For better or worse, dispute resolution is a necessary part of construction. In theory, the two sides should be able to quickly and efficiently present their claims to a neutral third party (a judge or arbitrator) who then decides a fair and equitable outcome based on the facts, the parties’ contract and the applicable law. In reality, however, document discovery in the age of email and electronic documents has caused the cost of dispute resolution to skyrocket to the point where some believe that it is not cost effective to contest any but the largest issues.
New habits of communicating continue to increase the volume of data that must be turned over. You’d be shocked at what can contain discoverable data. In addition to paper and computer files, your phone is involved, too, so what is often overlooked are texts and electronic message boards (e.g., Slack), which companies use to communicate internally. And still more files are in the many copiers that today have hard drives and may contain copies of scanned or printed documents.
The standard for preserving emails and documents is that it is required when a party reasonably believes that litigation and arbitration are likely. At that point, a company has to implement a litigation hold, meaning that it must preserve all documents, including emails.
The thinking continues to evolve about how best to limit the cost. During 20 years as a construction lawyer, I’ve seen many clients faced with the untenable decision of choosing between capitulating to an unfair demand or going through litigation and arbitration and absorbing legal fees that can approach or even exceed the amount in dispute. After years of guiding clients through these situations, I have learned several lessons about how to drastically reduce costs.
In the past, I’ve talked about colleagues who put into contracts language saying that even if there’s litigation, the parties’ emails won’t be discoverable. If both parties agree in advance, the judge is likely to respect it. But this type of contract agreement is very rare.
Arbitrations, which are designed to control litigation costs, can be an effective tool to address this concern. However, arbitration does not always reduce costs, and disputes that are arbitrated under a vanilla arbitration clause with no restrictions can be just as costly as litigation because the discovery parameters can be as broad as the courts allow.
Save Money for Both Sides
The key is to include parameters that are specifically designed to control costs for both parties. I’ve seen contracts prohibiting electronic discovery and others that require that a hearing take place within 90 days following the demand (which necessarily limits the amount of discovery that can take place). These clauses, when included in an arbitration agreement, are mandatory, and the arbitrator has no discretion to deviate from the contract.
And discovery-like document production doesn’t just come up in litigation. Owners now often request audit rights (even for fixed-fee projects) where they have the right to come in and look at a contractor’s or construction manager’s books and records for the project for three years following substantial completion. If the audit includes all project-related documents, that can include emails, which is problematic for two reasons. First, you will want to review all the emails before producing them to make sure you know what you’re giving out. Second, you would be amazed at the stupid things people put in emails that can come back to haunt them.
On that note, owners often use the audit right as a sword if there is any kind of payment dispute. A contractor may be seeking payment on a change-order dispute. Some owners will, in response, demand to audit the contractor’s files (including email) to try to find dirt that they can use to fight off the claim or to develop a counterclaim to offset what they owe.
Email and other electronic messaging tools do speed communication and the efficient transmission of information. This increased communication, however, means there can be more to review if a dispute arises—for better or worse.
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