It is surprising to many in the environmental industrial complex that there has been relatively little litigation arising out of green building. There have been only a very modest number of cases commenced in courts across the country involving construction of green buildings.
The reason for the dearth of court cases is not that there are no disputes and differences arising from green building design and construction, but rather that many, if not most of the contracts in sustainable construction require mandatory arbitration, in lieu of a judicial contest.
Appreciate that this limited number of disputes pursuing courtroom redress exists against a backdrop of a rising number of actual claims in green building construction projects.
The purpose of the blog post is not to argue whether or not arbitration works as well or better than litigation. Legal scholars can have at it.
And there is no question that a properly drafted provision in a contract requiring arbitration is enforceable. The Supreme Court, in American Express v. Italian Colors Restaurant decided in 2013, “the overarching principle that arbitration is a matter of contract. .. Courts must “rigorously enforce” arbitration agreements according to their terms.”
While there has been much discourse in the media recently about consumer contracts containing alternative dispute resolution provisions, including those requiring arbitration, that situation is easily distinguished from (non-consumer) construction industry contracts. With over a million contract documents licensed on an annual basis, the AIA’s form construction documents are the most widely used contract documents in the industry. And while the AIA documents mandated arbitration as the exclusive form of binding dispute resolution for well over 100 years, the current form of documents contain a ‘check the box’ where the parties choose between arbitration, litigation or other agreed process.
Arbitration is particularly widespread in green building and has resulted in so few green building disputes ever seeing the inside of a courtroom. Even the Green Business Certification Inc. LEED Certification Agreement has a mandatory arbitration provision.
Significantly, many green building subcontractors and materials suppliers have provisions in their purchase contract requiring arbitration or their contracts are governed by provisions in prime contracts (many of which are from larger and more sophisticated construction industry players) that mandate arbitration.
A review of 25 suppliers that were exhibitors at Greenbuild 2015 (unscientifically selected from a single aisle on the expo show floor) found 16 had sales contracts requiring arbitration. And two years later, an online review of 25 suppliers registered to appear exhibitors at Greenbuild 2017 this coming week (also unscientifically selected) found 18 had sales contracts requiring arbitration.
Maybe more surprising are contracts requiring religious arbitration, like that required by bamboo floor supplier Higuera Hardwoods, a past Greenbuild exhibiter, providing,
Arbitration shall be by a single arbitrator experienced in the matters at issue and selected by principal and agent in accordance with the Rules of Procedure for Christian Conciliation of the Institute for Christian Conciliation, a division of Peacemaker Ministries.
While it was a court enforcing an arbitration provision involving a Church of Scientology agreement that made headlines last year and concern over a court enforcing an alternative dispute resolution applying Sharia law is publicly debated, courts have been enforcing these provisions both under the edict of the Supreme Court in the American Express decision and out deference to the First Amendment rights of the religious groups. Anecdotally, it appears most of these cases are Christion conciliation.
However, the Department of Defense Appropriation Act precludes expenditure of funds on contracts in excess of $1 Million that require subcontractors and employees to consent to arbitration. And such is a big deal in this consideration when the Department of Defense is the largest owner of green buildings.
Arbitration can be useful in some matters of green building for a variety of reasons including that experienced green building construction arbitrators may be better suited to rule on complex construction disputes rather than layperson judges and juries, and that arbitration is a faster and more cost effective dispute resolution process.
In absolute numbers there are more green building construction claims this year than last and more last year than the year before. And the dollar amount of those claims is increasing. The vast majority of those claims that this law firm is involved in are resolved through mediation or arbitration and it is the rare case that ends up in judicial redress. But make no mistake claims are being paid including profits being disgorged by designers, construction companies and materialmen.
The take away from all of this should be in an effort to manage your risk, pay particular attention to and negotiate the dispute resolution provisions in your contracts. And always consult your attorney before signing.