Construction arbitration: the arbitration process and practice tips for advocates.

The objective in construction arbitration is to resolve a dispute privately, promptly, and economically by one or more experts in the construction industry. Resolving construction disputes via private arbitration means there are no reported opinions to guide the participants in how these private judges, the arbitrators, make their decisions. This can produce anxiety for the party looking to the arbitrators to make a fair and reasoned decision. In a court proceeding a party may have a basis for appeal. In arbitration a party is generally bound by the arbitrators' decision as there is little opportunity to appeal, even if the arbitrators make a mistake. (1) Arbitration awards can be appealed only on very narrow grounds, some statutory (2) and some common law. (3)

This article examines the arbitration deliberation process from the perspective of a construction arbitrator, and it provides a list of 10 recommendations an arbitrator should consider when determining a construction dispute. The goals are to 1) allay anxiety and fears about the arbitration process by parties and their advocates; 2) aid advocates in better presenting their cases to arbitrators; and 3) encourage arbitrators to refresh their objectives and adopt habits that enhance the process for the benefit of end users and the perception of the general public. Depending upon the type of case and the facts, one item on this list could be more important than another, but this list generally covers the deliberation process for construction arbitrations.

The Contract is the Roadmap

In a construction dispute, the contract is the arbitrators' (4) roadmap, and it should be carefully reviewed and referenced by advocates during the hearing. The arbitrators will read the contract before, during, and after the hearing. Arbitrators take their roles seriously and appreciate that they were selected because the parties and their attorneys trust their ability to analyze the facts fairly and apply them to the duties and obligations in the contract documents. Advocates should use common sense while applying the facts of the case to the terms in the contract. Do not create new provisions that simply are not there, and do not ignore clauses that are there. If the contract does not support a position, inform the arbitrators why the law provides an exception. Practitioners should use the basic contract rules to their client's advantage.

The arbitrators will look to the contract for answers about what the parties intended as well as what the parties have asked them to decide. A one-page summary of pertinent contract clauses would be helpful to the arbitrators during the hearing and deliberation. If it is not provided, arbitrators may create their own. Arbitrators also look at documents that are incorporated by reference, such as technical specifications and general conditions, and these documents should be referenced by the advocates where helpful or refuted if necessary.

Though infrequent, some arbitrators have taken the position of crafting a subjective "fair outcome," without deference to controlling law and ignoring the terms of the contract. Arbitrators should not engage in such tactics because members of the construction industry do not want social legislation performed in arbitration cases. They want the certainty the contract provided, consistent with recognized construction legal principles. If the contract or law is unclear, then they want a commercially reasonable interpretation based on the arbitrator's expertise in this industry.

What is the Law in the Case?

Before, during, and after the hearing, advocates should take advantage of opportunities to familiarize the arbitrators with the legal principles guiding the outcome of the case. Most arbitrators do their homework and start the hearing with a good understanding of the disputed issues, the parties' roles, and the parties' general allegations. The arbitrators' familiarity with the controlling legal theories is also crucial before the hearing commences so that he or she can ask the right questions if they were not asked and explained by the witnesses or counsel for the parties. These legal principles also instruct on how to assess the burden of proof and whether it is met. Arbitrators may also consult their own legal resources for answers.

If the contract specifically provides that the law of a certain state will be followed, then tell the arbitrators which jurisdiction's law applies. When relying upon legal cases or statutes, provide the arbitrators highlighted copies. Many arbitrators are not lawyers or, if they are, they may not subscribe to a case reporting service. A party runs the risk of an arbitrator's not reading relevant cases if copies are not provided.

If the contract is silent about construing the contract in accordance with the law of a certain jurisdiction, then arbitrators must use their reason and common sense, coupled with generally recognized principles of construction law to compare the ultimate facts with the contract's requirements. The arbitrators' job is not to create new laws but to apply the facts to the existing laws. Arbitrators, as private judges, are not legislators. If they are in doubt as to what the law is in a certain area, then they should always give the parties an opportunity to brief it, even if the hearing must be reopened. The parties do not want arbitrators to guess.

Another resource is the American Arbitration Association (AAA). (5) One benefit of AAA arbitration is that those arbitrators must complete ongoing training classes such as award writing, dealing with delay tactics, chairing a panel, best practices in a construction case, and other practice topics. These course materials are particularly useful during the initial management of the case and through the process of writing an award. AAA arbitrators may also consult the AAA's "Arbitrator Update." This resource contains an abundance of information on arbitrator authority, procedures, ethics, arbitration rules, and recent nationwide, arbitrationrelated court cases. All of these resources may be utilized before, during, and after the hearing in the deliberation period.

Arbitrators try to "do the right thing" pursuant to the law governing the case if legal precedent is applicable. The advocate's job is to help arbitrators follow the roadmap, the contract, and apply the law to the facts. Advocates should also avoid letting personalities or egos get in the way of their presentation.

What Have the Parties Asked Us to Decide?

A smart party advocate asks the arbitrators before the hearing has concluded to decide certain issues a certain way. This can be done in the closing or in a separate written submission by each party. Sometimes arbitrators ask the parties to submit written prehearing issue statements or proposed awards before or at the end of the hearing. If that has not been done, do not leave the issues that are subject to the award to chance because some arbitrators take better notes or have better memories than others. Therefore, the relief sought should be clear in the demand, the statement of the claims, or the answer/response, and in prehearing and closing briefs. Before resting the case, the advocate should ask whether the damages are clearly identified by issue and subcategory. Prior to deliberations, the arbitrators will, individually or as a group, summarize the issues to be decided. Arbitrators will typically tackle liability issues sequentially, then move to a determination of damages.

Complex construction cases have multiple line items of damage. Before deliberating as a panel, arbitrators often individually calculate their own draft assessment of damages by line item. Advocates should provide a line item breakdown that contains space for notes. This provides the panel the opportunity to use the same format to compare numbers. Arbitrators may engage in mutual mediation of line items to form a consensus or take the average of each arbitrator's numbers for that particular line item. The advocates can assist with award calculations by including a damages summary outline that contains line items and all categories of damages with three separate columns for the arbitrators' computations, plus a fourth column for the final determination. If applicable, advocates should also consider giving the arbitrators an option to determine partial entitlement to damages to avoid guessing or provide for alternative remedies.

In Florida, arbitrators may decide entitlement to attorneys' fees and the amount of those fees only if the parties agree. (6) Regardless of party agreement as to entitlement or amount, if one or more theories of the case allows for attorneys' fees, then the arbitrators must identify the theory under which a party prevailed or otherwise indicate if the prevailing party won on a theory that would permit a trial court to award attorneys' fees. Otherwise, the award is subject to remand back to the arbitrators to decide. (7) An advocate should properly present the attorneys' fee issue to the arbitrators in order to protect their clients' entitlement. Nonattorney arbitrators may need additional education as to the legal basis for entitlement to attorneys' fees.

Nonattorney arbitrators do not always understand the post-award procedures that will be undertaken to obtain attorneys' fees or prevail on previous offers of judgment in pending litigation. In a construction case, there is often an underlying court action that is stayed pending the outcome of arbitration. This underlying court case could be a payment bond or construction lien claim that provides a statutory entitlement to attorneys' fees for the prevailing party. (8) Therefore, the advocate must make it clear to the arbitrators that they are to determine the prevailing party. If the award is insufficient on this issue, then the failure to timely seek a modification can cause one to lose their right to attorneys' fees. (9)

Another issue that may be determined by the arbitrators is whether one party should bear a greater share of the arbitration filing fees, costs, and arbitrator fees. Advocates should make sure arbitrators are informed of this issue before the hearing is closed. During deliberations, the arbitrators will review the demand, statements, briefs, and closings to clarify that the award answers the questions presented. The arbitrators must confine their award to those matters that are presented to them to decide. (10)

Reviewing the Hearing Notes Again

Arbitrators take notes to recall testimony and other issues presented. Some arbitrators take more extensive notes than others. Arbitrators attempt to give parties what they paid for--undivided attention to their dispute. This mandates 100 percent concentration, including adequate note taking, each day. During deliberations, arbitrators should go back and read all the notes at least one time.

An attorney's case presentation can help assist the arbitrators in this regard. A time line or chronology provided at the beginning of the case is of great assistance not only to the arbitrator but also to the advocate. As with trial practice, a story is easier to follow when it is presented in chronological order, or by issue, or specific claim item.

Well-organized notes provide arbitrators with the foundation needed to prepare a reasoned award. An effective note-taking method includes the date, page number, day of the hearing, who is calling the witness, witness' name and affiliation with the case, along with pertinent answers and observations about the cross examination. (11) Exhibit numbers should also be noted as they are introduced. It is helpful to leave room for follow-up questions.

The arbitrator takes notes contemporaneously with the hearing, thus they become a snapshot of his or her interpretation of the case at that time. They include observations of witness credibility, quality of the evidence, and its relevance to the issues. Advocates must stay organized while presenting proofs and defenses to make sure important details are not omitted. Advocates should consider giving a brief summary of an important witness' testimony in two or three main points during closing. Arbitrators also find it helpful when a party provides them with a reduced version of a chart or demonstrative board exhibit during a witness' testimony. They can make notes on the copy to help understand the point later.

The Exhibits

If there are 3,000 exhibits in a case, the advocates should be cognizant that an arbitrator might lose sight of the top 50 by trying to read all 3,000. Thus, consider reminding the arbitrators before the hearing is closed of those exhibits that are particularly significant to the client's case. Better yet, provide the arbitrators a separate key exhibits list at the beginning of the hearing of the most important exhibits and highlight the pertinent parts. The arbitrators will refer to this list during the hearing and deliberations. If key exhibits are not identified, then arbitrators usually select the ones they think are crucial. Advocates should not run the risk that their "smoking gun" document will not make the arbitrator's short list.

Arbitrators should try to read every exhibit entered into evidence at least once. If the parties thought it important enough to admit a document, then the arbitrator should read it. Key exhibits will be read more than once and often annotated. The parties can help save time and money if they will prepare a joint set of noncontested exhibits before the hearing. Sometimes this is not done even when it is requested.

Panel Dynamics

When arbitrators are serving as a panel, they are trying to be good team players while also respecting the parties' rights to their independent analysis. Arbitrators are usually amiable toward each other, even in the face of differences of opinion and personality. Arbitrators are like a three-panel appellate bench. They act professionally and courteously toward one another and expect the same from the advocates and the parties.

Although politeness is appropriate, political correctness is not. Arbitrators should not defer to a party advocate or co-arbitrator to avoid offending him or her. In addition, arbitrators must maintain a sense of judicial formality during the hearing, like a courtroom setting but less rigid. Parties and their counsel expect a quasijudicial proceeding and arbitrators must be cognizant of conveying this demeanor. The same holds true for the deliberation process. Arbitrators may disagree on a point of law but they are respectful of one another.

If there is disagreement with the majority's decision in whole or in part, an arbitrator has the discretion not to sign the award, sign the award as "dissenting," or, though rare, write a dissenting opinion that is incorporated into the award as a separate opinion. Although it may not help a party's case if they lost, knowing there was a dissent may provide some benefit in that the party may see the difficulty of the decision-making process. The chair of the panel will sometimes try to mediate differences of opinion with logic and counterpoints to see if a consensus can be reached. If two arbitrators agree, they may ask the dissenting member to explain his or her opinion verbally, in writing, or both. Arbitrators would rather not have a dissenting opinion, but they recognize that each panel member brings a different perspective to the table.

Arbitrators converse during the hearing about general observations. These discussions help to avoid wide disparities during the deliberations, frame the issues, and clarify questions while the issues are fresh. If more information is needed, there is time to ask for it while the hearing is in progress or a witness is still present. It is in the parties' best interest that the arbitrators query evidence while it is being presented. Despite these preliminary discussions, experience shows that arbitrators do not make up their minds before the hearing is concluded, and often change their preliminary inclination after all of the evidence is presented.

Arbitrators have the authority to seek additional information and clarification, (12) but during the hearing, they should use restraint and hold questions until after a witness has been cross examined. Most questions are answered during the examination process without need for the arbitrators to interrupt.

Using Common Sense

An accomplished trial attorney colleague always told the jury during closing, "don't leave your common sense at the door when you go to the jury deliberation room." This lesson applies to arbitrators, too. Arbitrators take seriously the fact that they are "selected" because other people have confidence in their decision-making abilities. Arbitrators may ask whether the overall circumstances coincide with the award they are about to render. If there are doubts, then they review the law again, review their notes again, confer, and think about the case some more. Most arbitrators do not check their common sense at the door. Likewise, advocates must ask themselves, "Am I presenting a case that makes common sense? Am I asking for a reasonable conclusion or over-reaching? Am I presenting a realistic summary and making a reasonable request of the arbitrators?"

Timeliness of Award

Arbitrators are sometimes pressed for time to render an award that is due within 30 days of the close of the hearing, especially since the draft must be completed a week or more before that deadline. During this time period, they must review their notes and the exhibits and then set aside one or more times to meet in person or confer telephonically to discuss the case. Arbitrators should set aside blocks of time for deliberation early in the case management process.

Arbitrators typically approach the deliberation process independent of one another first and then as part of a panel discussion. Usually the arbitrators meet soon after the hearing to discuss and solidify a preliminary decision. They identify what issues are unresolved and address them at that time or schedule their next meeting to discuss the remaining details. Between those meetings, someone will usually start a draft award. An early draft eliminates stress, avoids the last minute award, and reduces the risk of errors. Arbitrators should not procrastinate during the deliberation process. Time is critical. The delivery of a timely award to the parties is one of the arbitrators' most important obligations.

Write a Draft Award and Then "Sleep on It"

If at all possible, arbitrators like to reflect on and refine the written award. This process can be especially important with a lengthy panel opinion. The panel member who writes the award must allow adequate time for the co-arbitrators to review and comment upon the draft. If the award drafter procrastinates, then there is little time to circulate it for comments, and the reflection opportunity is diminished. A well-written award is achieved after reviewing, editing, and reviewing again.

Draft awards serve many useful purposes, not the least of which is the opportunity to edit for brevity, correct typographical and grammatical errors, and compare the parties' award directives with the arbitrators' final product. Once the draft is in final form, the panel chair typically sends it to the case manager (if an AAA arbitration) for review and addition of applicable fees and costs. The arbitrators must deliver the award early enough so the case manager has a reasonable amount of time to add these administrative items.

AAA Rule 43 (13) provides that parties must ask for a written explanation of the award before the arbitrators are appointed or else there is no obligation on the part of the arbitrators to provide reasons. This rule is often overlooked and the parties assume they can ask for a reasoned award during the preliminary hearing or even as late as the final hearing. Some arbitrators will allow the parties to stipulate to a form of award as late as the final hearing but many will not, choosing instead to enforce Rule 43. Regardless of whether the parties have requested a reasoned award, arbitrators should explain their decision to help the parties understand the review process. If the award includes an explanation of how it was determined, then parties at least receive confirmation that they had their "day in court" so to speak, and that the arbitrators heard them in a fair and impartial forum even if they disagreed with their view of the case. A one-liner award does not provide this type of reassurance and closure.

The bases of appeal are so limited that an arbitrator's award is unlikely to be set aside or vacated absent arbitrator misconduct. Arbitrators should not fear having a court review their awards if they have put forth the effort and analysis to render a well-reasoned decision. Arbitrators' awards can be equal to the quality of those issued by the judiciary had the case gone to court, and in some circumstances, they will reflect more factual understanding.

Uncompromising Integrity

Arbitrators do not want to compromise their values, integrity, or reputation. They want to be selected as arbitrators again and to be well-regarded by their peers.

It is likely that arbitrators are friends with or know, in some capacity, one or more of the parties, their attorneys, the experts, or the fact witnesses in the cases that come before them. These relationships are disclosed before the arbitrators are appointed or during the course of the case. Like doctors, construction arbitrators have carved out a sub-specialty in their chosen fields. Thus, arbitrators may see the same participants again.

Arbitrators are keenly aware that they are selected to serve as fair and impartial decisionmakers and take an oath to that effect every time they accept an appointment. Arbitrators want to believe and must believe that the participants in an arbitration process, be they friends, colleagues, social acquaintances, former adversaries, experts, or the like, do not expect them to compromise their integrity as arbitrators in their cases. Their role is to ferret the truth and apply the law to their findings, unless the arbitration clause provides otherwise. Construction arbitrators are not charged with changing public policy or creating new laws or punishing someone. The arbitrator's role is to render a fair and impartial decision based on the facts presented, the law as he or she understands it, and the contract as he or she reads it.

After the hearing is closed and the arbitrators are deliberating, there is typically no contact between the parties and the arbitrators. Strict confidentiality about their deliberations is maintained and a decision should never be communicated to third parties. The deliberation and award process is private and contidential. Arbitrators are not allowed to discuss their deliberations with the parties, even after the case is over, and any such contact should be promptly reported to the case manager (if it is an AAA arbitration).

The advocates, parties, and the general public want to trust the system and arbitrators are a very important part of building and maintaining that trust. Arbitrators have an ethical obligation to uphold the integrity of the process. (14) Arbitrators should not be afraid to do the right thing even if unpopular.

Conclusion

Complex construction arbitrations typically involve numerous parties, thousands of documents, and multiple fact and expert witnesses. The disputes often involve millions of dollars and collateral insurance and surety issues. Parties who submit disputes to arbitration rely heavily upon the arbitrators to make sound, reasoned decisions, and have given up almost all appellate rights. Parties expect arbitrators to listen carefully during the arbitration hearing, conduct the proceedings fairly and diligently, (15) engage in focused deliberations, and provide a reasonable explanation for their opinions, whether or not a timely request is made. (16)

Arbitrators should follow the contract and the law of the case, decide the issues based on the quality and credibility of the evidence, take good notes, read the exhibits, respect differences of opinion, and use common sense. The award should be thoughtfully and timely prepared with an explanation of the decision so the parties understand the ruling. Above all, the end result should be unbiased and fair based on the facts presented and the law, as the arbitrators understand it. Serving as an arbitrator is very satisfying when one knows a job has been done to the best of his or her ability.

(1) Arbitrators sometimes make mistakes. Though not the subject of this article, the author supports the concept of an optional procedure for appellate review of large complex construction arbitration awards to an appellate arbitrator or panel. Such an appeal process could permit the appeal of awards on the basis of (a) clear and prejudicial errors of the law; or (b) convincing factual findings or erroneous conclusions of expert testimony that is not clearly and reasonably supported by the underlying record.

(2) The Federal Arbitration Act (FAA) applies to written arbitration clauses in a contract involving interstate commerce. The FAA, in 9 U.S.C. [section] 10(a), generally does not permit a court to vacate an award unless the award was procured by corruption or fraud, or the arbitrator was guilty of misconduct or exceeded his or her powers. There are also state statutes that permit a court to vacate arbitration awards. FLA. STAT. [section] 682.13 generally follows the FAA's language for vacating awards but also adds "refusal to postpone the hearing upon sufficient cause being shown ..." as an additional ground.

(3) Common law grounds allowed by some states, include manifest disregard of the law, Montes v. Shearson Lehman Bros., 128 F.3d 1456 (11th Cir. 1997); arbitrary, capricious or irrational awards, Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775 (11th Cir. 1993); and awards that violate public policy, E .Assoc. Coal Corp. v. United Mine Workers of America, 531 U.S. 57 (2000).

(4) The author refers to arbitrators in the plural as most complex construction arbitration cases involve a panel of three arbitrators. With the exception of "panel dynamics," this list can just as easily pertain to the deliberation of a construction case by a single arbitrator.

(5) The AAA's Web site is at www.adr. org.

(6) A-1 Duran Roofing, Inc. v. Select Contracting, Inc., 865 So. 2d 601 (Fla. 4th D.C.A. 2004).

(7) Moser v. Barron Chase Securities, Inc., 783 So. 2d 231 (Fla. 2001); A-1 Duran Roofing, 865 So. 2d at 604.

(8) For example, FLA. STAT. [section] 713.29 expressly provides the prevailing party is entitled to an award of attorneys' fees incurred in an arbitration proceeding that arises from a construction lien or a payment bond provided in Ch. 713; FLA. STAT. [section] 255.05 provides the prevailing party with an entitlement to an award of attorneys' fees in connection with an arbitration proceeding arising from a public works bond. In addition, FLA. STAT. [section] 57.105 allows a reciprocal attorney's fees award if provided to one side arising from a contract dispute.

(9) Coral-Tech Associates, Inc., v. Plumbing Contractors, Inc., 30 FLA. L. WEEKLY D2754 (4th D.C.A. Dec. 7, 2005).

(10) Canon V. A., of the Code of Ethics provides: "The arbitrator should, after careful deliberation, decide all issues submitted for determination. An arbitrator should decide no other issues."

(11) Recording the witness information is a management tool that helps arbitrators keep up with future disclosures. At the end of each case I make a list of all witness names, company affiliation and who called them and enter this into my master conflict list. A witness who appears before us in one case must be disclosed if their name pops up in another case.

(12) Canon IV.E. of the Code of Ethics provides: "When the arbitrator determines that more information than has been presented by the parties is required to decide the case, it is not improper for the arbitrator to ask questions, call witnesses and request documents or other evidence, including expert testimony."

(13) Rule 43 of the AAA Construction Industry Arbitration Rules and Mediation Procedures.

(14) Canon I.A. of the Code of Ethics provides, in part that "An arbitrator has a responsibility not only to the parties but also to the process of arbitration itself, and must observe high standards of conduct so that the integrity and fairness of the process will be preserved...."

(15) Canon IV of the Code of Ethics for Arbitrators in Commercial Disputes, effective March 1, 2004, adopted by the ABA and the AAA, provides a list of arbitrator duties for conducting the proceedings fairly and diligently.

(16) Rule 43 of the AAA Construction Industry Arbitration Rules and Mediation Procedures gives parties the right to a written explanation of the award provided a request is made before the arbitrator is appointed. Failure to request a certain form of award before the arbitrator appointment technically results in a default to a standard award, one without explanation (however even a standard award contains a concise, written breakdown). Under this rule arbitrators have the discretion to issue a reasoned award (one with an explanation) and the author believes, at a minimum, one should be provided.

Christi L. Underwood is an attorney, arbitrator, and mediator in Orlando. She holds a Florida general contractor's license and was an executive in privately held construction firms before attending law school. She is a member of the board of directors of the American Arbitration Association, and is also a member of the bar in Florida, New York, and the District of Columbia.