Originally posted 2016-04-19 10:50:36.
After a long (for me) hiatus due to Spring Break with my wonderful family followed by a crazy last two weeks for both personal and business reasons, I’m back and ready to muse again.
This week’s “musings” concern a topic that arises often in construction contracts and construction dispute resolution. The topic? Arbitration. Why does this come up often? Because in many form contracts such as the AIA documents, as well as in many construction contracts that are more specifically tailored, mandatory arbitration is at least a choice if not the only method of dispute resolution.
By way of quick explanation, arbitration is essentially “private court.” Based upon rules set out in their construction contract (hopefully carefully reviewed with the help of your friendly neighborhood construction attorney), the parties agree to submit their construction dispute to a private individual (or sometimes more than one individual) to listen to the evidence and render a binding decision. Often in the construction world, this individual or group consists of construction attorneys and/or other construction professionals. The process for the arbitration can either be set forth in detail within the construction contract or, more often, the contract will refer to a set of rules that have been previously set forth such as the American Arbitration Association’s rules for arbitration. This differs from mediation because in an arbitration, just like in court, the arbitrator(s) render a binding decision while in mediation the parties control the outcome.
With these preliminaries out of the way, on to the question found in the title of this post. As you may have guessed from my previous ADR related thoughts here at Musings, the answer in my mind is a resounding “no.” As I described above, arbitration does no more to give you as a construction professional control over the outcome than court. Furthermore, the cost and time consumption can be quite similar to standard litigation depending upon the rules that are set out in your contract. Frankly, for smaller dispute amounts and the majority of construction disputes that come down to who owes whom what amount of money, your local judge is just as good a decision maker as a local construction lawyer and your taxes are already paying the judge.
Of course, I am an attorney so need to soften this seemingly absolute language. There are times where arbitration of a construction claim is the best of the non-mediation alternatives. Sometimes there are industry specific issues where having a decision maker that is steeped in construction law or has knowledge of the particular issues relating to the construction project (engineering, scheduling, and the like) will help at least streamline the “trial” portion of things. Arbitration can also streamline things where your contract (read “the law of your project”) sets out the specific steps from claim filing to discovery to arbitrator selection and timing for the arbitration. Remember that you can and should make your contract as specific as possible given the fact that it will be enforced to the letter (at least in Virginia).
In short, when you are executing your construction contract, evaluate the contract value, technical nature of the work to be performed, potential scheduling issues, and other factors before signing off on mandatory arbitration. Keep in mind that arbitration does not avoid the trial, it just changes the venue and some of the procedural rules.
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Everyone is entitled to an opinion, and there are some instances where arbitration is not preferable to litigation, but I disagree that arbitration with a well crafted agreement is not better than litigation. You get to choose a decision maker who knows construction, and the time to final hearing is often much quicker than court. There are other benefits but I don’t wish to ramble.
Arbitration is in most cases preferable to litigation for two reasons: 1) you can choose a knowledgeable decision maker, and 2) Time to final decision is typically much quicker.
Thanks for the comments Larry. I appreciate you’re readership. My point is that mandatory arbitration clauses, particularly where the rules are not in fact set out in the contract, can lead to some smaller disputes being tried with larger administrative fees and possibly more paperwork that the state court system would provide for.
My point is that arbitration, particularly where the rules are carefully set out in the contract can be a good alternative to court, but just not in every case. Should it be considered? Yes. Is it always the best binding method to resolve your dispute? No.