When disputes arise in the construction industry, arbitration provides an effective, efficient, and confidential resolution. Unlike litigation, which involves lengthy court procedures, arbitration offers a streamlined approach that allows the parties to resolve disputes in a private setting. However, to navigate arbitration successfully, it’s essential to understand the key stages of the process and prepare accordingly. This guide outlines common steps of the arbitration process, from initiation to resolution, and provides insights on maximizing the chances of obtaining a reasonable outcome.
Key Stages of the Arbitration Process
1. Agreement to Arbitrate
The arbitration process begins with an agreement to arbitrate, which may be included as a clause in a construction contract or established after a dispute arises.
A well-drafted arbitration clause specifies:
- The scope of disputes covered
- The number of arbitrators (typically either one arbitrator or a panel of three arbitrators)
- The governing rules (e.g., American Arbitration Association (AAA), JAMS, Judicate West, ADR Services, as well as the specific rule set to be applied)
- The state and county where the proceedings will be held (venue)
- How the arbitration fees are to be divided (e.g., on a pro-rata basis or a specified allocation)
- The choice of law that will apply
If a contract contains an arbitration clause, the parties are typically bound to arbitrate instead of litigating their disputes in court. Generally speaking, if no contractual arbitration clause exists, all parties to the arbitration would need to voluntarily agree to arbitration once a dispute arises.
2. Selection of Arbitrator
Once a court agrees upon or orders arbitration, the parties must select an arbitrator. Key factors to consider include:
- Industry experience: The arbitrator should be knowledgeable about the applicable state construction laws and industry practices. Years of experience is one factor to consider, but the breadth of the arbitrator’s experience is also of great importance.
- Case-specific experience: The arbitrator should be knowledgeable about the types of disputes at issue in the case. If the case involves a high-end residential estate, selecting an arbitrator with extensive experience with disputes involving such projects makes sense. Similarly, if the case involves allocations of responsibility between a general contractor and subcontractors based on express indemnity terms, you’d want to select an arbitrator with in-depth knowledge of such provisions and the rules governing them.
- Reputation and impartiality: Confirming, to the best of the parties’ ability, that the arbitrator is unbiased (such as confirming that the attorney serving as the arbitrator has represented property owners, general contractors, and subcontractors).
- Availability: Construction disputes can be time-sensitive, so choosing an arbitrator with availability to proceed based on the anticipated timeline is crucial.
In many cases, arbitration institutions will provide a list of arbitrators, allowing parties to agree on a neutral to serve as the arbitrator or follow a selection process either outlined in the arbitration agreement or provided for in the applicable arbitration rules.
3. Preliminary Hearing
The arbitrator typically conducts a preliminary hearing to establish procedural rules and timelines. During this hearing, the following elements may be discussed:
- Scope of the arbitration: What issues will be addressed?
- Discovery process: The scope and timing of written discovery to be conducted, visual inspections of any related defect claims, destructive testing to be performed (if any), whether third-party discovery (subpoenas to non-parties) will be permitted, the scope of depositions to be permitted, and the expert discovery procedures to be utilized.
- How the claims and defenses will be presented for determination: Do the parties stipulate to have the issues determined based solely on written submissions? Is there a desire for live in-person testimony to be exchanged? Will proceedings take place with everyone physically present via Zoom or a hybrid approach?
- Whether the parties desire a court reporter for the arbitration evidentiary hearing: Even if the arbitration is not subject to appellate review like a court case, the number of parties and length of the evidentiary hearing can prompt parties to have a court reporter to ensure that they and the arbitrator have the ability to accurately confirm what was stated for post-hearing briefs and/or the arbitrator’s ultimate determination.
- The form of the arbitrator’s ruling: Do the parties want to have the proceedings streamlined with a simple statement of what determinations were made? Do they want a reasoned decision (the most common) setting forth facts and key authority guiding the arbitrator’s decision, or do they want a much more detailed step-by-step confirmation of the arbitrator’s reasoning behind each of the critical determinations (far less common, because of the added time and expense needed)?
- Scheduling: Setting dates and deadlines associated with hearings and key phases of case progression.
This stage is essential for structuring the arbitration process efficiently and ensuring that all parties understand the procedural framework.
4. Discovery and Evidence Exchange
The discovery phase allows both parties to gather and exchange evidence. Compared to litigation in the courts, discovery in arbitration may be more limited or focused, reducing the overall duration and cost of the dispute. Key discovery tools include:
- Document exchange: Parties may request relevant construction documentation, including contracts, plans and specifications, subcontracts, purchase orders, emails, billing records, payment records, project-related photographs and video, and other pertinent project documentation.
- Witness statements or declarations: Statements or declarations from percipient and/or expert witnesses related to key factual issues may be exchanged.
- Deposition testimony: Depositions may be taken of those with first-hand knowledge of key facts and information and/or of those who are designated as expert witnesses.
- Expert reports: Independent construction experts may provide reports, often with photographs, and the results of their visual inspections and/or destructive testing.
Since arbitration commonly limits the scope of discovery, parties tend to focus on gathering the most relevant and persuasive evidence to support their case.
5. Arbitration Hearing
The arbitration hearing is similar to a trial in a court setting but far less formal. During the hearing:
- Each of the parties present their evidence: This may be through written submissions, prerecorded witness testimony, live witness testimony, and/or physical evidence (such as samples of building materials).
- Cross-Examination allows parties to challenge the opposing side’s arguments.
- Opening and Closing statements summarize key points before and/or after the presentation of evidence to persuade the arbitrator toward a favorable decision.
The hearing can be conducted in person or virtually, depending on the agreed-upon arbitration procedures or where no agreement can be reached, the applicable arbitration rules.
6. Arbitrator’s Award in Binding Arbitration
After reviewing the evidence and arguments, the arbitrator issues a binding decision, known as the arbitration award.
The award outlines:
- The rulings on liability
- The amount of damages or other remedies awarded
- The rationale behind the decision (for reasoned decisions or detailed decisions setting forth findings of fact or conclusions of law)
Most binding arbitration awards are final and enforceable, with limited grounds for appeal.
Tips for Preparing for Arbitration
- Understand your documents: Review the contracts and key documents in advance, and be prepared to address their content.
- Choose the right arbitrator: Select an arbitrator with expertise in construction disputes.
- Be strategic with evidence: Focus on the most compelling documents and testimony without unnecessary duplication.
- Prepare witnesses thoroughly: Ensure expert and fact witnesses can confidently present their findings.
- Be prepared to present applicable legal authority: Ensure that both statutory and case law are accurately cited and presented; don’t assume the arbitrator will simply accept your summary of the presented legal authority.
- Stay organized: Document project details, contract terms, and any previous stipulations or determinations clearly.
Conclusion
Arbitration offers an efficient and effective way to resolve construction disputes outside of court. By understanding each stage of the arbitration process and preparing strategically, parties can improve their chances of achieving a favorable resolution. Whether you are a property owner, design professional, general contractor, subcontractor, or materials supplier, being well-informed about arbitration can help you confidently navigate disputes.