What Are the Rules For Arbitration in Construction Disputes?

What Are the Rules For Arbitration in Construction Disputes?

If you’re involved in a construction project, you’re likely to face a construction dispute of some sort due to the many different parties involved and possible problems and delays that can occur.  A lot of construction contracts have an arbitration clause that is used to resolve disputes when they arise.  Here we’ll explain what arbitration is and the rules that govern how your case will be handled.

What is Arbitration?

Arbitration is a way of resolving a construction dispute without the court’s involvement.  Like mediation, parties will use a neutral third party to act as the settlement facilitator and decide the obligations and rights of each party involved in the dispute.  But unlike mediation, the results of arbitration are considered legally binding.  That’s right, you have a legal duty to carry out the ultimate decisions made in arbitration.

Lawsuits also determine the obligations and rights of each party and the results are legally binding.  But unlike a lawsuit, arbitration does not take place in a governmental institution and most arbitrators do not offer the option to appeal the results.  The ‘award’ granted by the arbitrator is considered final.  Arbitration also differs from lawsuits in that parties typically share the costs (in lawsuits the ‘losing’ side usually pays all the associated fees for both sides).

Arbitration and mediation are not mutually exclusive.  Your construction contract can stipulate that parties must try to resolve conflicts via mediation first, and then parties can move on to arbitration if mediation fails.  A lawsuit is usually only involved if the contract does not stipulate the need for arbitration in a certain situation, if a party does not follow through on their obligations after an arbitration award has been decided, or if there is a major problem with the arbitration process.

How Does Arbitration Work?

How your specific arbitration case plays out will be determined by what’s agreed upon in the original contract.  Your contract may designate a certain arbitrator that will be used for disagreements or the arbitrator may be decided upon once a construction dispute arises. The rules for arbitration vary depending on the jurisdiction and the specific arbitration organization that is administering the arbitration.  However, there are some general principles that are common to most arbitration procedures:

  1. The parties must agree to submit their dispute to arbitration. This agreement can be in the form of a contract, such as a construction contract, that includes an arbitration clause, or it can be a separate agreement to arbitrate.
  2. The arbitration must be conducted by a neutral third party or panel of arbitrators. The parties can agree on the number of arbitrators and the process for selecting them, or they can rely on the rules of the arbitration institution or organization to determine these issues.
  3. The parties must exchange relevant documents and information in advance of the arbitration. This is typically done through a process called discovery, which allows each party to gather evidence to support its position.
  4. The arbitration hearing is usually conducted in a private setting and the proceeding, evidence, and award are usually considered confidential.
  5. The arbitrators will hear evidence and arguments from both parties and then render a decision, known as an award. This award is typically final and binding on the parties, and it can be enforceable in a court of law.
  6. The arbitration process is typically faster and less formal than a court case. However, due to the specialized nature of construction disputes and the technical details involved, it could take longer than other disputes.
  7. Generally, the parties share the cost of the arbitration, which can be significant, as arbitrators can charge as much as $600-800 per hour.
  8. Whether it is in your best interests to proceed with arbitration as opposed to litigation is one of the issues to discuss with your attorney.

It is important to pay attention to the specific arbitrators you decide on because they will have their own set of rules and regulations, and some could differ from the general principles mentioned above.

What If You Don’t Like the Results?

Each arbitrator has its own rules.  Often arbitration awards are considered final and not subject to review or appeal.  However, in some cases, parties that don’t like the results can challenge the award by filing a motion to vacate the arbitration in a court of law, or the winning party can confirm the award in a court of law if the other party does not adhere to its obligations. Some potential reasons for overturning the award include fraud, misconduct, and gross unfairness by the arbitrator.

It’s important to consult with a construction attorney when drafting and signing contracts to ensure they protect your interests.  That’s where the possibility of arbitration can begin.  If a problem does arise, you’ll also want to have an experienced lawyer on your side to represent your case during the arbitration process.  Our team at Stryker Slev Law Group has a strong record of dealing with construction disputes.  We can advise you on the best ways to avoid disputes before the project even begins and also defend your interests in arbitration or litigation if a dispute does occur.  Schedule a consultation today.

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