An ounce of prevention

Editor’s note: This article is for general educational purposes only and does not constitute legal advice.

When a dispute arises on a roofing project, you should work diligently to resolve the issue in the most efficient, effective manner possible. But if you cannot resolve the dispute through customer service, most roofing contracts contain some form of dispute resolution. The type of dispute resolution can include using an architect or engineer to resolve claims on a project, mediation, arbitration or litigation.

Initial Decision Makers

The American Institute of Architects provides a variety of standard contracts used by the construction industry. AIA A201-2017, “General Conditions of the Contract for Construction,” identifies an Initial Decision Maker. The Initial Decision Maker’s role on a project is to attempt to resolve claims before they result in arbitration or litigation.

The Initial Decision Maker is "the person who is defined in the agreement to render initial decisions on Claims in accordance with section 15.2 and certify termination of the agreement under section 14.2.2." This allows the owner and the general contractor to select someone other than the architect as the Initial Decision Maker.

The Initial Decision Maker’s role is to analyze claims submitted by the owner or contractor and make an initial determination of the claims’ validity. Under AIA A201, each party has 21 days to submit a claim in writing to the Initial Decision Maker for resolution.

Once submitted, the Initial Decision Maker must render a decision within 30 days. Submittal of the claim to the Initial Decision Maker also is required before seeking mediation and then arbitration or litigation under the AIA A201 document. After receiving the claim, the Initial Decision Maker has 10 days to reject or approve the claim, suggest a settlement, request additional information, or inform the parties he or she cannot make a decision.

AIA A201 provides initial guidance to the owner and contractor regarding the Initial Decision Maker. However, AIA A201 fails to identify the criteria needed for selecting an Initial Decision Maker, who will pay the Initial Decision Maker and the process for submitting evidence in support of claims. Future AIA revisions may specifically address these concerns, but in the interim, the parties should consider entering into an agreement with the Initial Decision Maker that specifically addresses these issues.

The Initial Decision Maker could be anyone with sufficient construction experience to make informed decisions regarding the submitted claims. Potential Initial Decision Makers may include construction attorneys, design professionals or construction consultants. When selecting an Initial Decision Maker, the owner and contractor should ensure the Initial Decision Maker is neutral and unbiased. In addition, the Initial Decision Maker should disclose any personal or financial connections to either party or the project.

Depending on the nature of the claims submitted, the Initial Decision Maker does not necessarily need to be located in the same state as the project. As with arbitrations, a majority of the meetings and hearings are done by phone or virtually. Presumably, the parties could submit documents and supporting evidence. The Initial Decision Maker may determine whether a decision can be made regarding the documents submitted by the parties or a formal hearing needs to take place, allowing both parties to present witnesses. Regardless of the decision, both parties can proceed to mediation and arbitration or litigation depending on the outcome.

The Initial Decision Maker can help owners and contractors avoid the expense of arbitration or litigation and costly delays on roofing projects as well as encourage the efficient resolution of claims.

Mediation

If you have participated in pre-suit/pre-claim or court-ordered mediation, you know the process can be frustrating. However, there are many benefits to mediation.

People often confuse mediation, arbitration and litigation. Litigation involves resolving your dispute in court in front of either a judge or jury. In roofing contracts, arbitration is almost always binding and involves resolving disputes with a selected arbitrator or a panel of arbitrators.

Unlike litigation or arbitration, mediation involves the parties using a third party to facilitate a settlement between parties. A mediator does not act as a judge and will not issue decisions. Everything said in mediation remains confidential and generally cannot be used in court or arbitration proceedings. If the parties can resolve their disputes in mediation, they will execute a settlement agreement. If the parties cannot resolve their disputes, they will continue arbitration or litigation, which often can be costly. However, early in the dispute, mediation may allow the parties to resolve a claim at a fraction of the cost they would have paid for attorneys' fees, experts’ costs and other miscellaneous expenses if the case were to proceed to trial.

Another benefit of mediating a roofing dispute is it allows both parties to hear the other side's case and obtain “free” discovery. At mediation, listening to the other party's case may help your attorney focus future discovery efforts by requesting certain documents, setting depositions of critical witnesses and/or creating poignant interrogatories to be asked to the other side.

When selecting a mediator, it is essential to select someone with a construction law background and who is familiar with the legal principles underlying all construction disputes. A skilled construction mediator will adequately analyze the claims and use roofing knowledge to help negotiate a mutually agreeable settlement.

Before attending mediation involving a roofing dispute, the parties must exchange a minimum level of documents or other evidence to facilitate settlement and reveal the issues. Often, the parties may not settle the dispute at mediation because they do not have all the documents or evidence needed to substantiate a claim. But when the documents and evidence can be disseminated before mediation, the parties will have full knowledge of the issues and damages going into mediation and what needs to be addressed during negotiations.

In challenging economic times, it is essential to use mediation to resolve disputes and understand the other party's position before spending excessive amounts for attorney's fees and costs. The parties to any dispute should view mediation as a cost-effective alternative to proceeding with either arbitration or litigation.

Arbitration

A majority of roofing contracts require parties to resolve disputes through arbitration. Arbitration involves the parties submitting their claims to one or several arbitrators who act as judges to determine the outcome of the disputes on a project. An arbitrator's decision is binding and difficult to appeal. Although many advocate the use of arbitration, there are benefits and drawbacks you should consider before placing an arbitration provision in your contract.

Typically, arbitration may be cheaper than litigation. Arbitration fees may be expensive, but arbitrations generally conclude more quickly than court cases. The parties are free to choose arbitrators through an association such as the American Arbitration Association® or select a mutually agreed upon private arbitrator.

Generally, less discovery is performed in arbitration than in a court case. This is because discovery includes things such as depositions and requests for documents. This is beneficial because it decreases attorney's fees and costs. But it could be a drawback if your counsel cannot obtain all the discovery needed to prosecute or defend your case correctly.

Another benefit of arbitration is a case usually is closed once the parties have finished the arbitration and confirmed the arbitration award. Arbitration also is beneficial because the parties may select an arbitrator with roofing experience who is more knowledgeable about roofing issues than an average judge or jury. Having a knowledgeable arbitrator allows the parties to communicate at a higher level and spend less time educating the arbitrator about roofing and more time discussing the dispute.

Arbitration is a valuable tool for avoiding a jury trial. For example, every roofing contractor faces claims for water intrusion. Sometimes, water intrusion may damage other property, and plaintiffs' attorneys may seek to have a jury trial about the issues in an attempt to get a more significant award. An arbitration provision will prevent a jury trial and force the parties to go to arbitration outside the court system.

At the same time, if you are pursuing money, you also may be bound by the arbitration provision. When a party is pursuing money, it may be more helpful to proceed in court depending on the dollar amount owed and the facts surrounding the case. In any dispute resolution contained in a contract, a condition precedent to proceeding with arbitration should be both parties engage in nonbinding mediation to allow the parties to resolve their disputes before moving forward with arbitration. It also allows the parties to obtain free discovery and understand the opposing party’s position.

Once in arbitration, it may be challenging to settle the claim. Litigation offers a variety of tools for attorneys to use that may put pressure on the other parties and increase the opportunity for settlement. Unfortunately, many of those tools are not present in arbitration. As a result, you are more likely to proceed to the end of arbitration rather than settle the case before its conclusion.

By understanding the benefits and drawbacks of arbitration, you can determine whether you want to place an arbitration provision in your standard contract. At a minimum, if you choose not to place an arbitration provision in a contract, your contract should include a waiver of jury trial provision to avoid any jury trial situation.

Litigation

Often, construction contracts will have an escalating dispute resolution clause that will, at a minimum, require mediation before arbitration or pursuing the claim in court through litigation. Litigation can involve resolving a dispute in front of a judge or jury. Judges decide the overwhelming majority of construction cases. The reason for selecting a trial by judge rather than a jury is construction cases often are complex and driven by documentation. As a result, it sometimes is difficult to keep the jury's attention during a lengthy construction trial. In addition, you often can reduce your trial time by a day or two when eliminating the jury. Things such as jury selection, jury questions, etc., become irrelevant if no jury is present.

The benefits of litigation include more accessible appellate rights (your right to appeal cases), no arbitrator fees and more room to maneuver strategically. In addition, litigation cases settle more often than arbitration cases primarily because there are a variety of potential outcomes that could lengthen the case and costs associated with continuing to litigate.

A pound of cure

Regardless of the method you choose to resolve disputes contractually, remember this adage: An ounce of prevention is worth a pound of cure. You should attempt to resolve disputes through all other methods first; arbitration or litigation should be your last resort.

TRENT COTNEY is partner at Adams & Reese LLC, Tampa, Fla., and NRCA’s general counsel.