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Clients are always looking for ways to manage costs of legal disputes. With tighter cashflows since the recession, many businesses are understandably asking for budgets and working with their attorneys to find strategies that reduce legal fees and litigation costs.

The American Arbitration Association (AAA) has been under the same pressure to limit costs, particularly with respect to construction-related arbitrations. In response to the growing demand for predictability, the AAA released a new set of rules known as the Supplementary Rules for Fixed Time and Cost Construction Arbitration.

The rules were released in June 2014 and are designed to supplement the Construction Industry Arbitration Rules and Mediation Procedures. The Supplemental Rules work best for cases with discrete issues and limited discovery, and where parties and attorneys can agree on many of the procedural issues without involvement of the administrator or arbitrator.

Key Features of the New Rules.

  • Maximum total fees. The best part about the new rules is the cap on fees. As long as the parties follow the limitations of the rules, there is absolute predictability as to the total amount of arbitration related fees. The maximum fee includes AAA administrative fees and arbitrator fees. It does not include travel-related expenses incurred by the arbitrator or facility-related expenses.
  • Limited parties. The Supplemental Rules apply only to arbitrations involving two parties. The two-party limitation does not apply to a surety, as long as the surety: (a) is represented by the same counsel as its principal; and (b) has not asserted an independent claim against its principal or the other named party.
  • One arbitrator. All arbitrations administered under the Supplementary Rules are limited to one arbitrator.
  • Meet and confer conference. One of the most significant differences between the Construction Industry Rules and the Supplemental Rules is the meet and confer conference (SR-11), which is designed to allow the parties to agree upon procedural and administrative issues such as: the selection of prospective arbitrators; the time, date, and place of the hearing; the number and allocation of hearing days; and document exchange and discovery. If the parties cannot agree on all of the procedural matters and the arbitrator is asked to resolve them, additional fees are charged for the arbitrator’s time.
  • Limitations on duration and hearing days. The Supplemental Rules contain Time/Cost Schedules where the duration of the arbitration and hearing days are limited by the size of the claims. For example, for a claim/counterclaim that is between $500,000 and $1 million, the hearing may not exceed five days and the maximum duration from filing of the arbitration demand to the award is 270 days.
  • Limitations on arbitrator time and compensation. The Supplemental Rules also place limitations on the arbitrator’s hourly fees and study time based upon the size of the claim. Maximum hourly fees range from $250 per hour (for claims less than $250,000) to $350 per hour (for claims above $1million).
  • No post-hearing briefs. Post-hearing briefs are generally not permitted, except upon approval of the arbitrator or agreement of the parties, but additional fees will be charged for the arbitrator’s time.
  • Arbitration award. The arbitrator must issue an award not more than 20 days from the close of the hearings and the award itself is limited to no more than three pages. If the parties request a reasoned award or findings of fact and conclusions of law, the arbitration must be administered under the Regular or Large, Complex Track procedures.

Not Every Case is Right for the New Rules.

If there are multiple legal and factual issues to be addressed or if the dispute involves the use of several fact and expert witnesses on each side, then the new rules should not be used. In fact, even if a case starts as a simple case, but grows in complexity or duration as its proceeds such that the time or hearing days will exceed the maximum, the AAA has the discretion to administrate the arbitration pursuant to the Regular or Large, Complex Case Track procedures, with the standard fees applying.

How to Use the New Rules.

The new rules are optional. Both parties to a dispute must agree to the arbitration being administered under the Supplemental Rules. If you want to use the new rules, or at least want the option to use them in appropriate situations, the best practice is to include an express provision in your contract for the application of the Supplemental Rules to any disputes. This new provision would be added to any existing arbitration provisions, and it would make sense to reference both the Construction Industry Rules as well as the Supplemental Rules.

If you have steered away from using arbitration to resolve disputes because of the escalating costs, now may be a good time to reconsider whether to change your contracts to include an arbitration provision.

If you would like a copy of the new Supplemental Rules or advice on incorporating the rules into your contracts, please click here to email me.

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Michael Vitiello

Michael Vitiello

Father’s Day is a good time to reflect on all of the great things that our fathers have done for us and how they have influenced our lives in so many ways.  As I reflected back this year on all of the things I have learned from my dad, I realized that my dad’s life-long love and pride in the construction industry unexpectedly and unknowingly influenced my own career choice as a construction lawyer.

My essay this week on ENR.com is called No Tie on Father’s Day: Daughter’s Tribute to Construction Dad.”   I wrote it with my own personal experiences in mind.  However, since it was posted to the site on Friday, I have heard from several people who have told me that those experiences and feelings were strikingly similar to their own.

So, it seems as though a generation of hard-working construction professionals, like my dad, have passed their love and pride in the industry to their children who are making construction part of their lives in their own way and finding a special way to connect with their fathers.

It’s no secret that the construction industry in the Atlanta-metro area has been struggling (on life support) for at least the past three years.  Before the recession, our city and region was thriving on meaty public and private construction projects and construction jobs were plentiful.  When the recession hit, development and construction projects halted.  Private construction all but evaporated, and competition for public construction projects has become fierce—to the point where contractors are taking jobs on razor thin profit margins, just to have work to keep their employees working and their doors open.

Now, the City has negotiated a deal with a private partner—Arthur Blank and the Atlanta Falcons to build a new $1 billion stadium—in which the City will be paying roughly 20% of the cost of the project.  This is the largest single construction project to occur in this area in a long time.  It is, without question, going to boost the local construction industry and bring back some of the construction jobs that have been lost in the past few years.

The Atlanta Business Chronicle reported on the stadium deal today.  A full version of the story can be found here.  For people who are not convinced that this project is a good thing for Atlanta, here are a few points from the article that I think are important:

  • The public contribution for stadium construction is capped at $200 million, which would come from the hotel-motel tax collected by the city — almost exclusively (more than 85 percent) from visitors and tourists, not residents of the city. 
  • The existing hotel-motel tax revenue stream is the sole public funding source for the stadium construction and any risk associated with repayment is carried by the bond holders, not the city. 
  • No property taxes or new taxes of any kind would be paid by or levied on city residents or businesses to fund construction of the new stadium. The city will not serve as a backstop for any debt associated with the construction of a new stadium and this agreement will not affect the city’s bond capacity or credit capacity. 

It’s not every day that a billion dollar construction project comes along, and certainly Atlanta hasn’t seen a project of this magnitude in years.  Hopefully, it will be a catalyst to more development and construction that will lead to steady growth in our local construction industry.

The Atlanta Business Chronicle reported Monday that Georgia State Senator, Buddy Carter, withdrew his proposal for a bill that would have bolstered the use of solar energy in this state because he believed it did not have enough votes to pass.  This is sad news to the solar industry in Georgia and to really anyone that is not Georgia Power or an existing utility company in this state.

Senate Bill 401 was introduced in February to encourage private investment in renewable solar energy by allowing individuals and companies to finance solar installations on their property through private power purchase agreements (PPAs).  PPAs work like this:  a solar company owns and installs the solar panels that are placed on the customer’s property (usually rooftop installations).  The customer either leases the solar equipment from the solar company for a monthly fee, or enters into a PPA to make regular payments to the installer based upon the amount of energy that will be generated.

PPAs are the most common form of financing for these projects because they typically involve significant up-front capital costs.  Many other states, particularly those with Renewable Energy Portfolios, allow the use of PPAs for solar and other renewable energy projects.

The reason they are not currently allowed in Georgia is because a Georgia law, known as the “Georgia Territorial Electric Service Act,” limits the sale of power to regulated utilities like Georgia Power and local EMCs.   Under the current state of the law, anyone can purchase and install their own solar panels to produce electricity for themselves.  But, they can’t rent the panels from a third party, buy the power generated from the panels from a third party, or sell the excess energy created from their panels to a third party.

It’s hard to believe that anyone would oppose to a bill that would encourage investment in renewable energy and foster a burgeoning industry that is bringing good jobs to this state.   It just makes sense to use one of the state’s most abundant resources—sunshine—to reduce demand from coal and gas-based energy plants and create jobs at the same time.  But, as predicted, Georgia Power has put up a vigorous fight and is lobbying hard to defeat this bill at all costs.  Georgia Power and existing utilities are heavily invested in coal and gas-based energy plants, and they do not want to see a reduction in demand and revenue due to these PPAs.

The fact that Senator Carter has pulled the bill for lack of votes means that Georgia Power is currently a louder voice in the legislative ears than the solar industry and advocates for green energy.  In order for this bill to have any real chance of becoming law in 2012, it must pass the senate by Wednesday in order to be sent to the House for consideration.

If you support renewable energy and solar-friendly legislation, then you should contact your representatives right away to urge them to vote for the passage of SB 401.  Otherwise, the expansion of solar energy in Georgia will be delayed for at least another year.  That’s a lot of sun that we will have missed out on!

I read today on GreenerBuildings.com that YKK AP America is holding a green building video competition called “Building a Better Tomorrow, Today.” I think it is an interesting way to promote green building and to raise awareness of the innovative techniques that are being used in sustainable building designs, products, and construction.

According to the YKK AP website, the entered videos should be “about an idea, design, product, or project on how America can enhance the built environment for generations to come from an energy-savings, green-building, or sustainability perspective.”  That criteria opens the competition to a broad spectrum of entries, and I’m sure there will be no shortage of ideas to be shared.

The video entries will be posted on YouTube (unless specifically chosen to be submitted privately), so that these ideas, products or projects will be available to the public.  Be sure to check them out.  The contest runs from September 2 through October 15, 2010.

Check the YKK AP website for details about the contest.  And, be sure to let us know which entry you think is the most innovative or creative.

Most people would never associate NASCAR with renewable energy.  I think it’s a long way off before solar or biofuel technology is advanced enough to power engines that will allow cars to travel at speeds of nearly 200 miles per hour for hundreds of miles.  I will admit that I have never been a big fan of NASCAR or any other racing sports programs, but when I race across this Chicago Tribune article about a 3-megawatt solar installation at the Pocono Raceway, I had to post it and comment.  I thought it was particularly relevant in light of my last post about the latest developments in solar energy programs in Georgia.

I am a little impressed that an industry that is wholly based upon consuming large quantities of fossil fuels is at least trying to minimize its impact on the environment by embracing alternative energy sources for its stadiums.  It’s this kind of innovation that promotes renewable energy projects and increases public awareness of the benefits and effectiveness of solar projects.

As a quick tie-back to my last post, this project underscores the argument for lifting restrictions or caps on the amount of solar energy that is sold back to the grid and/or for allowing power purchase agreements (PPAs):

The solar field will yield enough power to cover all the racing complex’s energy needs — the garages, concession stands, offices, spectator suites and media rooms — with enough left over to feed 1,000 homes.

The track hosts two annual NASCAR Sprint Cup Series summer events, each of which attracts more than 100,000 fans. It also is used by car clubs, driving schools and auto dealerships. During winter, when Pocono is essentially shut down, nearly all the power coming from its solar array will go into the grid for use elsewhere.

Keep in mind that this one project generates 3 megawatts of solar power, which is more than the current cap on the amount of solar power Georgia Power purchases from all private solar installations in the state (2.5 megawatts).

Another key point I picked up from the article was the fact that with the 30% tax credit and state alternative-energy incentives, the project will pay for itself in 6 to 8 years.  That’s the kind of return on investment that really makes these projects worthwhile and cost-effective.

Since the South arguably (and I say arguably, not definitely) has more sun and more NASCAR fans than Pennsylvania, let’s see if we can get some of our southern NASCAR fans and stadiums to embrace this same enthusiasm for solar energy.

I started this blog with a post about the first appeal of a LEED (Leadership in Energy and Environmental Design) certification because it was a significant development in the world of green building.  But to understand the significance of the appeal, you must have an understanding of green building and the LEED rating system.

What does the term “green building” really mean and why are designers, owners and construction professionals working overtime on sustainability directives? Green building is the generic term relating to projects that combine a number of sustainability initiatives in design, construction, and operations of buildings including site planning, indoor environmental quality, materials use, and energy and water management. By combining these practices, buildings across the nation are creating environmental benefits, which will have lasting affects.  In fact, when executed correctly, green building has the capacity to reduce:

  • Energy use by as much as 50 percent
  • CO2 emissions up to nearly 40 percent
  • Water use by up to 40 percent
  • And solid waste by as much as 70 percent

Green building practices – including energy efficiency – are quickly becoming the norm.

In this age of rising energy costs and reducing carbon footprints, the construction of new buildings and the facility management of existing structures now require the implementation of energy-efficient operations and sustainable building strategies.

Moreover, with a green-friendly administration in the White House, mandates have been put in place for sustainable building practices in major cities across the U.S.  In fact, the U.S. House of Representatives voted 219–212 in June of 2009 to pass H.R. 2454 (now H.R. 2998), the American Clean Energy and Security Act of 2009.  H.R. 2998 will make a number of changes in energy and environmental policies largely aimed at reducing emissions of gases that contribute to global warming.  The bill will limit or cap the quantity of certain greenhouse gases emitted from facilities, which generate electricity, and from other industrial activities between 2012 and 2050.

In addition to an unprecedented number of government initiatives and tax incentives, green building standards (such as LEED) are increasingly being written into building codes for commercial and public buildings, and there is a heightened residential demand for green building.  And, recent years have seen improvements and cost-reductions in sustainable materials, making it much easier and cheaper to “build green.”

In short, demand for green building is growing because we are making it a priority.  Individuals and businesses are trying to optimize building performance and enhance building environments by using innovative strategies to reduce energy and water consumption and to use renewable energy resources for more sustainable communities.

The next two posts in this three-part posting will review how the LEED rating system has defined the standards for green building and why careful legal navigation is required to achieve the desired results without conflict or disputes.

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