I like arbitration. Contractors tend to get a fair shake when they arbitrate disputes. Arbitration is usually faster and cheaper than a lawsuit. Another advantage: Most construction disputes are questions of fact, not law. You need an arbitrator with common sense, not a judge and two attorneys with law degrees. Maybe the best reason to arbitrate: It puts the owner’s attorney at a disadvantage: Your dispute isn’t going to court. Threatening to sue is pure hot air. If your construction contract requires arbitration, no court will hear the dispute.
- Your contract has to make it clear, “owner and contractor will submit all disputes related to this job to binding arbitration.”
- Identify the arbitrator. American Arbitration Association (AAA), Construction Dispute Resolution Services (CDRS) and JAMS (Engineering and Construction Arbitration) are common choices. But a Web search will turn up qualified independent arbitrators in your community. Consider a “mobile” neutral – someone willing to meet on the construction site. Ask about fees. Explain you’re looking for an arbitrator to name in your construction contracts.
- Identify the arbitration rules. AAA, CDRS and JAMS rules are recognized as both fair and comprehensive. Selecting AAA, CDRS or JAMS rules does not mean you have to use an arbitrator recommended by AAA, CDRS or JAMS. Ask the arbitrator you selected about the arbitration rules he or she prefers.
- Make the arbitrator’s decision final. The words are, “Judgment on the award may be entered in any court having jurisdiction.”
- Decide on allocation of fees. If you want, give the arbitrator authority to award arbitration fees to the prevailing party.
- Important! Eleven states void arbitration agreements for residential work if the contract omits special disclosures: CA, IL, MD, MA, MO, NE, OR, PA, SC, TX and VT. See my blog post of December 31, 2011.