Originally from The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration, Fifth Edition

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Construction disputes present unique issues for arbitrators and counsel because of the industry’s sophistication, project size, and increased complexity and specialization. Arbitrators handling these types of disputes must be familiar with construction processes, practices, terminology, and the arbitral tools that have developed over time to fairly and efficiently manage construction arbitrations.

I.            INTRODUCTION

For over half century, the construction industry has been a leader in utilizing binding arbitration as a dispute resolution process. This is in no small way a response to the legal and technical complexity of construction and design disputes, coupled with the need for the trier of fact to understand the unique relationships, customs, practices, and types of claims common to the industry. The frequent presence of multiple parties, complex legal theories and issues, large damages, industry-specific contract relationships, voluminous documents and correspondence, unique insurance contracts, and layers of regulation and project requirements render many construction disputes extremely difficult and expensive to prepare and present and explain why so many of these disputes end up in arbitration. Construction arbitrators usually are better equipped to navigate, manage, and decide these claims because they are familiar with the myriad unique issues construction industry disputes can raise.

Many of the topics addressed in this chapter are also examined in other chapters of this guide. For example, chapters 2 and 3 discuss issues regarding the appointment and disqualification of neutral and nonneutral arbitrators, chapter 6 discusses actions to be taken at the preliminary conference, chapter 11 discusses the conduct of the hearing on the merits, and chapters 12 and 13 discuss the drafting and issuance of awards and post-award matters.

In considering the many topics addressed in this chapter, the reader is encouraged to consult those chapters.

Construction cases can be complex for a variety of reasons. When one peels back the layers, one can appreciate the factors that make construction cases complex and why these cases are challenging to prepare, present, and adjudicate even in arbitration. Arbitrators accepting appointments in these cases must be cognizant of the challenges these cases present and be well prepared to address them.

A.           Complexity of Construction Process Equals Complexity of Disputes

A construction project typically requires a complicated mix of specialized services, equipment, supplies, and planning across various disciplines that must work together to create a new or remodeled, and functioning project. Whether an office building, a water-retaining structure, a bridge, highway, hospital, school, hotel or resort, or a system to generate or distribute power, today’s projects require coordination among numerous professional participants who possess different expertise. We still build with bricks and mortar, but we now design in an electronic world with three-dimensional models, and we rely upon sophisticated software, technical knowledge, and components managed by experienced professionals to provide a completed project with the desired functionality. Even today’s starter houses and the amenities they include require a much more complex structure than the multi-story office buildings of the 1930s. Today’s buildings, be they residential or commercial structures, are increasingly sophisticated assemblies of systems and components installed by specialists using contracts with ever-more complex risk allocations.  The legal obligations and responsibilities of the specialized professional services involved in modern construction must be understood, analyzed, and prioritized in construction arbitrations.

B.           Number and Classes of Parties and Participants

The first layer of complexity in construction arbitration is the number and classes of potential parties. Construction disputes regularly involve different public and private business organizations, companies, partnerships, and joint ventures, which may act as owners, contractors, design professionals, subcontractors, suppliers, insurers, sureties, and any of the other capacities involved in a given project. Disputes can involve banking, lending, and financing institutions; guarantors; sureties; and insurers. Private parties are most often involved in the arbitration of construction disputes, but government-owned or government-controlled legal entities may also be involved. These parties may have a diverse variety of legal relationships that intersect in the disputed project.