a built-in time period where change orders are subject to re-pricing if unresolved and a cap on the amounts of CCDs that can be pending at any given time.  Further, Wolf recommends that Contractors carefully review the language on pay applications to avoid unintentional waiver of CCDs.  One effective option is to include an exclusion list of pending items to protect against any such waiver.

Regarding the third point above on assuring a project team is equipped to handle claims submissions and dispute resolution processes, Wolf and Pienknagura mentioned how crucial it is for contractors to engage outside expertise to augment project teams at the appropriate teams (generally sooner rather than later).  These experts can help ensure the contract management control process stays intact and can help paper claims to preserve Contractor’s rights in the event of a formal Dispute.

Thank you to Wolf and Pienknagura for the valuable information and insight.

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Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Douglas can be contacted at dmackin@cozen.com.