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Play ball: baseball arbitration for the construction industry

Files with gavel, buildings and cranes

There are benefits to using baseball arbitration procedures in construction disputes. The all-or-nothing approach forces both parties to perform a realistic assessment of the claimed damages.

We have blogged in the past about the arbitration vs. litigation debate. One of the issues with arbitration is that arbitrators are not constrained by statutory and case law and a trial that is governed by established rules of evidence. This has led to a perception that arbitration often leads to decisions where the arbitrator simply “splits the baby” to apportion some of the liability to each party. And we have heard anecdotal accounts where arbitrators sometimes render decisions that are not consistent with case law. Since arbitration decisions are often final and binding, there is no mechanism in place to appeal an arbitration decision unless the decision is egregiously unfair.

A recent article published by Lochlin Samples in the Forum on Construction Law proposed the use of baseball arbitration procedures in construction disputes. Baseball arbitration is used to decide a player’s salary between the player and team. Both sides present evidence supporting the requested salary amount before a three-member panel; the evidence that the team and player can present is outlined in baseball’s collective bargaining agreement. The evidence presented includes the player’s contribution to the team during the past season, the length and consistency of the player’s career contributions, the player’s past compensation, the team’s recent performance, and comparative baseball salaries. The arbitration panel is only empowered to do one of two actions: accept the player’s proposed salary or the team’s proposed salary. The arbitration panel cannot “split the baby” or award a salary other than the amount requested by the player or team. The award is final and issued without explanation.

As outlined by Lochlin, there are benefits to using baseball arbitration procedures in construction disputes. The all-or-nothing approach forces both parties to perform a realistic assessment of the claimed damages; this means that inflated claims and meritless assertions are more likely to penalize the more aggressive party. The adoption of baseball arbitration procedures in construction disputes would also mean that  arbitrators could not simply “split the baby” since they could only award the amount requested by the prevailing party.

Lochlin recommends that baseball arbitration will work best for the construction industry when the dispute is solely between two parties and the claims do not involve significant third party issues. Clearly, if baseball arbitration procedures are to be considered, the parties will have to carefully outline the procedures and what types of evidence would be used to support their claims. In simple two-party disputes that do not involve significant third-party issues, baseball arbitration could significantly benefit the construction industry by reducing the sometimes arbitrary results of arbitration.

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