Arbitration

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The party responding to a proposed design or construction contract may satisfy itself that the contract proposes arbitration or litigation to resolve any disputes and leave it at that—as long as the method of resolution is generally aligned with the party’s preferences. In order to eliminate surprises for their clients if a dispute arises and…

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When reviewing a proposed design or construction contract, the responding party will often do a cursory check to see whether the contract proposes arbitration or litigation for dispute resolution. So long as the proposed method generally aligns with that party’s preferences, it will not look further at the specifics of the proposed process. For the uninitiated, this can lead to surprises when a dispute arises, especially when it comes to issues like whether the arbitration will be held before a single arbitrator or a panel of arbitrators, the rules that will apply to the arbitration, and the scope of discovery.

Construction and design attorneys, on the other hand, spend many working hours (and sometimes nonworking hours) contemplating these exact issues. I have developed a checklist of items that I advise my clients to consider in their arbitration provisions. The combined goal of these considerations is eliminating surprises if a dispute arises and balancing efficiency with the desire for a fair process. Typically, that checklist includes the following topics:

  • Rules applicable to the arbitration
  • Single arbitrator or panel of arbitrators?
  • Scope of discovery
  • Maximizing opportunity for resolution in a single proceeding

The full article, including details on each of these topics can be found at What Parties Ought To Consider When Considering Arbitration Provisions | Stoel Rives LLP.

This article was originally published in by the Daily Journal of Commerce on April 20, 2023.

There are inherent risks in proceeding to trial by jury. Juries are often unpredictable, and civil litigation also requires extensive discovery and motions practice, which can delay resolution and increase uncertainty and costs. Arbitration has long been accepted as the answer to these problems. But the changing nature of disputes, increasing costs and inefficiencies have…

The Washington Supreme Court—in Gandee v. LDL Freedom Enterprises, Inc., 176 Wn.2d 598 (2013)—recently examined the validity and enforceability of a contractual arbitration provision and found, under the circumstances, that the clause was “unconscionable” and therefore unenforceable. Although the case did not occur within a construction setting, it nevertheless presents important lessons to consider when drafting, negotiating or complying with mandatory arbitration provisions in construction agreements.  

In Gandee, a borrower, under a debt adjustment contract, brought suit against LDL Freedom Enterprises, Inc. (“Freedom”), seeking to recover damages based on alleged violations of the Washington Consumer Protection Act (the “CPA”) (RCW 19.86, et seq.) and the Debt Adjusting Act (RCW 18.28, et seq.). Id. at 601-02. Freedom moved to compel arbitration based on the following arbitration clause reflected in the parties’ agreement:

Arbitration. All disputes or claims between the parties related to this Agreement shall be submitted to binding arbitration in accordance with the rules of [the] American Arbitration Association within 30 days from the dispute date or claim. Any arbitration proceedings brought by Client shall take place in Orange County, California. Judgment upon the decision of the arbitrator may be entered into any court having jurisdiction thereof. The prevailing party in any action or proceeding related to this Agreement shall be entitled to recover reasonable legal fees and costs, including attorney’s fees which may be incurred.

Id. at 602 (brackets in original). In addition, the agreement contained a common “severability clause,” providing that “[i]f any of the above provisions are held to be invalid or unenforceable, the remaining provisions will not be affected.” Id. 

The Nevada Supreme Court has answered a question that developers and contractors have been asking for years:  can the statutory limitation period for a construction defect action be shortened?  The court answered in the affirmative but held that there must be no statute to the contrary and that the reduced limitation period must be reasonable …

There are now 25 states in the U.S. that hold that construction defects are not an “occurrence” and are therefore not covered under commercial general liability policies insuring contractors.  Couple this troubling statistic with the ever increasing number of policy exclusions and limitations, and we begin to realize that in many situations the contractor’s insurance policy is inadequate (or non-existent) protection against defects. 

The importance of performance bonds as security to pay for construction defects is therefore growing.  While some sureties who sell the bonds will tell you that bonds merely guarantee completion, and do not insure against latent defects, the language of the typical bond defies this position.

 

Bonds plainly state that they guarantee each and every obligation of the contractor under the contract.  Those obligations usually include the duty to perform work according to the plans and specifications, the standard of care, and without defect or nonconformity.  This author has not seen a bond that attempts to carve out construction defects from its coverage.  And bonds do not have the host of exclusions or limited coverage grants that plague the value of insurance policies.  By the same token, bonds are not perfect and owners should consider the following to get the most protection from a bond:

 

First, the bond duration should extend at least as long as the warranty period (typically one year from completion but sometimes longer) and for as many years thereafter as possible, up to the statute of repose period in the state in which the project is located.  Because construction defects often appear years after completion, the bond duration is critical.  You may pay more for a bond with a longer duration, but if the bond is needed, you should be paying less for the unreliable insurance carried by the contractor.

 

Before using AIA forms  or any other agreement to begin a project, owners should review and revise those forms to ensure that they contain appropriate provisions governing dispute resolution. Otherwise, you may be stuck suing different parties in different forums for the same set of construction and design defects, you may be unable to recover…

Contributor:  Stephen P. Kelly

In Broom v. Morgan Stanley DW, Inc., the Washington State Supreme Court held that state statute of limitations did not apply to a contractual arbitration. The arbitrators of an investment-related dispute had dismissed certain claims because plaintiffs failed to bring them before the applicable statutes of limitations lapsed. Analyzing the Washington statute …

With an increase in the use of arbitration as the preferred method for resolving construction industry disputes has come an increase in concerns with assuring fairness in the process. To this end, one of the recent changes the American Arbitration Association made to the Construction Industry Dispute Resolution Procedures (Including Mediation and Arbitration Rules), was…