Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Smith Cashion & Orr Law Firm : Green Building & LEED Litigation

For all my Nashville and Middle-Tennessee friends, I want to take a moment to highlight two upcoming conferences.  Although the programs are geared towards construction lawyers, don't shy away if you did not get a "shark degree" from Build 'Em Big University ... Each conference offers a little different glimpse depending on your career path.  What do I mean? 

The Fundamentals of Construction Law will be held on November 5, 2009 in Nashville, TN (...along with many other locations...) and is taught by leading construction lawyers.  This program presents a unique opportunity for new construction lawyers or experienced lawyers who occasionally practice construction law to learn the essentials from those who practice it daily at its highest levels. The program concisely covers the gamut of construction issues including:the roles of the key participants in a project, the structure of project delivery systems, the bidding and construction process, insurance and bonding and dispute resolution.

For the non-lawyer: This seminar will give you a great glimpse into the basic legal principles affecting your construction practice.

The Nashville conference is being coordinated by Joe Welborn, one of my partners (... and all-around-great-guy...).  If you have any questions about the program, then send Joe an email.

The second conference, the Tennessee Association of Construction Counsel Fall Meeting, will be held the very next day on November 6, 2009.  For the construction lawyers, there are three seminars right up your alley:

• Litigation Strategies for the Construction Law Practitioner, by experienced litigator Andy Ness
• Steel Structural Collapse of the Chicago Post Office Building, by engineer and expert Ian Chin (pdf)
• Bankruptcy Law for the Construction Practitioner, by bankruptcy guru Dan Puryear

For the non-construction lawyer:  You will not want to miss the mock trial! Learn from the pros on how to best present your case.  Participants include: Davidson County Chancellor Ellen Hobb Lyle (as judge), Tim Gibbons and Todd Panther (as advocates), and Gary Parkes and David Wright (as fact and expert witnesses).

The TACC conference is being coordinated by Vic McConnell, another one of my partners ( ...and another-all-around-great-guy...).  If you have any questions about the program, then send Vic an email.

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Who knew that dispute resolution was a lot like ordering from a menu?  Would you like one arbitrator or a panel of three arbitrators?  Would you like your jurisdictional questions to be determined by the court or the arbitrator?  Which arbitration rules do you want to apply?  So many choices . . .

Recently, the American Arbitration Association revised and amended its set of Construction Industry Arbitration Rules and Mediation Procedures, effective October 1, 2009, which addresses some of these menu options.  A summary of the most significant changes is available through AAA's website.

One change that caught my attention involves L-6 Form of Award, which now reads: "In addition to the award requirements set forth in R-44 (a) and (b) unless the parties agree otherwise, the arbitrator shall issue a reasoned award."  A reasoned award?  What is that?  Why should you care?

Arbitration versus Litigation

First, let's go back to the basics.  If you find yourself in court on a construction dispute, the winner at the end of trial is usually granted a judgment.  That judgment can be in the form of an award of money ... a declaration of some finding (such as coverage under an insurance policy) ... an injunction prohibiting or requiring some act ... or any number of other remedies within the court's power.  The court may or may not issue a written opinion explaining the rationale for its decision.

On the other hand, an arbitration proceeding generally results in an "award," which is the determination on the merits by the arbitrator or panel of arbitrators.  Depending on the parties' contract or the applicable arbitration rules, the arbitrator can award the same or similar relief to that of a court.  Charles Resnick, former general counsel for Raytheon Company, has written a good article on whether to arbitrate or not to arbitrate.

Reasoned Award

While the law generally requires an arbitration award to be in writing, there is no consensus on what must be included in that award.  In fact, the traditional "default rule" has been that an arbitration award does not need to contain the reasons for the decision.  Thus, unless expressly required to do so by the parties' contract or applicable rules, the arbitrator could issue a summary award with a simple finding in favor of one of the parties for a specific award of money—no further explanation was required.  For complex construction cases under the AAA Rules, the "default rule" now requires the reasoned award.

A "reasoned award" requires that the arbitrator explain the reasons for the final decision. The reasoned award answers the question of "why" and should give you the "because" factors.  It can be a summary decision or a more detailed decision that contains Findings of Fact and Conclusions of Law. So, would you like "reason" with your arbitration award?  Here are some considerations:

• Since the reasoned award must be written by the arbitrator, it may take longer for the final decision to be issued. 
• For this same reason, a reasoned award may also require additional arbitrator fees.
• On one hand, the reasoned award may provide a solid basis for the award to stand on appeal in a confirmation hearing.
• On the other hand, the reasoned award may provide fruitful ammunition for vacating the award.
• Parties are more likely to accept the result if there is a reasoned award, which may lead to settlement even after the award is rendered. 

Overall, since the reasoned award will be written, it is likely that the arbitrator will more carefully review the facts and law, as opposed to simply finding a quick and equitable resolution (described by some as "splitting the baby" in arbitration).  

Requesting a "reasoned award" is only one of the many options on the arbitration menu.  It is important to know prior to the dispute arising what rules may apply and whether your contract changes any of the default procedures and processes.

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You don’t always say what you mean. And you don’t always mean what you say. 

In construction contracts, parties attempt to use plain and ordinary words to describe their respective obligations. For example, when the parties use the word “shall” in their agreement, they generally understand that the obligation specified is mandatory. Or when parties use the word “may” in their contract, performance is permissive or optional given the plain meaning of the word. Consider the following construction contract provisions:

“If the Owner fails to make payment for a period of 30 days, the Contractor may, after seven days written notice, terminate the Contract and recover from the Owner payment for Work performed.”

“The Work may be suspended by the Owner as provided in Article 14 of the General Conditions.”

“Payments may be withheld on account of (1) defective Work not remedied, (2) claims filed by third parties, or (3) failure to carry out the Work in accordance with the Contract Documents.”

In all of theses examples, it seems clear that the parties agreed to allow—but not require—the specified performance. The word “may” was permissive in nature.

According to some courts, however, this traditional line of reasoning is no longer the trend in the context of arbitration provision in construction contracts. For example, in TM Delmarva Power v. NCP of Virginia, the Supreme Court of Virginia held that the parties’ use of the word “may” in the dispute resolution provisions of their construction contract required mandatory participation in arbitration at the election of one of the parties. The arbitration agreement provided:

“If any material dispute, disagreement or controversy concerning this Agreement is not settled in accordance with the procedures set for in [previous section] . . . then either Party may commence arbitration hereunder by delivering to the other Party a notice of arbitration.”

The court held that the above provision was mandatory at the election of one of the parties: “The word ‘may’ . . . means that either party may invoke the dispute resolution procedures, but neither party is compelled to invoke the procedures. . . . [But] once a party invokes the arbitration provision, the other party is bound to arbitrate.”  The Delmarva court reasoned that the disputes provision would be “rendered meaningless” if the word "may" was interpreted as permissive because parties to a commercial contract can always choose to submit their disputes to arbitration.  The Fourth Circuit reached the same dcision in United States v. Bankers Ins. Co.

Given the trend that the courts have interpreted the term “may” as “shall” in the context of arbitration agreements, parties to a construction contract must be careful in understanding both the plain, ordinary meaning and the legal meaning of the particular words used. In the above examples, if the parties wanted arbitration of disputes to be permissive and non-mandatory, they could have clarified their contract by including more explicit language (i.e., "any and all disputes, upon mutual agreement, may be arbitrated" or "with the consent of the other party, either party may commence arbitration").  It is important in contract drafting that you say what you mean and you mean what you say.

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