Werner Sabo is a partner at the construction law firm of Sabo & Zahn in Chicago. He is also a licensed architect, having practiced architecture for a number of years prior to establishing his law practice in 1981. He is a member of the AIA and CSI, has been an officer and director of the Chicago Chapter AIA, President of the Chicago Chapter, Construction Specifications Institute, and writes a monthly construction law column for The Construction Specifier. He is also a founding member of the Society of Illinois Construction Attorneys. In 1997, the AIA elected him to the College of Fellows. His book, Legal Guide to AIA Documents, published by Aspen Publishing, is in its fourth edition. Mr. Sabo is also a construction arbitrator and mediator for the American Arbitration Association and is admitted to the federal trial bar.
James K. Zahn is a licensed architect and attorney in the State of Illinois. He is a partner in the law firm of Sabo & Zahn, concentrating in construction law and representing owners, contractors, architects, developers, engineers and other parties in the construction process. He received a Bachelor of Architecture from the University of Illinois and his JD from Chicago-Kent College of Law. Mr. Zahn is a member of the American, Illinois and Chicago bar associations, American Institute of Architects, Association of Licensed Architects, Construction Specifications Institute and has NCARB Certification. He was a past president of the Illinois Council of the American Institute of Architects and is a Fellow of both the American Institute of Architects and the Association of Licensed Architects. He is currently a resource member of the AIA National Documents Committee.
Shawn E. Goodman is a partner with Sabo & Zahn. He concentrates in litigation of all types. A graduate of the Northwestern University School of Law, he was admitted to the bar 1993. Since that time, he has practiced before local and outlying circuit courts, U.S. District Court, and various administrative tribunals. He has acted on behalf of a variety of clients including small to mid-sized businesses and individuals. He has handled all facets of litigation from pleading to motion practice to discovery to trial. The cases with which he has been involved are varied and wide-ranging and include personal injury, breach of contract, criminal defense, commercial disputes, and consumer fraud. He has represented both plaintiffs and defendants and has practiced before juries as well as judges. Mr. Goodman has also worked on appeals and has assisted in the drafting of appellate briefs.
The new AIA Documents and Arbitration - What Rules Apply?
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.
