Baseball Arbitration of Commercial & Construction Disputes (Part I)

By Daniel D. Droog (former Shipley Snell partner)

Baseball Arbitration has gained popularity as more regimes, institutions, companies and law firms seek to manage the time, costs and consequences of arbitration, particularly when the dispute to be arbitrated is between entities that desire to maintain long-term commercial relationships. The concept originated in Major League Baseball when a club and player could not agree on a salary figure and under certain circumstances could submit their respective figures to a sole arbitrator who was bound to pick one of the submitted figures.

In the commercial and construction context, there are as many definitions of Baseball Arbitration as there are potential variations; i.e., too many. The concept is generally captured well by arbitration scholar Jack J. Coe, Jr. in “International Commercial Arbitration: American Principles and Practice in a Global Context”:

Also known as “final offer” or “flip-flop” arbitration; arbitration in which the arbitrator is requested to make an award by adopting, without modification, one of the parties’ respective final positions. Typically, the technique is used when the parties differ only over a monetary amount.

The last sentence of Coe’s definition is important because it underscores a key issue I recommend parties consider prior to agreeing on and drafting a Baseball Arbitration clause into their commercial and construction contracts.

Do you Really Want to Play Baseball?

Some commercial and construction disputes may be nothing more than a fight over an amount due. In those cases, Baseball Arbitration may be the most desirable dispute resolution mechanism. But how often are your disputes limited to only a claim over an amount due or a valuation dispute? Construction disputes, for instance, usually involve delay claims and performance issues. Delay claims or performance issues can be monetized and molded to fit into a Baseball Arbitration mechanism, but based on my experience in Baseball Arbitration this will greatly alter the way in which the dispute is addressed.

Superficially, the idea of Baseball Arbitration has appeal. Its aims are to presumably confine the arbitrator and narrow the dispute by forcing the parties and then the arbitrator to pick the last best offer. Further, the parties have an incentive (winning) to make the most reasonable offer they can and arguably help preserve the business relationship and expedite resolution. Although laudable goals, there is no clear research or verifiable anecdotal evidence to suggest that Baseball Arbitration is particularly better than other arbitration mechanisms at narrowing a dispute or preserving a relationship.

In the modern era of complex contracts, international joint ventures, and global construction projects, disputes often involve multiple issues, important procedural and threshold questions, various sets of applicable law, and in many cases, more than two parties. Such disputes raise serious questions regarding the use of Baseball Arbitration, such as:

  • Who is entitled to make baseball offers?
  • How many offers per side?
  • Is one comprehensive offer sufficient or is one offer per issue required?
  • What if multiple contracts are involved in the dispute?
  • When should the offers be exchanged?
  • When and how are threshold issues or procedural issues not encompassed within the offers decided?

The list could go on. It would be nearly impossible to predetermine all the issues and thus draft an airtight Baseball Arbitration clause. In my forthcoming posts, I will discuss these issues in more depth, including offering some suggested clauses and procedural mechanisms for carrying out an efficient Baseball Arbitration.

For now, the American Arbitration Association and International Centre for Dispute Resolution provide some very general but good advice on Baseball Arbitration in their handy “Drafting Dispute Resolution Clauses A Practical Guide” in which they state:

‘Baseball’ arbitration is a methodology used in many different contexts in addition to baseball players’ salary disputes, and is particularly effective when parties have a long-term relationship. The procedure involves each party submitting a number to the arbitrator(s) and serving the number on his or her adversary on the understanding that, following a hearing, the arbitrator(s) will pick one of the submitted numbers, nothing else. A key aspect of this approach is that there is incentive for a party to submit a highly reasonable number, since this increases the likelihood that the arbitrator(s) will select that number.

I am a fan of baseball and in the right context I am also a fan of baseball arbitration because of its commercial utility and relationship – preserving focus, but its value should be weighed and a decision made as to whether it is the correct mechanism for resolving any potential dispute related to your commercial and construction contracts.

Umpire photo by Keith Allison. Cranes photo by Seabaryo. Both used with permission through CreativeCommons.