that are helping DOTs to understand what precedent is actually in existence.

X. PRACTICAL ADVICE AND CONCLUSION

The primary purpose of this digest is to provide a thorough review of the binding and nonbinding dispute resolution process being used by DOTs around the country, with an emphasis on binding arbitration. The research confirmed that many of the DOTs who routinely use partnering and issue resolution ladders as part of their programs also use either standing or ad hoc DRBs as a tool to augment their ability to resolve disputes with their construction contractors.

Before starting the research for this digest, the author assumed that few, if any, DOTs used binding arbitrations for their construction disputes. Many public agencies hold the view that, among other things: (a) arbitrators generally favor contractors over the public agency; (b) arbitrators do not enforce notice provisions and other elements of the project; and (c) litigation provides a more comfortable and familiar environment and process for the agency’s lawyers.

The research confirmed some assumptions but disproved others. Almost one-third (16) of the country’s DOTs have binding arbitration as part of their dispute resolution processes with contractors. Of these, only three (Caltrans, Connecticut DOT, and North Dakota DOT) use arbitration as the way to resolve all of their construction disputes, regardless of the magnitude of the dispute. Two DOTs (Ohio and Oklahoma) had the ability to use arbitration if they agreed to, and Ohio has actually done so. Ohio and Oklahoma interviewees both said that they liked having arbitration as an option, as it enabled the parties to maintain a good relationship through the dispute. The Ohio DOT interviewee stated that in contrast to arbitration, litigation “puts everyone on edge and makes people angry.”

The reality is, however, that all of the other DOTs who had arbitration authority or statutory mandates totr use arbitration were only required to use arbitration for somewhat small value claims. The research provided insufficient data to determine how often a contractor-initiated arbitration in these states or how often a case reached the stage of getting to a final award. Arizona DOT, which has a limit of $200,000 for arbitrations, knew of no arbitrations being filed over the past five to six years, as it essentially resolved its contractor disputes through mediation. Perhaps the most interesting data comes from Florida, where its State Arbitration Board decided only one FDOT case since 2007. This may be attributed to many factors. However, it was common knowledge that the FDOT arbitration process was not working, resulting in both statutory changes and changes that will be implemented to the Board’s processes by the first half of 2024.

If arbitration is truly to be something that DOTs want to consider using, there is a need to ensure the quality and integrity of the arbitrator pool. Some of the points of dissatisfaction in the surveys directly related to the quality of arbitrators. Many of the DOT processes had each party selecting an arbitrator and then the party-appointed arbitrators selecting the third. There is nothing wrong or unique about this—it is a common practice for construction arbitrations in other industries. The question is whether the parties feel that every panel member will be neutral and unbiased. Some believe that, as is the case with DRB members, party appointees may claim to be neutral, but they actually are not.

Questions about an arbitrator’s willingness to disregard the contract and simply be “fair” often arise on public sector arbitrations. Because DOTs typically control the drafting of contracts and want to enforce notice and exculpatory clauses, a DOT might feel that it is better off in litigation, where a judge will be more inclined to enforce the contract. However, the reality is that just as nothing stops an arbitrator from considering fairness, nothing stops a judge from doing the same thing. The downside is that most judges do not understand the nuances of construction law, which means that the judge could have a misguided view of what “fairness” means on a particular dispute and reach a wrong decision.

Two of the more compelling facts that were learned during the research were that both Colorado DOT and Delaware DOT eliminated arbitration from their disputes processes. For the small state of Delaware, this may not be a big deal for contractors working with DelDOT. CDOT is a different story, given the size of some of its projects and program. Industry should pay close attention to what happens in these states with the shift from arbitration to litigation. In particular, it will be interesting to see whether this has a material impact on how claims are resolved and the relationship between CDOT and its contractors.

As noted in this digest, contractors should seriously consider whether the dispute resolution process for a DOT is reasonable and fair in terms of assessing not only risk, but also their interest in pursuing projects. While this has already been done to some degree, it will be incumbent upon DOTs and their advisors to be thoughtful about how to attract market interest on large design-build and P3 projects, where national and international contractors may be the ones most interested and capable. Market forces have long shaped the construction industry, as is evident by the Travelers study and the fallout that started in 2018-19 as a result of substantial losses by the country’s major contractors on fixed price design-build and P3 civil infrastructure projects. Given that contractors are taking a much more refined look at contracting opportunities and risk, this evaluation could extend to dispute processes, where arbitration is expected as the venue of last resort.

In addition, several thoughts come to mind, based on a review of the various DOT processes and the feedback from DOTs and industry, about how to potentially improve some of the dispute processes covered by this digest:

1. Mediation. Mediation is generally perceived as a useful process to resolve construction disputes. The problem is that mediating before both parties are ready is generally a waste of time. Most DOT specifications allow mediation when both parties agree to it, which eliminates the issue. Those DOTs that mandate mediation when the contractor demands it, or as a matter of course before being able to go

the next stage of the disputes process, should consider whether that has accomplished their goals.

2. Contractor’s Recourse after the DOT’s Final Administrative Decision. Most DOTs clearly explain in their published literature how the whole claims process works, from start to finish. It was surprising how many DOTs do not make this clear, particularly about what is to happen once a final administrative decision is made. It is possible that everyone in the state knows how it is supposed to work, but it does not seem like a “heavy lift” to have the specifications or construction manuals provide clarity on this subject.
3. The Use of Neutral Arbitrators. Consistent with the earlier discussion, the integrity and competence of the arbitrators is vital to arbitration success. DOTs should provide clarity on whether they are expecting their arbitrators to be neutral. Perhaps more importantly, they should consider whether the AAA and its process for arbitrator selection would be in the best interests of their program.
4. Examining the Effectiveness of the Disputes Program. It is important to get an objective assessment as to how programs are working, and this applies to dispute resolution programs as well. As stated so well by one of the respondents, “Is the juice worth the squeeze” when evaluating how DRBs and partnering are working? Is it having a measurable positive impact on disputes and relationships? What about the monetary value limits for arbitrations? Is that working as intended or not? Several DOTs have made some major changes to their ADR programs (e.g., Colorado, Delaware, and Florida). It might be useful for others to determine whether an assessment is needed.

As a final observation, we note that it is important not to try to fix something that is not broken. Most DOTs have strong relationships with those in the contracting business, and most states have an association of transportation contractors that looks out for their best interests collectively. If the trade association or a group of respected contractors believes the DOT is doing something wrong, then they will likely bring it to the DOT’s attention. If an aspect of the process can be improved, they will also likely raise it. Stated differently, is the use of arbitration instead of litigation, or improvements to the arbitration process, on anyone’s mind in the given state? If so, it is incumbent to have a discussion about how to address it. If not, and the litigation or administrative boards are basically working fine in the eyes of those that are involved in the process, then there may be nothing to discuss.