Resolving Construction Disputes: Review of State DOT Processes (2024)
Chapter: III. OVERVIEW OF ARBITRATION AND OTHER BINDING DISPUTE RESOLUTION PROCESSES
fact come to a determination independently, rather than being swayed by, or even defaulting to, the DRB’s recommendation.
While the formal DRB recommendation process is intended to be expeditious, it still requires a fair amount of effort by the parties. To address this, many DRB specifications also have options for the parties to obtain advisory opinions from the DRB. The advisory process enables the DRB to give a quick opinion on a discrete issue without requiring the parties to go through a full hearing process. An example of the advisory opinion concept is found in ITD’s DRB specification.35 ITD calls this the “Informal Review Process,” with meetings that consist of informal oral discussions with input and comments encouraged from the ITD and contractor. The stated purpose of the Informal Review Process is to enable the DRB to provide initial impressions and oral guidance on the dispute, without offering any opinion as to legal questions or making any written findings.
Most advisory processes contemplate that the advisory opinion will take place at a regularly scheduled DRB meeting. After the parties give presentations on the issues, the DRB will deliberate and provide a verbal advisory opinion at the meeting. Should the parties not be able to resolve the issue based on the advisory opinion, either one generally has the ability to ask the DRB to conduct a formal hearing and provide a written recommendation on the dispute.
4. Mediation
Mediation is a well-known dispute resolution process where a third-party neutral (i.e., the “mediator”) acts as a facilitator to assist in resolving a dispute between two or more parties. The mediator’s role is, among other things, to facilitate communication between/among the parties, assist in identifying the real issues of the dispute and the interests of the parties, and to generate options for settlement. As a neutral, the mediator has no vested interest in the outcome and cannot bind the parties to any outcome—the parties remain in decision-making control. Because mediation is normally considered part of the settlement process under state law, what is said or provided during the mediation process is confidential—i.e., it cannot later be used against a party. This encourages the parties to be candid in trying to reach a settlement.
Some DOTs (e.g., Georgia DOT) require mediation as a condition precedent to binding dispute resolution.36 Others address mediation in their specifications by expressly stating that it is an option. As noted earlier, MaineDOT’s Standard Specifications state that the parties may mutually agree in writing to any form of dispute resolution, including mediation, without providing any detailed explanation of the process envisioned. Colorado DOT’s Standard Specifications have similar language in its claims process, stating that: “Nonbinding Forms of alternative dispute resolution such as Mediation are available upon mutual agreement of the parties for all claims submitted per this subsection.”37
While ITD’s Standard Specifications are similar in concept (i.e., reinforcing that mediation is optional), their language explains what happens to the overall claims/disputes process if the parties do agree to mediate:
Notwithstanding the formal claims procedure specified in 105.16, the parties may enter into mediation by mutual agreement at any time, in which case the claim review time requirements in 105.16 will be suspended pending the outcome of the mediation process. The rules, time, and place for mediation, as well as the selection of the mediator will be established by mutual agreement. The mediator’s costs will be divided equally between the Department and the Contractor. Either party may terminate mediation at any time upon notice to the other party. The suspension of the claims review time requirements in 105.16 will automatically end if either party terminates the mediation.38
While WSDOT similarly states that mediation can be used upon mutual agreement, its specifications state that participation in the mediation does not waive the time requirements associated with the commencement of arbitration or litigation.39
Virtually all DOTs make mediation subject to agreement by the parties. Arizona DOT is different. It gives the contractor the ability to request mediation prior to filing for arbitration or litigation, and that request must be honored by the DOT.40
Because parties can agree to mediate at any time, there is often nothing in a DOT specification or contract that will directly address mediation. Consequently, while many of the DOT specification books are silent on mediation as an option for nonbinding dispute resolution, it is well-understood that if the parties think that a mediator can help resolve a dispute, there is no impediment to their ability to retain a mediator during the course of the project. As a practical matter, however, the effectiveness of mediation is very much dependent upon whether the parties have the information needed to make an informed business decision to settle. A good mediator will be aware of this and work to have the parties exchange sufficient information to enable their counterparties to evaluate their positions.
III. OVERVIEW OF ARBITRATION AND OTHER BINDING DISPUTE RESOLUTION PROCESSES
The previous section focused on techniques parties can take to resolve disputes amicably—even if they require the help of a third party. If these approaches are unsuccessful, the matter
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35 ITD STANDARD SPECIFICATIONS FOR HIGHWAY PROJECTS, SECTION 105.19 - CONTRACT SPECIFIC ALTERNATE CLAIM RESOLUTION PROCESS – DISPUTE REVIEW BOARD, (2018) (“ITD STANDARD SPECIFICATIONS”).
36 GEORGIA DOT STANDARD SPECIFICATIONS, CONSTRUCTION OF TRANSPORTATION SYSTEMS, SECTION 105.13 - CLAIMS FOR ADJUSTMENTS AND DISPUTES, PARAGRAPH F - MEDIATION (2022).
37 COLORADO DOT STANDARD SPECIFICATIONS FOR ROAD AND BRIDGE CONSTRUCTION, SECTION 105.24 - CLAIMS FOR UNRESOLVED DISPUTES (2022).
38 ITD STANDARD SPECIFICATIONS, SECTION 105.18.A - MEDIATION.
39 WSDOT STANDARD SPECIFICATIONS FOR ROAD AND BRIDGE AND MUNICIPAL CONSTRUCTION SECTION 1-09.13(2) - MEDIATION (2024).
40 ARIZONA STANDARD SPECIFICATIONS FOR ROAD AND BRIDGE CONSTRUCTION SECTION 105.21 - ADMINISTRATIVE PROCESS FOR THE RESOLUTION OF CONTRACT DISPUTES (2021).
will be turned over to one or more third parties (i.e., arbitrators, jurors, or judges) who will determine the winner and loser in the dispute. This section will discuss the general attributes of binding dispute resolution processes—specifically arbitration and litigation—and highlight the major differences between them. It will also discuss Texas DOT’s use of a binding DRB.
A. Arbitration41
Much has been written about arbitration generally and about arbitration on construction disputes specifically. Arbitration has long been used as the means to reach a binding resolution of disputes between parties on private sector construction projects. Its use in the public sector has been more limited. This is largely because many states have statutes that require disputes against public agencies to be litigated within the state. This section will address some of the unique aspects of arbitration, including how the process works. Chapters V and VI will provide additional details regarding some of the rules governing the arbitration process.
1. General
The AAA defines arbitration as “the submission of a dispute to one or more impartial persons for a final and binding decision.”42 The “final and binding” feature is what makes arbitration a full substitute for litigation and differentiates it from most other ADR processes, such as mediation and DRBs. As an alternative to litigation, arbitration is a private and confidential process that, in typical construction cases, is based upon one or more agreements between contracting parties that they will arbitrate their disputes. The agreement to arbitrate can take one of two forms: (a) a pre-dispute arbitration clause included as part of a contract; or (b) an agreement by disputing parties to take the matter to arbitration, sometimes after a dispute has arisen.
Federal and state statutes have a major impact on arbitration. The most important statute is the Federal Arbitration Act (FAA).43 Enacted in 1925, the FAA provides the basic foundation for arbitration in the United States and has both “front-end” and “back-end” implications. At the front-end, the FAA makes it clear that if a lawsuit is filed where the dispute is subject to an arbitration agreement, the court is required, at the request of a party, to refer the parties to arbitration and otherwise enforce the agreement to arbitrate. At the back end, the FAA provides the standards and procedure for courts to confirm, modify, or vacate arbitration awards.
Each state has its own arbitration statute. The majority of these statutes are based on either the 1955 Uniform Arbitration Act (UAA) or its 2000 successor, the Revised Uniform Arbitration Act (RUAA). The UAA and RUAA address most of the same front-end and back-end issues covered by the FAA, and they provide some limited guidance on how arbitrations are to be conducted. Some state arbitration statutes also elaborate at least briefly on how the actual arbitration process will work, such as clarifying the power of arbitrators to issue subpoenas to third parties. These procedures are briefly discussed in Chapter VI of this digest.
Importantly, these statutes do not in and of themselves give parties the right to arbitrate. A party cannot be required to arbitrate unless it has agreed to do so in writing. Stated differently, arbitration at its core is a consensual process that is contractually based. If the parties agree to arbitrate, they have substantial flexibility in determining the process, so long as their agreements do not violate public policy.
The flexibility to determine the process is evident in the arbitration approaches used by DOTs that have arbitration as a tool in their ADR toolbox. For example, the parties can restrict the powers of the arbitrators to only certain categories of disputes or to only disputes less than a certain monetary value, as is the case with Florida DOT, Arizona DOT, and other DOTs. The parties can also condition the right to commence arbitration on a specific condition precedent, like mediation of the dispute or the issuance of a final administrative decision (such as a commissioner’s decision). The parties also frequently specify in their arbitration agreement process-related subjects, such as: (a) who will administer the arbitration; (b) where the arbitration will be held; (c) how many arbitrators will be appointed and the qualifications of those arbitrators; and (d) the extent, if any, of prehearing discovery that will be allowed.
Most arbitrations are administered by a private arbitral institution that provides administrative services, like overseeing the appointment of arbitrators and collecting and disbursing the arbitrators’ fees and expenses. Each arbitral institution has its own set of arbitration rules that govern the arbitrations it administers. The AAA is the market leader for this in the United States. However, the use of a third-party administrator is not a requirement, as the parties can decide to forego using an outside administrator and administer the process on their own. Even when parties forego use of an administrator, they generally still agree to use a given set of arbitration rules to govern the process. For example, parties are free to agree that the AAA Construction Industry Arbitration Rules (AAA Construction Rules) will be applied, even if the AAA has no administrative role for the particular dispute.
2. The Basic Features of Arbitration
As noted earlier, the parties have a significant say in how to construct their arbitration process given that arbitration is a creature of contract. Because the AAA Construction Rules are commonly used, they provide a baseline for discussing some of the most common features of the process.
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41 The content for this section is largely derived from Chapter 1, “Distinctive Features of Arbitration,” M.C. LOULAKIS, AMERICAN BAR ASSOCIATION, CONSTRUCTION ARBITRATION: THE ADVOCATE’S PRACTICAL GUIDE, (Andrew D. Ness & John Foust, eds., 2023). See also Chapter 19, “Dispute Resolution Processes,” AMERICAN BAR ASSOCIATION, CONSTRUCTION LAW, (Allen L. Overcash, Carol J. Patterson, Ross J. Altman, & Stephen A. Hess, eds., 2nd ed. 2019).
42 AMERICAN ARBITRATION ASSOCIATION, A GUIDE TO COMMERCIAL MEDIATION AND ARBITRATION FOR BUSINESS PEOPLE, (October 1, 2013).
43 9 U.S.C. §§ 1–16.
Under the AAA Construction Rules, an arbitration commences when the initiating party (the Claimant) submits a Demand for Arbitration (Demand) to the AAA. The Demand identifies the counterparty (the Respondent), location of the arbitration, and expected number of days of hearing. The Demand will also describe the dispute and relief sought, although this description is often quite brief. The Claimant then serves the Demand on the Respondent. Once the AAA receives the Demand and the appropriate filing fee from the Claimant, it sets a deadline for the Respondent to answer or file a counterclaim.
If the arbitration agreement is silent as to arbitrator selection, the AAA will identify a list of potential arbitrators. The parties then strike unacceptable names and rank the remainder in order of preference. More commonly, when three arbitrators are to be appointed, the parties agree that each party will appoint one arbitrator, and the two party-appointed arbitrators will select the third person, who will serve as chair of the panel.
Once the arbitrator(s) have been duly appointed, the next step is a preliminary hearing to discuss the management of the case, most particularly scheduling of the prehearing events and hearing dates. Following the preliminary hearing (which is typically done by phone or video meeting), the dates established for prehearing events, such as discovery steps and disclosure of witnesses and exhibits, will be set out in a Case Management or Scheduling Order. In more complex cases, there may be several interim preliminary hearings/status conferences scheduled as checkpoints where the arbitrators can confirm that the case is moving ahead smoothly to hearing. The complexity of the prehearing timetable will depend on how extensive the agreed prehearing process and allowed discovery will be.
At the arbitration hearing, each party will have a full opportunity to present whatever evidence and arguments it has to support its positions, with all witnesses being subject to cross-examination. Generally, there will be an opportunity either to submit a prehearing brief or to make an opening statement, and sometimes both are permitted. Transcription of the hearing is not required but is frequently requested for substantial cases. At the conclusion of the evidence, there will be an opportunity for either final arguments or submission of post-hearing briefs. Many times, the choice between final arguments and post-hearing briefings is not made until the hearing, in consultation with the arbitrators.
After all the evidence has been presented, and any agreed post-hearing submissions are received, the arbitrators close the record. The AAA Construction Rules require the award to be rendered no later than 30 days from the close of the record, although this can be extended by agreement. The AAA Construction Rules provide for different forms of award with different levels of detail, including a reasoned opinion, an abbreviated opinion, or findings of fact and conclusions of law, but at a minimum the award must include a concise, written financial breakdown of any monetary amounts awarded.
3. Enforcing and Vacating an Arbitration Award
Once an award is rendered by the arbitrators, the parties have decisions to make. If they both decide to honor the award, then no further legal actions are needed. If they do not, or if one of the parties is non-committal, then the parties have the right to resort to the FAA and the applicable state arbitration statute to enforce or appeal the award.
The party that wants to enforce the award will usually petition the appropriate court for confirmation of it. Once the award is judicially confirmed, it is enforced just like any other court. The court must confirm the award unless the award is vacated, modified, or corrected, per the governing arbitration statute. Arbitration statutes typically provide parties no longer than one year to confirm an award.44 If the losing party wants to fight the award, it can ask the court to vacate it, per the process set out in the FAA and applicable state arbitration act. Requests to confirm the award and requests to vacate it are generally heard in the same proceeding.
The grounds for vacating a duly entered arbitration award are narrow and limited. The FAA has only the following four grounds for vacating the award, and they mainly focus on the conduct of the arbitrators:45 (a) where the award was procured by corruption, fraud, or undue means; (b) where there was evident partiality or corruption; (c) where the arbitrators were guilty of misconduct in refusing to postpone the hearing or in refusing to hear material evidence; and (d) where the arbitrators exceeded or imperfectly executed their powers. Most state statutes have similar grounds for vacating awards, but there can be material differences.
Courts apply a limited standard of review when hearing a motion to vacate an arbitration award. In fact, the United States Supreme Court, which has considered a number of arbitration appeals, has stated that the courts may vacate an award “only in very unusual circumstances,”46 citing the purpose of the limited reviews as needing to “maintain arbitration’s essential virtue of resolving disputes straightaway” and to prevent a “cumbersome and time-consuming judicial review process.”47 Given this, arguing that the award is simply erroneous, or not supported by the facts or the law, is not a ground for vacating it under the FAA. As discussed later, the limited ability to overturn an arbitration award brings finality to the dispute more quickly than litigation, which some see as a significant advantage while others see it as a significant disadvantage.
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44 Chapter 42, “Enforceability of Arbitration Provisions,” RICHARD K. ALLEN AND STANLEY A. MARTIN, CONSTRUCTION LAW HANDBOOK, (2nd ed. 1999).
45 9 U.S.C. § 10.
46 Supra note 41 at chapter 9, “Appeals from Arbitration Awards,” K.O. Barnes, citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995).
47 Id., citing Hall Street Assocs. LLC v. Mattel, Inc., 552 U.S. 576, 588 (2008).
B. Litigation
Civil litigation is a legal process that occurs when two or more parties have a dispute that does not involve criminal accusations and seek to resolve that dispute in a federal or state court. The third party that decides the dispute will typically be a judge or a jury, although it is possible that special masters or magistrates will be appointed for complex disputes, including construction disputes.
The processes for initiating and pursuing civil litigation are defined by statutes and regulations. Federal trials are held in United States district courts and governed by two major sets of rules: (a) the Federal Rules of Civil Procedure (FRCP), which govern how civil proceedings are conducted; and (b) the Federal Rules of Evidence (FRE), which govern the introduction of evidence in those trials. State court trials are governed by the procedural and evidentiary rules of that state, and those rules can substantially vary from state-to-state, and sometimes even from court-to-court within a state.
It is far beyond the scope of this digest to provide a detailed discussion of the litigation process in federal or state courts. Suffice it to say that parties involved in litigation are almost always represented by trial lawyers experienced in the applicable rules of the court where the case will be heard. However, set forth in the following are discussions of three key questions that are relevant to this discussion: (a) which court will hear the case; (b) what are the basic features of litigation; and (c) what are the rights of a party to appeal?
1. Court Selection
There are major constraints on what courts parties can use to start litigation. This is a complex subject, and many reported federal and state decisions address these issues. Simply put, parties are limited to suing in courts that have subject matter jurisdiction over the dispute and personal jurisdiction over the defendants. Adding to the complexity is that even if a court has jurisdiction, there are rules about which specific court within a state will be able to hear the dispute.
Subject matter jurisdiction means that a court can only hear and decide cases of a particular type. In federal court, subject matter jurisdiction means cases: (a) that arise or are based on any federal law (e.g., patent infringement cases); or (b) where the parties to the lawsuit are all citizens of different states and the amount in dispute is greater than $75,000. Construction disputes almost always fall into category (b) and are governed by the “diversity of citizenship” requirement. This means, for example, that if the plaintiff and one or more of the defendants are citizens of Arkansas, the case cannot be heard in an Arkansas federal court and will instead be heard in a state court in Arkansas (or even in another state).
While state courts do not have major subject matter jurisdiction constraints, they do have rules for which courts within the state can hear the dispute. Sometimes this is based on the amount of money that is being disputed in the case. For instance, small claims courts are limited by their states’ statutes with respect to the amounts of money in controversy that they are able to decide. More relevant to this digest, some states, like Maryland and Ohio, have established specific courts to hear contract disputes with the state, including actions against the DOT. These are discussed later in this section.
Personal jurisdiction means that the defendant must have an appropriate relationship to the court, which generally means that it must be involved in activities in the state where suit is being brought (regardless of whether it is a federal or state court). It also means that the defendant must receive proper notice that suit has been filed. Stated differently, a plaintiff cannot bring a lawsuit in California simply because it thinks that this is a plaintiff-friendly state if the defendant has no connections whatsoever with California. If it tried, the defendant would have the right to move to dismiss the California case on the basis that the California court did not have personal jurisdiction over the defendant.
Venue is a legal term that refers to the place where the proceedings of a case or trial are conducted. The selection of the venue is based on the convenience of the parties and the witnesses involved in the case, with the primary purpose being to ensure that the trial takes place in a location that is fair, accessible, and impartial. This can often be a highly contested issue, as what is convenient for one party may not be convenient for another.
As discussed more in Chapter V, contractor lawsuits against DOTs inevitably take place within a state court where the DOT or the DOT’s project is located. Many DOT standard specifications explicitly address this by identifying the specific state court where disputes will be heard. For example, the Kentucky Transportation Cabinet requires its contractors to file lawsuits with the Franklin County Circuit Court in Frankfort, Kentucky.48 Other states have more flexibility. For example, contractors having claims against Virginia DOT may file “a petition in the Circuit Court of the City of Richmond or where the highway project which is the subject of the contract is located.”49
2. The Basic Features of Litigation50
As noted earlier, the litigation process is defined by the applicable rules of civil procedure and evidentiary rules applicable to the court hearing the case. Consequently, the terms used within a court, the timing of when submissions are due, and all other elements of the process can vary from court-to-court. Given this, the discussion that follows is merely a high-level explanation of the basic features of litigation.
Litigation begins when a party that has a grievance (i.e., the plaintiff) files a complaint with the court. The complaint starts what is commonly known as the “pleadings” stage of the lawsuit, where certain formal documents are filed with the court that
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48 KENTUCKY TRANSPORTATION CABINET, STANDARD SPECIFICATIONS SECTION 105.13.05 - CLAIM REVIEW (2019).
49 VA. CODE §33.1-387.
50 This section is derived from HOW COURTS WORK, AMERICAN BAR ASSOCIATION (November 28, 2021), https://www.americanbar.org/groups/public_education/resources/law_related_education_network/how_courts_work/pleadings/?login (last viewed October 17, 2023).
state the basic positions of the parties. The complaint describes the basic elements of the plaintiff ’s case, including what the defendant did that caused harm, the legal theory for holding the defendant responsible, and the relief the plaintiff seeks from the court. The complaint will frame the issues of the case through various counts that highlight the plaintiff s cause of action.
The defendant is given a specific amount of time to file an answer to the complaint, with the answer explaining the defendant’s position. Often the defendant will simply provide a general denial, without giving much detail. If the defendant has a claim against the plaintiff, it will file what is known as a “counterclaim,” which is in substance equivalent to a complaint. The plaintiff provides an answer to the counterclaim in the same manner as the defendant responded to the complaint.
The pleadings stage is followed by the discovery stage, where the parties obtain information from each other or from third parties. Information is gathered formally through written questions (i.e., “interrogatories”), requests for production of documents, and requests for admission, where a party is asked to admit or deny statements of fact. Additionally, information is obtained through depositions, where witnesses are questioned under oath.
A common process during both the pleadings and discovery phase is the parties’ use of motions, where a party asks the court to rule or act on something. Motions can vary widely and can include: (a) dispositive motions, such as a motion for summary judgment, which asks the court to dismiss part or all of a party’s case before trial; and (b) administrative motions, where a party might ask the court to order a party to produce documents during a discovery dispute.
The final stage of the litigation process is the trial itself. Trial dates and durations are set by the court, and both are a function of a variety of factors. In some jurisdictions, it can take years to get to trial, even for simple matters. In others, like the “rocket docket” of the U.S. District Court for the Eastern District of Virginia, all cases, regardless of complexity, have a trial less than a year from filing of the complaint. Some courts will have strict limits on how long a trial can last and require the parties to figure out how to get all of their evidence on within those limits. Others are more lenient and essentially let the parties take whatever time they might want to try the case.
At trial, each party calls witnesses or introduces documents and exhibits in support of its arguments. After a witness is called and questioned, the opposing party has an opportunity to cross-examine the witness. The order of the process is rigid – the plaintiff always presents evidence first, then the defendant. The plaintiff may be allowed to present additional evidence (i.e., rebuttal evidence) after the defendant has finished presenting its case.
After all the evidence has been presented, the parties give their closing arguments. For jury trials, the court will give instructions to the jury on the law to be applied to the evidence, after which the jury deliberates and reaches a verdict. For non-jury (i.e., bench) trials, the judge will take the matter under advisement and issue a decision. The timing of the judge’s decision is based on a variety of factors, but it is not unusual for the decision to be given many months (sometimes over a year) after the trial has concluded.
3. Appeals
Appeals from the results of a trial are generally based on legal errors made by the trial judge. For example, a plaintiff or defendant could ask the appeals court to consider whether evidence should have been ruled admissible or whether the law was applied correctly, but not to reconsider whether a particular witness presented compelling testimony or not. Except under unusual circumstances, the appellate court will not review factual evidence or override a jury’s findings of fact.
C. Major Differences Between Arbitration and Litigation
As evident from the processes described earlier, there are many similarities between arbitration and litigation, even though the specific terms of the processes may be different. However, there are also material differences between arbitration and litigation, which are the result of, among other things, the fact that: (a) arbitration is a contractually based process, where the parties have the ability to control much of the disputes process; and (b) litigation is rigid, where the parties are bound by statute to which courts can hear their disputes and the applicable rules of civil procedure and evidence.
While contracts sometimes address certain litigation procedures (e.g., the court where litigation will be conducted and whether or not there will be a jury trial), the rigid nature of litigation is significant. It means that when disputes arise, and assuming there are no contractual limitations, the party that initiates the litigation can file the case in the court that is most advantageous to its position as long as that court has proper jurisdiction. The practical reality is that defendants have limited ability to argue against what the plaintiff wants. Because arbitration is fully contractual, both parties have, at least in theory, significant input into the disputes process. However, even in the case of pre-dispute arbitration clauses that are imposed by one party to the contract, the other party at least knows what it is getting into before signing its contract.
As noted in Chapter I’s introduction, the construction industry as a whole has embraced using arbitration instead of litigation, based on the many reasons why construction disputes warrant being resolved in that forum. A substantial number of treatises discuss the concept of “arbitration versus litigation” generally and particularly in regard to construction disputes.51 The following will highlight some of the more important differences.
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51 Supra note 41 at Chapter 1, “Distinctive Features of Arbitration,” M.C. LOULAKIS. See also AMERICAN ARBITRATION ASSOCIATION, HANDBOOK ON CONSTRUCTION ARBITRATION & ADR, (2nd ed. 2010) and Chapter 41, “Arbitration of Construction Disputes - Advantages and Disadvantages,” J.F. CANTERBURY, JR., CONSTRUCTION LAW HANDBOOK, (2nd ed. 1999).
1. Choice and Background of the Decision-Maker
In litigation, the dispute will be decided by either a judge or a jury. The parties have virtually no influence on who the judge will be and relatively limited ability to influence the selection of a jury. In arbitration, arbitrators are selected directly or indirectly by the parties. This affords them a far greater opportunity to choose a decision-maker who they can be confident will be able to render a fair and informed decision on their dispute.
The “informed” element is particularly significant. Most judges are generalists and often have limited experience in an area such as construction law and with problems encountered on construction projects. This is even more the case with a typical juror, who may not even have a remote understanding of the law or subject matter. On the other hand, it is highly likely (and the parties can even require in their arbitration agreement) that the arbitrators will have substantial expertise in construction issues and know about many of the typical disputes that arise on transportation projects, such as differing site conditions and critical path schedules. Many arbitrators will also have at least a reasonable (if not substantial) understanding of the applicable legal principles associated with the dispute. The chances are accordingly much greater that the result will be considered fair, well-reasoned, and reasonable by the parties. This is borne out by the survey results discussed in Chapter VII, where most respondents had confidence that the arbitration awards they were subject to were fair and reasonable.
2. Procedures and Administration
As discussed earlier, arbitration is much less formal than litigation. Litigation proceedings are governed by the applicable rules of civil procedure and the rules of evidence. Arbitrators are not generally bound by either, although they are required to respect the fundamental rights of the parties, such as providing them with a full and fair opportunity to present their evidence. This difference has a major practical impact on how the proceedings are conducted.
The pretrial process in litigation essentially gives the parties the right to conduct as much discovery as they want, even if the costs far outweigh the benefits. For example, parties often ask for production of “all documents arising out of or related to the project,” which can be millions of documents. Parties can also file motions with the court and argue about any point in contention. In fact, a significant portion of the costs of litigation is associated with discovery and motions practices, and a significant reason that cases take so long to get to trial is because of discovery.
In contrast, the prehearing process in arbitration is generally more streamlined, particularly in terms of discovery. Production of documents is often required to be more targeted to specific categories, and there are often limitations on the number and hours of depositions. Discovery requests can be made verbally or through emails. Motions can be raised and presented for decision quickly, often via emails and phone calls, minimizing the necessity for substantial written briefings. There certainly are some arbitrations where the discovery and motions practice is equivalent to that which would take place in litigation. However, as a general rule, both the parties and arbitrators find ways to avoid this.
Arbitration hearings are generally less formal than courtroom trials. Exhibits can be admitted into evidence in bulk before the hearing begins, as opposed to having them introduced and moved into evidence one by one as happens in litigation. Because the rules of evidence do not generally apply in arbitration, arbitrators have the authority to use their discretion in determining whether to admit evidence. This is particularly relevant for hearsay testimony (i.e., second-hand testimony), which rules of evidence generally preclude being admitted. As noted earlier, the grounds for appealing an arbitration award include failing to let parties introduce material evidence. This means that arbitrators are generally liberal in admitting evidence and often accept redundant and non-relevant evidence to avoid the risk of appeal. Knowing this, the number of objections by counsel at an arbitration hearing is generally much reduced from what might be expected in court.
Because the failure of the arbitrators to consider relevant evidence can be a basis for later overturning the award, obtaining summary determination of an issue in advance of the merits hearing is a significant challenge in arbitration, compared to litigation. For disputes with DOTs, this might be relevant, for example, on issues associated with: (a) exhausting administrative remedies before going to arbitration; (b) claims that are stale and subject to a statute of limitations defense; and (c) claims that might have been waived by failure to follow contractual notice requirements. While summary determination is not precluded and does occur in arbitration under the right circumstances, it is relatively rare compared to the frequency with which summary judgments are entered in litigation.
3. Flexibility and Creativity
Parties have substantial flexibility in crafting the details of their arbitration process and can tailor the process to the dispute. This contrasts with the relatively rigid statutory and procedural rules in litigation. The flexibility differences between litigation and arbitration were particularly evident during the initial COVID-19 period. While courts substantially curtailed any civil trials during that time, arbitrations largely went on as scheduled, using video conference technology instead of in-person hearings.
A variety of other examples of arbitration’s flexibility and creativity showcase the difference with litigation. Some of these examples include:
- Creating a discovery plan that is customized for the dispute;
- Selecting a convenient location for the arbitration hearing; and
- Setting hearings according to the needs and availability of the parties and counsel, rather than the demands of a courtroom calendar. This can extend to the duration of the hearing day and setting hearing days on evenings and weekends when this meets the needs of the parties.
The setting of the hearing is particularly important. For example, to accommodate the availability of the parties and arbitrators, a 10-day arbitration might take place over a month, with three days one week, four days the next week, and three days another week. This flexibility is not available for a jury trial (where the 10 days are expected to be consecutive) and is rarely available in a bench trial. As a result, calendaring ten hearing days of trial might result in a case being pushed out for many months simply because of the availability of the court and counsel over a consecutive period of time.
The flexibility also extends to the hearing process itself. As noted earlier, a trial typically follows a fairly rigid process—i.e., the plaintiff and defendants present their witnesses and introduce their exhibits in a prescribed, sequential manner. Arbitration’s flexibility enables the parties and arbitrators to develop and use innovative techniques for efficiency and to generate cost and time savings. For example:
- Witnesses can be taken out of order to accommodate conflicting schedules or testify by telephone or video conference.
- Written witness statements can be used instead of live, direct examination. This means that both the arbitrators and parties know in advance of the hearing what the direct testimony will be of a witness and the only testimony will be cross-examination of that witness.
- Chess clocks can be used to allocate the available hearing time and ensure that a hearing is concluded in an agreed-upon time.
- Expert witnesses can be called upon to provide joint testimony, enabling the arbitrators to ask them questions at the same time. This is a particularly beneficial way to clarify expert opinions on complicated construction issues, such as delay causation.
In some complicated arbitrations held over longer durations, the parties and arbitrators agree that all fact witnesses for all parties will testify first. This allows the factual evidence to be presented to and understood by the arbitrators before experts provide their testimony about these facts. The respective subject matter experts can then testify “back-to-back” (e.g., first all delay experts, followed by all quantum experts). Few, if any, state or federal courts would allow this.
The flexibility also extends to the arbitration award itself. The parties can choose the level of detail of the award and can control the timing of the award. As noted earlier, in a bench trial, the judge may hear the case and not render a decision for a prolonged period of time. Under most arbitration rules, the arbitrators are required to rule within 30 to 60 days after the hearing is closed.
4. Multiparty Disputes
Construction disputes often involve a number of parties – particularly trade subcontractors. Courts are accustomed to dealing with multiparty litigation. Subject to the limits of a court’s jurisdiction, any party which is needed to completely resolve the dispute can be added to a litigation. The rules of civil procedure also have more robust processes for controlling the proceedings in dealing with multiple parties.
With some exceptions, arbitrations are limited to parties who have expressly agreed to resolve their disputes by arbitration. If a dispute involves a key party that has not agreed to arbitrate, that party cannot be included in the arbitration unless it consents. If all needed parties cannot be joined in one arbitration, there is the potential for inconsistent results when the disputes are heard in other, parallel proceedings. Even if all needed parties are assembled in one arbitration proceeding, there is still a challenge with administering the arbitration—such as which parties have a voice in selecting the arbitrators. Consequently, while arbitrations can and do involve multiple parties, there is little doubt that this complicates the proceedings.
5. Private Nature of the Process
Litigation is a public process. This means that, with some exceptions, anyone can find out if someone has been sued, anyone can look at the pleadings, and anyone can attend the trial and see the results. This can pose issues for both parties. Arbitration, by contrast, is considered a private process, from the moment that a claim has been filed through the hearing and award. No case filings are public, nor is even the fact that an arbitration is pending made public. The parties control who is in attendance at the hearing; outsiders and press representatives are excluded.
The private nature of arbitration does not automatically mean that everything that occurs during the process is confidential. The AAA rules, and the rules of most other arbitral administrators, obligate arbitrators to maintain confidentiality. However, there is nothing in these rules or any statutes that require parties to maintain confidentiality. Many private sector parties will have a separate confidentiality agreement to address this, as confidentiality can be a primary motivation to resolve disputes through arbitration.
Public sector agencies have limitations on confidentiality, and the existence of the arbitration and the award are typically both available to the public. However, typical public sector arbitrations will maintain the privacy of prehearing submissions and the evidence introduced at the hearings, and the general public is not allowed to attend hearings. Maintaining privacy can have a great benefit to both parties, particularly given the reality that many matters settle during the course of a hearing. Keeping the evidence private avoids putting the DOT in a position where the arbitration proceedings are being examined on a day-to-day basis by the public, creating optics that might impact the DOT’s ability to settle.
6. Speed and Cost
As discussed earlier, some state and federal courts are notoriously slow, with cases on the trial docket for years awaiting a trial date. Arbitration has a general reputation for resolving disputes faster than litigation, as it is typically far easier to get a reasonably prompt, firm hearing date from an arbitration panel than from a busy judge. The AAA and most other arbitral administrators have expedited arbitration rules for smaller disputes (e.g., under the AAA rules where no claim or counter-
claim is over $100,000). These rules require the arbitrator to close the hearing within 45 days of the initial scheduling conference and to issue a decision within 14 days thereafter. Litigation generally offers no such expedited alternatives. Moreover, the less formal and more flexible process helps arbitration to move faster than litigation.
The direct cost of initiating litigation (outside of legal fees) is far less than an arbitration conducted through the AAA or other arbitral administrators. Because access to the courts is a public service, litigation filing fees are nominal, and parties are not charged for judges and juries. Arbitrations, on the other hand, can have significant filing fees and the parties pay arbitrators for the time they spend on the matter. On big cases, these costs can be substantial.
On the other hand, the overall cost of an arbitration proceeding is typically less than the overall cost of litigation. Substantial savings generally flow also from the efficiency of arbitration in terms of reduced discovery and motions practice when compared to litigation. There can also be substantial savings in arbitration from the simplified rules of evidence and procedures that cut down the required hearing duration.
7. Finality of Process
As discussed earlier, one of the most important differences between arbitration and litigation is the finality of the process—i.e., the ability of a party to appeal an award with which it disagrees. Overturning an arbitration award is a challenging task, as there are limited statutory grounds for doing so, as noted earlier. This is not the case with litigation, where the losing party has a number of appeal grounds, ranging from the trial court failing to apply the law to violations of the applicable rules of evidence. As a result, an arbitration award typically brings finality to the dispute more quickly than a trial court’s judgment. Many see this finality as an advantage of arbitration, while others view the lack of full appeal rights as a significant disadvantage.
D. Special Courts and Boards of Contract Appeals
While most DOTs that require litigation for the final resolution of their construction disputes use the general courts within the state, some DOTs have special courts or boards of contract appeals that hear these disputes. Depending on the specific forum, the procedures for hearing the dispute are similar to litigation, although there is often more flexibility than in traditional litigation before a general court.
For example, contractor disputes with Ohio DOT are heard by the Ohio Court of Claims, which was specially formed to hear disputes with the state of Ohio over money damages. While the Ohio rules of civil procedure apply, the Court of Claims also has local rules that elaborate on the pretrial and trial processes.52 The court uses differentiated case management, which tailors the process and the court’s resources to the needs of individual cases. To accomplish this, once the complaint is filed, the clerk of the court places it into one of three trial tracks—expedited, standard, or major. Each track has a specific timeline for various prehearing matters, as well as dates for the trial and decision. The time to a trial and decision is triggered by the filing of the complaint and is as follows: (a) expedited track trial and decision within 10 and 12 months respectively after the filing; (b) standard track trial and decision within 14 and 18 months respectively after the filing; and (c) major track trial and decision within 18 and 24 months respectively after the filing.53
Decisions are available on the Ohio Court of Claims website.54 A review of these decisions over the past 10 years demonstrated that there were seven cases brought by contractors/vendors against ODOT. Of those cases, one is still pending, five were dismissed because the case settled, and one (involving a dispute over applicable labor wages) resulted in a written decision and judgment by the court. Appeals of the court’s decisions are heard by Ohio’s Tenth District Court of Appeals.
Contracts with the Maryland State Highway Administration (SHA) require construction contractors that want to appeal a procurement officer’s final decision to use the Maryland State Board of Contract Appeals (MSBCA).55 Formed in 1980, the MSBCA replaced the Department of Transportation Board of Contract Appeals.56 The MSBCA’s rules are largely prescribed by Maryland regulation and have some similarities to the U.S. government’s boards of contract appeals. For example:
- Rule 4 File. Shortly after the appeal is filed with the board, the parties are to file with the board documents relevant to the appeal, including the claim letters related to the procurement officer’s decision, project correspondence, and transcripts. The SHA procurement officer initiates the process and the contractor filing the claim has the right to supplement the procurement officer’s file.57
- Submission Based on the Record. The regulations permit the parties to determine whether a contractor may submit its appeal based on the record without a hearing.
- Simplifying the Process. The regulations contemplate that a member of the MSBCA will arrange a telephone conference to address the prehearing process and how to, among other things, simplify issues, reach agreement on documents and other matters, and limit the number of expert witnesses.
- Optional Small Claims and Accelerated Claims Processes. For disputes under $100,000, the regulations give the contractor the opportunity to simplify the proceedings and obtain an early decision of the appeal.
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52 https://ohiocourtofclaims.gov/wp-content/uploads/2021/10/local-rules-2019.pdf (last visited October 12, 2023).
53 https://ohiocourtofclaims.gov/claims-vs-the-state/case-timelines/ (last visited October 12, 2023).
54 https://ohiocourtofclaims.gov/online-services/ (last visited October 12, 2023).
55 MARYLAND DEPARTMENT OF TRANSPORTATION STATE HIGHWAY ADMINISTRATION STANDARD SPECIFICATIONS FOR CONSTRUCTION AND MATERIALS GP-5.15 - DISPUTES (July 2023).
56 https://msbca.maryland.gov/origins/ (last visited October 12, 2023).
57 MD. CODE REGS. 21.10.06.04.
