New arbitration rules can save contractors significant time and money in resolving disputes

On July 1, 2013, the Revised Uniform Arbitration  Act (RUAA) will go into effect in Michigan. In the construction industry, where arbitration is often required by contract to resolve claims and disputes, the changes under the RUAA have the potential to save general contractors, subcontractors, and suppliers significant time and money when disputes arise.

Although not perfect, arbitration continues to be a preferred alternative to litigation to resolve disputes. Why? First, due to the complex nature of construction claims, it benefits the parties to have a construction law expert who possesses insightful understanding of construction practices and procedures to hear and resolve claims, rather than a judge or jury with only very general and limited knowledge of construction. Second, compared to litigation, arbitration can be completed much faster than waiting to get “your day in court.” Third, arbitration can result in significant cost savings over litigation, because there is very limited discovery. Many provisions of the new RUAA will enhance these benefits. Therefore, I recommend that your standard contract and subcontract forms be updated to take full advantage of these changes.

One provision in the RUAA that has great potential to reduce the cost and duration of disputes allows an arbitrator to permit or limit discovery. In the court system, discovery is intentionally broad and liberal, which translates into high costs and huge amounts of time spent for the parties. An arbitrator must take into account a contractual limit on discovery, while keeping in mind the goal of making the proceedings fair, expeditious, and cost effective. Therefore, parties can potentially save a great deal of time and money in resolving disputes by including terms in their arbitration clauses that limit the amount of discovery allowed, while remaining confident of a fair and equitable outcome.

Another provision that is likely to cut down on the length and cost of disputes allows arbitration proceedings to be consolidated. This provision will become especially useful in commercial situations where there are a numerous parties involved in the same controversy. For example, if a dispute arises between an owner and an architect, but also involves the general contractor, a subcontractor, and a supplier, usually all the parties have not signed the same arbitration agreement. In the past, courts have been reluctant to order consolidation in such cases, because the courts do not want to undermine the voluntary nature of arbitration. The RUAA allows a court to order consolidation of all parties to such disputes into one proceeding, so long as it does not result in prejudice to one or more of the parties. This allows all parties to resolve their disputes in a single proceeding, rather than forcing parties to navigate separate proceedings with each party. 

The RUAA continues to promote the goal that arbitration be a faster, cheaper, and better alternative to the courtroom, and aims to promote greater efficiency and predictability in arbitration proceedings. Modifying and updating standard arbitration clauses in construction contracts can save significant time and money for construction industry professionals at all levels.