Construction Law

The new AIA Documents and Arbitration - What Rules Apply?

By Werner Sabo

One subtle change in the new 2007 AIA documents involves the incorporation of the Rules of the American Arbitration Association into the agreement, assuming that arbitration is selected as the dispute resolution method. For example, AIA Document B101, Owner-Architect Agreement, states:

§ 8.3.1 If the parties have selected arbitration as the method for binding dispute resolution in this Agreement, any claim, dispute or other matter in question arising out of or related to this Agreement subject to, but not resolved by, mediation shall be subject to arbitration which, unless the parties mutually agree otherwise, shall be administered by the American Arbitration Association in accordance with its Construction Industry Arbitration Rules in effect on the date of this Agreement.

The end of this sentence sets the applicable rules as those "in effect on the date of this Agreement," at least according to the AIA, and this does appear to be what this says. However, if one reads the AAA rules, the very first rule of the AAA reads as follows:

R-1. Agreement of Parties

(a) The parties shall be deemed to have made these rules a part of their arbitration agreement whenever they have provided for arbitration by the American Arbitration Association (hereinafter AAA) under its Construction Industry Arbitration Rules. These rules and any amendment of them shall apply in the form in effect at the time the administrative requirements are met for a demand for arbitration or submission agreement received by the AAA. . . .

Thus, the AIA agreement incorporates this, and other, rules into the agreement. Note that Rule 1 states that the rules that apply are the ones "in effect at the time the administrative requirements are met for a demand for arbitration..." Thus, the rules that will govern the arbitration are not necessarily the ones in effect on the date of the Agreement, but the ones in effect at the time the arbitration is filed with AAA.

One might argue that the AIA agreement trumps Rule 1, but the reverse is true. The AIA document incorporates the AAA Rules, which specify which actual rules will apply. The AIA document does not change that, although a more careful drafting of the above-quoted language could have done so.

So what, you might ask. Do the Rules ever change? Absolutely! Several years ago, the AAA instituted "consumer-friendly" rules. These were intended to apply to situations involving consumers and shifted most of the costs to the business. For instance, if a small architect or contractor were doing work for Michael Jordan (this is an example only, because he is very wealthy. I am not picking on him) on his multi-million dollar residence. Suppose that a dispute developed and a massive arbitration ensued. Under those rules (since changed, because of the ensuing uproar), the owner?s share of the fees was capped at less than $500, while the contractor or architect might have paid tens of thousands of dollars! Because of the ensuing outrage over this, the rules were again revised, but there is no telling when the rules may again be amended to the detriment of architects or contractors.

If the parties truly want the rules that are in effect as of the date of the agreement to be applicable, the standard AIA language needs to be tweaked. Since we are not giving legal advice, we will not make a suggestion, but any competent construction attorney should be able to structure something that will work.

Full post as published by Construction Attorney Blog on November 08, 2007 (boomark / email).