Pels Law Firm attorney, Maria Olsen, attended the American Arbitration Association’s (“AAA”) 2022 Construction Law Conference this month, at which construction law arbitrators and general counsels from the country’s largest construction firms presented. Maria shares in this post conference takeaways that can help our construction clients protect themselves.
Most construction contracts contain mandatory arbitration clauses, in case of disputes. This post also covers strategies and best practices for clients in case of litigation.
Documentation Is Key for Your Claims and Defenses
Documentation of potential claims is critical to a successful prosecution or defense. Project staff must know the contract’s parameters and must properly administer the contract. Good construction daily reports from the project foreman, supervisor or relevant personnel should be made mandatory as a good business practice. Document the impacts of any issues contemporaneously and consistently. If a claimant did not document a problem as it arose, the trier of fact likely will not believe it was important.
Having daily diaries to support witness testimony makes the witness testimony more credible. A witness with daily reports is often more believable than consultants, according to AAA arbitrators. Becht Construction requires its employees to attend an in-house training seminar for 40 hours a year that teaches employees how to write good construction daily reports. It is harder to re-create necessary documentation later, if disputes arise.
Some construction companies have found it helpful to create an email address for each project and to ensure that all employees cc the project email address on any correspondence relating to a given project. In this way, a separate email file is created for information to support any claims or defenses. This will protect your company before any claims arise and prevent you from having to sift through emails to determine what is relevant to a particular project.
Covid-Related Delay/Disruption Cases
Most construction businesses have been affected by the pandemic. Challenges include material/supply and labor shortages, supply chain issues and delayed government inspections and permitting. Contracts negotiated before the pandemic may allow for recovery for time and expenses caused by delay. It is time to revisit contract terms, to protect your company during these challenging times.
Documentation of legitimate claims to establish cause and effect is necessary to bring successful claims. If a claimant did not keep good records, an arbitrator likely will not award any recovery. Good records also are essential to defending against claims.
Many contracts contain “force majeure” clauses, which are designed to release a party when they can no longer fulfill an obligation, or suspend the time in which a party must perform, due to a severe, unforeseen event, beyond the control of the parties. However, such clauses may not apply to the coronavirus pandemic. If, for example, the contract defines a force majeure incident to include an epidemic, a pandemic may be distinguishable. Foreseeability is key in enforcing a force majeure clause, and foreseeability of delays and shortages related to the pandemic has changed during the course of the last few years.
In some cases, a contractual changes clause may provide relief. Change in law or change in public standards clauses, for any government shutdown, can be used to protect contractors. A contractor can argue that the imposition of Covid safety measures constituted a change in law. A differing site conditions clause or a hazardous conditions clause, also may be used to provide a contractor with relief.
Cases involving problems caused by the coronavirus are beginning to make their way through the courts and arbitral venues. In disputes, the parties will be called upon to separate delays that are attributable to Covid versus other reasons. Construction contractors must pay attention to when notice must be given under their contracts.
Arbitration of Construction Matters Before the AAA
Most of the construction industry’s standard contracts contain alternative dispute resolution provisions, and many incorporate arbitration as a means by which to resolve disputes.
Parties can provide for arbitration of future disputes by inserting the following standard clause into their contracts:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
The parties must specify the American Arbitration Association in their contracts, in order for AAA to accept a case.
Arbitration is designed to be faster than litigation in court. Arbitration awards are final, binding and enforceable in court. There is no right to appeal in arbitration. Appeals in court can take years for final resolution, and resolution in arbitration typically takes nine to ten months.
Costs can sometimes be better controlled, as well, in arbitration. For example, there is no right to depositions in the AAA construction arbitration rules, because of the expedited nature of arbitration. Parties may, however, agree to limited depositions, or counsel can convince an arbitrator of good cause to allow depositions in a given case. The arbitration rules allow an arbitrator to allocate costs for depositions. Discovery depositions are costly, time-consuming, impact the schedule and often give rise to motions. In many cases, the cost of expert witnesses to prove or combat claims is the major expense.
Much of what occurs in the arbitral process is driven by the parties. It is in the parties’ interest to agree on the scope of discovery if they genuinely want to come to a resolution.
Arbitrators will want to see photographs and to hear from good witnesses. The most convincing witnesses in arbitration have contemporaneous documentation with regard to claims.
Arbitration is not just “splitting the baby,” as some businesspeople mistakenly believe. According to the AAA, only 5.5% of the cases in AAA are splitting the baby situations.
In addition, juries pose more risk of an adverse decision to many clients. One example is that, in a small market, a jury may have more empathy for a small local subcontractor who they believe was wronged than for a large contractor who is not based in the community.
Finally, arbitration can preserve a client’s reputation. Arbitration is a private, less formal process by which all parties agree to submit disputes to one or more impartial persons authorized to resolve the controversy by rendering a final and binding award. Because court filings are in the public domain, the confidentiality of arbitration is attractive to many clients.
Pels Law Firm attorneys have a proven track record of settling construction litigation matters, as well as success litigating before the American Arbitration Association and in state and federal courts. If you would like to discuss these matters in more detail, contact the Pels Law Firm.