Dispute Management and Resolution PDF

16.4 Dispute Management and Resolution David A. Ericksen, Esq. Project disputes are an unfortunate reality. They are also time-consuming, expensive, and stressful. The first goal should be to avoid or contain the potential for disputes. However, when they do arise, they are best resolved by the stra...

16.4 Dispute Management and Resolution David A. Ericksen, Esq. Project disputes are an unfortunate reality. They are also time-consuming, expensive, and stressful. The first goal should be to avoid or contain the potential for disputes. However, when they do arise, they are best resolved by the strategic and effective use of mediation, arbitration, litigation, and even compulsory direct negotiations. IN TR OD U C TI O N : P R E V E N T D I S P U TE S BE FO R E TH E Y START ▶ Risk Management Strategies PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S (16.1) further discusses how to know one’s risks and how to manage them. Simply stated, the best way to resolve a dispute is to prevent the dispute from ever beginning, or at least to prevent it from gaining any serious momentum. Although they are discussed elsewhere, it bears repeating that the three most powerful tools in doing so are the successive steps of client selection, client education, and contract documentation. Client selection is obvious. Investigate and then choose those clients most in tune with the architect’s vision and with the least likely impulse toward claims and litigation. Most architects pay at least some heed to these issues. Where most fail is in client education and the even more important step of documenting the verbal understandings in the contract and other documents. The too-frequent inevitable results are missed expectations, misunderstandings, and litigated disputes. Client education should be centered on the design and construction process and the practical realities and limitations of that process. These realities will be both generic and project-specific. The real key is that this education should and must take place prior to entering the agreement, and then become a part of the agreement. Any valid contract provision is supposed to reflect a “meeting of the minds” between the parties. Too often, it is the first, last, and only time architects and their clients actually have a reliable meeting of the minds. When the parties have signed an agreement, courts and arbitrators will generally assume that the provision accurately reflects their mutual understanding and expectation. Beginning with the AIA Document B141TM–1997 and continuing in the AIA Document B101TM–2007, the exchange of initial information is an excellent starting point for this process. Ideally, it will go far beyond those introductory steps and then be reflected in the agreement through project recitals and assumptions, potential additional services, excluded services, and contingencies, as well as the clarification of the roles and responsibility of various project participants. Beyond the broad value of client education culminating in a contractual meeting of the minds, the two contractual issues, which can lead to more avoidable disputes, claims, and losses than any other issues, are “absolutes” and “ambiguities.” Absolutes, because few (if any) design and construction projects proceed perfectly, and they are not expected by the law or covered by professional liability insurance. Nevertheless, expectations of perfection are often asserted and claimed by unhappy or opportunistic clients. Ambiguities, because open-ended obligations create potentially limitless responsibilities. Fortunately, each of these concerns can be managed and contained by some relatively simple contract provisions establishing a touchstone for a meeting of the minds and precluding later revisionist views. David Ericksen is president of Severson & Werson in San Francisco and leads the Construction Practice. He specializes in the representation of architects, engineers, construction managers, and other construction professionals. He graduated from the University of California School of Law in Berkeley and clerked for the Washington State Supreme Court. 1030 Risk Management § 2.2 The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project. IN TE G RATE P O IN TS O F A GRE E M E N T O R THE Y VA N IS H ▶ Agreements with Owners (17.1)offurther covers the Including any important points agreement and architect’s agreement with the understanding into the actual contract or by express reference is critical. If not,client. it may be as if they never existed. The integration clause from all the AIA documents provides, essentially, “This Agreement represents the entire and integrated agreement between the Owner and the Architect and supersedes all prior negotiations, representations or agreements, either written or oral.” (AIA Document B101TM–2007, Art. 13.1.) Even absent this provision, the law provides the same result through the “parole evidence rule,” which may lead to a similar and potentially devastating result. In one situation, at the outset of the project, the architect and client spent three days negotiating a memorandum of understanding with over 100 points specifically agreed to and initialed. However, when the agreed-upon points were not reflected in the AIA-based written agreement that followed, the memorandum was excluded in its entirety from consideration in the $7.5M claim. In itself, the standard of care is a great start to overcome the burden of alleged obligations of professional perfection. However, even this clear statement of the law is, by itself, often not enough. First, just as compliance with the building code is often rightly seen as the floor, and not the ceiling, of the design professional’s obligation, clients may wrongly assume that the standard of care is the floor for responsibility and not the fulfillment of responsibility. For that reason, adding language to clarify that the standard of care is also the limit of the architect’s responsibility can be very helpful. Whatever words are used, the goal is to make clear that the standard of care represents the limit of the architect’s design duties for the project and under the agreement. Second, even with a clear statement of the standard of care, it often remains difficult for clients, lay jurors, and even nonspecialist judges to understand that even this “ordinary” standard for licensed professionals could contemplate imperfections. To make this even clearer and to avoid any potential implied obligation of absolute perfection, it is often useful to expressly disclaim perfection and to advise the client to prepare for the corresponding contingencies that would thereby be their financial responsibility. Such a clause might provide: “Architect’s professional standard of care is not a warranty or guarantee of perfection and Architect shall have no such obligation. Accordingly, Owner shall provide appropriate contingencies for cost and schedule impacts resulting from reasonable design clarifications, additions, and corrections.” For client satisfaction and project success (and thereby dispute avoidance), the most important section of any architectural agreement remains a qualitatively and quantitatively detailed scope of work. Nevertheless, some provisions will inevitably carry some potentially open-ended or result-oriented clauses that can also be open-ended. In addition, the inherently fluid nature of the design and construction process, as well as the ingrained service mind-set of architects and their design teams, means that new issues can arise and the original scope of work may be stretched or expanded by ambiguities, events, or conduct. This is broadly referred to as “scope creep,” and it presents multiple grounds for disputes and the prolonging of those disputes. First and foremost, once a well-defined scope of work is exceeded, absent a written confirmation and agreement, there is no longer any obvious limit to the expanded services. As a result, there is no easy way to either define the duty or say that it has been satisfied. In addition, such services are by definition “extra-contractual” and outside of the procedures and important controls established by the agreement. For these reasons, architects should consider two additions to the scope of work to contain these potential ambiguities. The first is to simply avoid the ambiguous expansion of duties. The agreement would provide: “Architect shall have no obligations or responsibilities for the Project except as expressly set forth in this Agreement.” ▶ Agreements with Owners (17.1) further covers the architect’s agreement with the client. ▶ Defining Project Services (15.1) addresses the centrality of scope definition to developing effective agreements for professional design services. 16.4 Dispute Management and Resolution 1031 PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S The first is set forth in the 2007 and later versions of the AIA owner-architect agreements, which now include a standard of care clause that is consistent with the prevailing legal standards for professional skill and care. The clause recognizes that perfection is rare and is not to the legal standard. AIA Document B101TM–2007 provides: While this may be close to other provisions in many agreements, most such clauses refer to modification of the agreement. This is expressly focused on “the Project” and Tremendous effort often goes into the drafting and thereby can be used to avoid or mitigate alleged scope negotiation of agreements. If so, it should be valued and creep. honored by following and remaining within the scope of The second addition turns on the quality of the agreework. In one situation, a design professional had a very ment. Assuming it is a quality agreement, such as an AIA limited role and, accordingly, had a limitation of liability agreement or even an agreement including a limitation of clause limiting exposure to the nominal fee received. The liability clause, it can be important to make clear that all project had a significant failure. When the claim came, project-related activities, whether expressly referenced in the obvious course seemed to be to honor the limitation the agreement or not, get the benefit of the contractual of liability and quickly exit the dispute. However, the protections. For those reasons, a leading introduction or claimant disagreed and argued that the claim was for closing provision to any scope of work might include: “All those services provided outside the agreement as uncompensated extra-contractual services, and therefore of Architect’s services, actions, communications, and documentathe contract and limitation of liability did not control. The tion relative to the Project shall be covered by this Agreement.” claim ultimately cost over 100 times the limitation of With these provisions in place, any dispute relative to liability to resolve. the project will be subject to the certainty of the agreement and the corresponding dispute resolution provisions. The final two steps in the critical process of dispute and claim avoidance are really performance issues. The first is consistent, timely, and proactive documentation. D OCU M EN TAT ION CHEC KLIST The reality is that memories can and do differ, and progressively so as time passes. Small misunderstandings or The need to document mid-project issues will vary, but a false assumptions and expectations can grow into fullstarting list for issues to be documented and conveyed blown failures and disputes. Prompt communication, folwould be: lowed by corresponding documentation, is the key to 1. Agreements avoiding this. In a claims context, a written document 2. Notifications properly conveyed will almost always triumph over varying 3. Information relied on recollections and oral testimony. 4. Requests for significant action or information Finally, the most important key to avoiding disputes is 5. Allocated roles and responsibilities to adopt proactive and responsive behavior that promptly addresses issues rather than allowing them to fester. Simple misunderstandings grow into frustration and anger, intensified disputes, and, ultimately, claims if attention is not paid to them. Similar to the dispute procedures discussed below, this is best done with an escalating or phased sequence of actions and communications. For instance, it is seldom effective to start with written position statements. While sometimes uncomfortable and even intimidating, it is almost always best to start with a conversation or meeting to identify and talk through the issues before reducing positions to writing. As the issues are identified, it is likewise important to attach a schedule and plan of action to each issue with corresponding follow-up actions. Simply identifying the issues and then ignoring them may actually be the worst of all possible paths and the one most likely to lead to a difficult-to-defend claim. PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S P LAYING OUT SIDE T HE C ONTRA CT TH E AIA A N D TH E E V O LU TI O N O F D I S P U TE R E S O L U T I O N For decades, the AIA and its contract documents have been at the forefront of dispute resolution. In particular, the AIA has been a strong proponent of “alternative dispute resolution” procedures, which can effectively seek to resolve matters without recourse to public courts and the associated time, publicity, expense, and imprecision. Instead, the AIA and the professional liability insurance carriers who typically protect architects from claims have long preferred mediation as a first step, with private arbitration as the second step if mediation does not resolve the claim consensually. This was precisely the two-step process prescribed in the AIA Document B141TM–1997. With AIA Document B101TM–2007, the AIA took a dramatic departure from its past agreements. While continuing with its support of mediation as a compulsory first 1032 Risk Management step, the AIA opened the door to a more tailored solution by providing that the parties could select either arbitration or litigation as the final venue for ultimate dispute resolution. In doing so, the AIA was likely recognizing the uniqueness of individual projects and project relationships, and that a unitary approach probably is not warranted in all situations. In doing so, it put the onus on the architect (and its client) to understand the competing options and to agree upon the option most likely to lead to a prompt and favorable resolution of any claims when and if they occur. D I SPUTE RESOLUTION METH O D S : ME D I ATI O N , A R BI TR ATI O N , A ND L IT I GAT ION Where a third party neutral becomes a part of the dispute resolution process, there are three primary paths to resolution: mediation, arbitration, and litigation. There are also countless variations to each path, and even some which blend them in some ways. However, understanding the basic process, advantages, and disadvantages of each is really the first stepping stone in the successful and strategic use of the options. As an introductory point, it is important to distinguish first between mediation on the one hand and arbitration and litigation on the other. Mediation is really a facilitated negotiation of a dispute. Disputes cannot be settled in mediation absent the agreement of the parties. In arbitration and litigation, on the other hand, the decision making passes to a third party who will ultimately make the decision based on the applicable facts and law presented. Mediation PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S Mediation is “a process in which a neutral person or persons facilitate communications between the disputants to assist them in reaching a mutually acceptable agreement” (JeldWen, Inc. v. Superior Court (2007) 146 Cal.App.4th 536,540). As stated above, mediation is so favored by the AIA that it is the default first step in the dispute resolution process. Mediation has proved to be so useful in efficiently and cost-effectively resolving design professional claims that many professional liability carriers provide significant financial incentives to architects and engineers who can resolve their claims by this means. Absent an advance agreement, there are typically few rules or procedures applicable to mediations. The one rule that does generally apply to all mediations is that it is a confidential and privileged process such that any statements made in mediation cannot be cited, quoted, or otherwise used against a party in any subsequent proceeding or elsewhere (Federal Rules of Evidence, Rule 501). Nevertheless, most mediations will typically follow a similar format and process. Depending on the extent of material and positions exchanged in advance, most mediations begin with a group session facilitated by the mediator during which there is a presentation of positions by each side through counsel, experts, and the parties. From there, most mediations shift to “shuttle diplomacy,” with the mediator moving between separate rooms of parties. This involves an effort to provide feedback, develop arguments and positions, and move the parties toward resolution by the exchanges of various settlement offers and demands. In many mediation contexts, it is not at all unusual for the parties to remain completely separated following the group session until there is either a settlement to be consummated or there is an impasse such that the parties cannot reach agreement. There are four factors that can be most influential toward the potential for success in mediation. They are: 1. Party Participation and Authority The goal of mediation is to bring the parties together to agree among themselves to a resolution of a dispute. In the process, a collateral benefit may even be the preservation or resurrection of an important relationship. The chances of achieving either objective decrease dramatically if the necessary parties are not personally present. “Telephone standby” is simply not an adequate substitute. 16.4 Dispute Management and Resolution 1033 Party representation must include those with adequate factual knowledge to address and evaluate the factual issues in contention. Mediations can stall over the lack of factual research, or input from the “technical people,” or the presence of those with the authority to make the decision to reach a resolution. Authority involves the express legal credentials needed to settle as well as the financial backing to support the process. Those necessary persons should be identified well in advance of the mediation with the verified commitment that they will be personally present as participants. 2. Selection of Mediator One of the key advantages of the mediation process is the opportunity to independently evaluate and voluntarily select a mediator. In contrast to publicly appointed judges and commissioners who regularly hear a wide variety of unrelated matters, few of which actually relate to construction or architects, mediators can be selected for their particular expertise in the subject matter, experience with design and construction disputes, reputation, and approach. The most important considerations for the selection of a mediator include the following: PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S Expertise Expertise in the subject matter and the mediation process is important for two reasons: It creates credibility and it empowers the mediator as the guide in the process. Each is critical to the success of the mediation. Subject matter expertise makes the process far more efficient and creates credibility in the feedback and evaluation. Process expertise facilitates the efficient and productive exchange of information, which then flows into an efficient process of feedback and negotiation, tempered by a mediator with the skill to avoid or work around impasses. Because these combined talents are rare in combination, most mediators tend to be retired judges or attorneys who have practiced in the subject matter. Each has its merits. Under both the AIA and the AGC model agreements, both mediation and arbitration are referred to the American Arbitration Association (AAA), which has rules expressly tailored to the construction industry and which tends to be dominated by attorney mediators with some construction professionals as well. The other major competitor nationally is the Judicial Arbitration and Mediation Service (JAMS), which tends to have a far higher percentage of retired judges in its panel. There are also countless other local and regional providers for both mediation and arbitration services. Energy Good mediation is hard work. It takes focus and energy to take in and quickly analyze information, which the parties may have been dealing with for years, listen to their positions, provide relevant feedback, and then facilitate a negotiation to resolution. Passive mediators generally add nothing to the process other than a conference room and the forced experience of having to explain positions to a third party. The other reality is that not all mediations are immediately successful on the initial effort. Good mediators will take the time and have the drive to follow up and continue to pursue resolution for the parties rather than simply providing a one-time forum. Empathy Generally speaking, mediators do not make decisions. As a result, mediation resolves a dispute only if the parties themselves agree. To move parties to that position, one of the most important traits and tools of any mediator is the capacity to truly listen and convey an understanding of that party’s position. They must connect. With that as a backdrop, the mediator can also then juxtapose that position as to the other positions, information as a means to lead the party into making their own decision for resolution. Perspective and Persuasion Finally, good mediators frequently put themselves on the line. As one of the leading construction mediators in the country will frequently say, the mediator’s only tool is the “power of persuasion.” Their capacity to do so is ultimately the greatest key to 1034 Risk Management selection and the greatest differentiator. Persuasion is driven by the mediator’s capacity to convey two perspectives with credibility: that is, the perspective of a third party who might ultimately decide such a matter if not resolved by agreement, and the perspective of a party who has confronted similar disputes many times. Good mediators are willing to share these perspectives. Not surprisingly, the quality of this perspective and its persuasive power builds largely on the first three components of expertise, energy, and empathy. 3. Adequate Advance Exchange of Information and Positions PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S “Mediation by surprise” does not work. If parties receive information and positions for the first time on the day of mediation, they really are unprepared. In this situation, the parties have little chance of adequately considering the information and adjusting their own positions accordingly, in order to be prepared for resolution. Nevertheless, it is amazing how often parties come to mediation without an advance exchange of information provided with adequate time to evaluate. Although each situation is unique, as a general rule, it is important that the parties share their positions with each other and the mediator at least a week to 10 days in advance. Depending on the circumstances, it may be appropriate to lengthen this time and even provide a time for responses to the position statements. In addition to the open statements, parties may have information they do not want to share with the other side or publish, but which may be useful to the mediator. Most mediators will operate under two levels of confidentiality. One level is that confidentiality and privilege which attaches to the mediation process under the rules of evidence and civil procedure. The other is an internal level of confidentiality whereby a party can share information only with the mediator with the understanding that it will not be shared with the other side. With respect to position statements, this internal level of confidentiality is sometimes best accomplished by providing a second confidential statement to the mediator alone. 4. Timing The final issue is timing. Mediation can occur at any time in a dispute and even after a “final” judgment is handed down by a judge, jury, or arbitrator. However, by that time, countless dollars have been spent and hours lost to the process. Moreover, the underlying relationships may have been irreparably damaged. For that reason, the AIA, AGC, and other model agreements call for mediation as an initial step. However, absent a specific provision to the contrary, mediation can often be slow to start and can drag on for an indeterminate period of time. Ideally, the mediation would be contractually mandated to proceed within a short period of time (e.g., 30 or 60 days) and to be declared completed within some short period time thereafter which allows for follow-up, but not an endless process (e.g., 2 weeks or 15 days). The AIA B101, Art. 8.2.2 defers to the AAA Construction Industry Rules for deadlines, but effectively establishes a minimum 60-day deadline by suspending other litigation for that time period. The ACG Consensus Doc 240 is more specific and provides that the mediation shall commence within 30 days of the demand and shall be completed within 45 days. 5. Settlement Although mediation is not required to achieve it, the goal of mediation is a “settlement” resolving the dispute. Whether as a result of mediation or direct negotiation, just as with the contract, it is critically important that this settlement agreement be reduced to a written agreement as soon as possible, to avoid differing recollections and “buyer’s remorse.” In addition to any monetary terms, it is important that the settlement agreement be specific as to the parties included and the scope of the release. The goal should be a final resolution of all issues as to all parties and even the project as a whole. Generally, this is referred to as a “project release.” If it is less than a complete release, the agreement should be very specific as to what is included and what is not. 16.4 Dispute Management and Resolution 1035 Arbitration Arbitration is the process whereby the parties voluntarily submit their disputes for resolution by one or more impartial third persons instead of by a judicial court process. Absent an agreement to arbitrate in the services agreement or a subsequent agreement at the time of the claim, there can be no arbitration. Although arbitration may take many procedural forms, a dispute resolution mechanism is not really arbitration unless it has all four of the following characteristics: 1. A private/third-party decision maker chosen by the parties or by a service provider chosen by the parties 2. A mechanism for ensuring neutrality in the rendering of the decision 3. An opportunity for both parties to be heard 4. A binding decision or result (Cheng-Canindin v. Renaisance Hotel Assocs. (1996) 50 Cal.App.4th 684) Parties can be included in and bound by arbitration only if they have agreed to do so. Most design and construction disputes are not isolated to a single party, but may In one recent condominium claim, an architect learned also include multiple other parties such as other design the importance of coordinated dispute resolution professionals, contractors, subcontractors, and supplier/ provisions the hard way. As a result of differing manufacturers. Although there may be very isolated stratearbitration provisions with the owner and consultants, gic exceptions, it is generally critical for efficiency and fairwhich preselected two different arbitration providers, ness that all such parties and disputes be resolved in a and an owner-contractor agreement, which made no single arbitration. Accordingly, the agreements should and provision for arbitration, the architect was forced to must be coordinated for those purposes. simultaneously participate in two separate arbitrations If a consistent contractual template such as the AIA and a separate lawsuit. standard form agreements is used for all parties, generally the arbitration or dispute resolution provisions will be coordinated. The AIA provisions then provide for permissive joinder of all related claims and actions into a single proceeding (See AIA B101, § 8.3.4 CONSOLIDATION OR JOINDER), and require that disputes with consultants that involve the owner be resolved according to the dispute resolution method selected in the owner-architect agreement. However, the 2007 AIA agreements and the AGC ConsensusDocs each present a potential failure point for arbitrations that may involve the contractor, because arbitration is no longer the automatic or default option and the parties may elect either arbitration or litigation. If different options are selected for different parties, there may not be a single proceeding and venue for resolution. The AGC ConsensusDocs seeks to overcome this by affirmatively requiring that all parties be committed to the same dispute resolution process. It provides: PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S A TA L E OF T HREE B AT T L ES 9.6 MULTIPARTY PROCEEDINGS The Owner and Architect/Engineer agree that all Parties necessary to resolve a claim shall be Parties to the same dispute resolution procedure. Appropriate provisions shall be included in all other contracts relating to the Project to provide for joinder or consolidation of such dispute resolution procedures. Arbitration has many fans. It has been a preferred option for both the AIA and AGC. It is included in many public works agreements and private developer agreements. Each proponent likely has its own reasons for arbitration, but the most common perceived advantages to arbitration are as follows: • Private—the dispute is not confidential, but arbitration awards are not published. Limitations on this privacy may exist on public projects. • Greater control over selection of decision maker, and better-qualified and experienced decision makers. • Faster due to avoidance of court congestion and timing and more limited prehearing procedures and discovery. 1036 Risk Management • Less costly, due to little or no discovery and shorter path to hearing. However, the arbitrator(s) themselves must be compensated. • Avoidance of lay juries. However, there are also downsides. Among those most often mentioned as a reason to avoid arbitration are the following: • Scant discovery. Generally, absent an agreement by the parties there is no right to “discovery” by deposition, interrogatories, or requests for documents. As a result, much of the information is revealed at the arbitration itself and can be a surprise. • Less opportunity for dispositive motions such as demurrers, motions for summary judgment, and motions to strike, although arbitration rules may accommodate them. • Can be costlier than civil litigation. The fees for even a short arbitration can run well into five figures. • Limited judicial review. Decisions from trial courts may generally be appealed to a higher court, but arbitration decisions may only be reviewed for abuse of arbitrator discretion. • Perception that arbitrators practice “justice by halves” and are more likely to issue compromise awards. • Limited rights to join third parties. As a result, the decision whether to elect arbitration is not one to be taken lightly. The decision-making process should consider the following: PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S • Can/are all necessary parties included in the same arbitration process? • Are there issues or tools such as lien rights, stop notices, foreclosures, or bonds that are not available in arbitration? • Is it likely the dispute is better decided by an arbitrator than a judge/jury? If not, is there a part of the dispute or a limited dollar value that would be? • If there is a dispute, will the parties likely have all of the necessary information or will they need recourse and access to it? • Is publicity a likely concern for a dispute on this project? Can privacy realistically be maintained by arbitration (i.e., not a public entity claim)? • Will the expense of arbitration be a problem? Once arbitration is selected as the dispute resolution forum, there are then multiple considerations for the arbitration itself and the success of that process. Among those issues to be prioritized for consideration are the following: • The arbitration provider. While arbitrators need not be affiliated with an organization or provider, most arbitration will utilize a provider. As stated above, the AIA and AGC contracts both designate the AAA as the provider. One great advantage to that selection is that the AAA has developed arbitration rules specifically applicable to the construction industry. Other providers have some rules of their own. The key advantage to such rules is that they create a predictable structure and process that might otherwise be lacking. The fee structures and policies of various providers can also vary widely. Accordingly, a good provider is a critical first choice and there are many local, national, and international options. • The number of arbitrators. Most arbitration will proceed with a single arbitrator or a panel of three. The advantage of the panel is that it provides a sense of balance with the expectation that each side will have some perspective on the panel. It also triples the cost and can greatly slow the process. • The selection of the arbitrator. The preferred option would always be for the parties to mutually agree as to the selection of the arbitrator. Most providers will give the parties an opportunity to do so from a panel, and the parties would generally have that option in any event. Where they cannot agree, providers such as the AAA will generally give the parties the opportunity to strike and rank potential arbitrators from a panel and then appoint the arbitrator with the highest combined ranking. 16.4 Dispute Management and Resolution 1037 PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S The attributes of a good arbitrator are similar to those of a good mediator—in particular, the first two qualities of expertise and energy. From there the key attributes of an arbitrator would likely be intelligent, open-minded, and fair. Each will have these to some extent; and each party inevitably will seek to secure an arbitrator whom they perceive as more sympathetic to their perspective. Most often this comes out of some perceived industry bias, but this can also be a danger because an arbitrator with that historical alliance may go to some considerable lengths to avoid any such perceived bias. Finally, and sometimes most elusively, a good arbitrator must have the genuine capacity to make decisions. Arbitration is about a dispute. Generally, someone will or should win and someone will or should lose. Too often arbitrators are stereotyped as being inclined toward compromise awards so as to avoid hard feelings. Arbitration providers deny the stereotype, but it is still pervasive. It is important to find arbitrators who can and will make the difficult decisions and, if required, make them early in the dispute to eliminate or truncate claims and save costs. The arbitration procedures and discovery. As stated above, the default for most arbitration is a very limited exchange of information, which may be as little as an exchange of documents and proposed exhibits. While very efficient, most participants agree that it is too little and does not really allow for adequate preparation or for an arbitration that is efficient and reliable. Accordingly, most arbitration participants will seek to and do negotiate some limited terms of exchange and discovery. A good starting point for such a plan would include the following: • • • • • • • • Statement of claims and response Exchange of relevant project records Third-party discovery through document subpoenas or depositions Limited party depositions Expert identification and exchange of reports Limited expert depositions Pre-arbitration briefing and identifications of exhibits Pre-arbitration motions and rulings to limit arbitration hearing The key to the foregoing is to make it limited and tailored. To do otherwise would convert the arbitration into the equivalent of private litigation, with all of the costs and waste of unfettered discovery. (See Table 16.3.) Litigation TABLE 16.3 Comparing Arbitration and Litigation Arbitration Litigation Parties have input as to decision maker Court-appointed decision maker Expertise of decision maker General judge or lay jury Private Public Faster Delayed Limited parties All parties Limited discovery Unlimited (and expensive) discovery Limited procedures Extensive procedures Less attorneys fees/more hard costs More attorneys fees/less hard costs 1038 Risk Management Litigation is the default resolution venue. Absent an agreement to the contrary, this is where nearly all disputes involving architects end up. It is simply the public court system provided by local, state, and federal governments and it is subject to the rules and procedures adopted by those governments. It is “the American way.” It can be slow (years), expensive, distracting, time-consuming, and public. The good news is that generally the out-of-pocket costs to access the courts can sometimes be less than arbitration, and the procedures are time tested and well known. The “Special Master” Hybrid In response to the competing issues with mediation, arbitration, and litigation as well as the congestion of the courts, many states and jurisdictions now frequently make use of “Special Masters” who effectively act as a hybrid of arbitrator, discovery referee, and mediator. A construction dispute is filed in the courts and the judge appoints a private Special Master to oversee the exchange of information and facilitate settlement discussions. Rather than allowing the wide-open, inefficient, and wasteful discovery of general litigation, such Special Masters will often tailor processes and orders for the exchange of information, which is similar to the efficient exchanges of most arbitrations. Armed with that insight as well as the Special Master’s own expertise, settlement discussions essentially equivalent to mediation are then incorporated into the process. Early Non-Facilitated Resolutions PA R T 4 : C O N T R A C T S A N D A G R E E M E N T S All of the foregoing discussion regarding mediation, arbitration, and litigation contemplates the involvement of third parties to assist in or resolve the dispute. This is often critical to getting the parties to come together or to achieving a resolution. However, others may rightly suggest that what may be needed is merely for the participants to just talk to each other and to listen. Human nature being what it is, this does not always happen on its own. To compel such a process, many agreements incorporate such required communications into their dispute resolution process and even as a required precursor to formal processes. The AGC ConsensusDocs is such an example (See AGC ConsensusDoc 240, Section 9.2). Ideally such a process is a rapid, phased, and escalating process with limited rounds. In the most streamlined of processes, it would start with a mandatory meeting between the project managers within five business days. If they cannot resolve the issues, it would then “escalate” to the principal level for a second discussion within five business days based on written summaries provided by the project managers to both principals. It is amazing how often such processes will resolve issues before they escalate into a genuine dispute. If that is the happy result of such a process, it is important that the resolution be memorialized in writing and signed by both “sides.” If not properly motivated, however, parties may abuse required discussions to further delay the path to a formal process. C ONCL USI ON As a final word, there are three admonitions that will serve architects well in resolving disputes. They are: • Engage. Dispute avoidance and resolution is not a passive process. It takes a proactive, pragmatic, and strategic energy from the participants and an open mind. Bring all of this energy to the issue. • Engage your support network. While architects can and often do seek to resolve issues alone, they need not do so, and do themselves a disservice in the process. Professional liability insurance brokers and carriers provide a ready network of support. As appropriate, architects should also engage experienced attorneys and consultants to guide and support them. Choose professionals that have seen these issues before and bring with them both experience and third-party detachment. • Secure closure. Too often, issues are ignored or postponed. Even when architects think the issue has resolved or gone away, it may reappear unless there is a definitive written and communicated resolution of the issue. Documentation and distribution of agreements is critical to dispel uncertainty and recurrence. F or Mor e I nf o r m ati o n American Arbitration Association: www.adr.org. Judicial Arbitration and Mediation Service: www.jamsadr.com. “Mediation 101 for Architects,” Architectural Record (September 2008) by B. J. Novitski. 16.4 Dispute Management and Resolution 1039