15 March 2023

Insights From The General Counsel's Office - Seven Steps To Success In Complex Construction Arbitration



Founded in 1979, JAMS is the world's largest private provider of alternative dispute resolution (ADR) services. A pioneer in virtual ADR, JAMS has conducted thousands of virtual ADR sessions. Our panel includes over 400 arbitrators and mediators, handling an average of 18,000 cases annually in the US and abroad.
In business and especially the engineering and construction industry, time is money.
United States Litigation, Mediation & Arbitration
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In business and especially the engineering and construction industry, time is money. My conversations this year with general counsel from engineering and construction companies of all sizes consistently reinforced the ongoing need to improve the construction arbitration experience for these users. GCs are looking for arbitrators and advocates who understand business realities and will streamline the process and make it more cost-effective. The following advice will help construction arbitrators and counsel provide GCs the dispute resolution results they expect.

1. Thinking outside the box: Is there a streamlined alternative to arbitrating all issues?

Many construction disputes involve competing claims. Consider whether there is an issue (or issues) that needs to be adjudicated in order to permit the rest of the claims to be resolved without going through a full-blown arbitration. If the parties have a tiered dispute resolution clause and have gone through mediation or executive negotiations before filing arbitration, they may be able to identify such an issue.

If a preliminary determination can resolve a roadblock to settlement, see if the parties can agree to resolve that issue first. Even better: See if the preliminary determination can be made on a streamlined basis with limited briefing and a one-day hearing.

A success story inspired this tip. It comes from my in-house experience and concerns a construction dispute between an owner and a contractor. At mediation, the parties were able to negotiate a value for the contractor's $40 million primary claim but could not agree on the validity or value of the owner's $20 million counterclaims. Instead of proceeding with a full arbitration of that counterclaim, the parties agreed to a settlement that provided for an adjustment to the payment due the contractor, an amount between $0 and $8 million, based on how an agreed-upon neutral valued the counterclaims. We chose a neutral and agreed to limited (in time and length) briefing and a one-day hearing. The neutral, who was not informed about the settlement, was simply tasked with assessing the validity of the counterclaims and providing a dollar value for those found valid. The award was due within a week of the hearing, with no supporting explanation or reasoning. The settlement agreement provided that a $20 million valuation would add nothing to the settlement amount and a $0 valuation would add $8 million to the settlement amount. The percentage of $20 million of anything in between would add a like percentage of $8 million to the award. The case was resolved in three months, and the clients were thrilled.

2. Streamline hearings and reduce discovery costs by using written witness statements.

In complex construction arbitrations, particularly in multiparty disputes, attorneys' fees can approach—and sometimes exceed—the amount at issue. The last thing GCs, on any side of a dispute, want is for attorneys' fees to dwarf the actual award. Depositions, particularly in multiparty construction disputes, can send discovery costs soaring. Parties are reluctant in arbitration to limit depositions because lawyers understandably hate to be unprepared.

At the preliminary case management conference, arbitrators and counsel should encourage the use of written witness statements in lieu of direct testimony. The beauty of written witness statements is that they often eliminate the need for depositions of those witnesses. All counsel will know what the direct testimony of a witness will be. They will be able to cost-effectively plan their cross-examination without incurring the expense of deposing the witness and without any of the other parties incurring the expense of attending. At the evidentiary hearing, the witness can quickly affirm the contents of their witness statement and then be turned over for cross-examination. In my experience as in-house counsel, which was confirmed by the GCs I interviewed this year, using written witness statements can save as much as 30% of the time and cost of an evidentiary hearing.

3. Encourage the effective use of experts through presentations and the joint examination of experts.

Expert testimony, while crucial, can be incredibly costly in complex construction arbitrations. To help GCs value-engineer the use and extent of expert evidence, I offer the following suggestions:

  1. At the preliminary management conference, arbitrators should encourage the experts to provide their opinions through PowerPoint or another type of visual presentation instead of in a written report. Because such presentations can be more effective at persuasively conveying the experts' opinions to the tribunal, experts may be asked to prepare such presentations in addition to the usual lengthy, written reports. Although some written appendices may be needed, suggesting at the beginning that as much of an expert's testimony as possible come in a more persuasive, digestible (shorter) format will increase its effectiveness and hold down costs.
  2. Have the experts from the same discipline/on the same topic meet and confer without counsel and prepare a joint report setting out what they agree upon and where they differ, instead of creating individual reports. Then the hearing can be streamlined and focus on how and why they disagree. To increase efficiency even more, the experts should be present and examined together at the hearing. GCs are fans of this practice, which is often known as "hot-boxing" or "hot-tubbing." Such an approach is common in international arbitrations, and GCs would like to see it used more in domestic construction arbitrations. Now that we're used to hybrid and virtual hearings, this should be easy to achieve.

4. Be prepared.

Remember that companies choose arbitration in large part because they want to make sure that their disputes are decided by someone with the expertise and the ability to understand the issues. While understanding the issues requires an investment of time that state and federal trial court judges don't have, there should be no such excuse for arbitrators. Yet the GCs I interviewed expressed frustration at attending an evidentiary hearing and discovering their arbitrators were not familiar with the record or had not read all the documents and exhibits that had been submitted. To deliver what GCs expect from arbitration, practitioners and arbitrators should make sure they understand the record and the issues.

5. Remind the parties to focus on damages.

The lion's share of the parties' submissions and hearing time often is spent on liability issues. To help GCs get what they want from the process, prioritize discussing damages. Making sure that the parties devote enough time to damages will improve the quality of awards, regardless of the decision.

6. Cue the chess clock.

Encourage shorter hearings and more efficient use of hearing time by using a chess clock. The use of a chess clock and the amount of time each party will be allotted should be discussed and decided at the preliminary conference. The hearing time does not have to be evenly divided and should depend on the number of witnesses and particular issues for each party. Charging the time each party spends asking questions against its predetermined and limited time allocation encourages all parties to take a more concise approach to the introduction of evidence.

7. Keep the endgame in mind.

Limit and define post-hearing briefing. Discuss early on what will happen at the end of the evidentiary hearing. Pre-hearing briefs laying out the facts and legal issues can be very helpful to the arbitrator's preparation. But after the evidence has come in, repeating the arguments in post-hearing briefs can be a high-cost, low-value exercise. Under such circumstances, if the parties want post-hearing briefs, consider limiting submissions to a list of issues on which the arbitrator says they need more information or analysis, after they have heard the evidence. This will better focus post-hearing briefing, consistent with clients' goal of cost-effectiveness.

Consider discussing the operative rules on attorneys' fees awards at the preliminary conference. If there is no contractual or statutory basis for an attorneys' fees award, GCs and their clients may want to know the arbitrator's views on whether fee shifting is available under the applicable rules. Particularly in multiparty, complex construction cases, it is not always obvious how the arbitrator should determine when someone is a prevailing party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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