What is Arbitration:
Today, many standard construction contracts contain basic arbitration clauses. An arbitration clause requires the parties (Owner and General Contractor or General Contractor and Subcontractor, etc.). to bring their dispute before an arbitrator, instead of going straight to Court. Of course, most parties are still represented by an attorney when they go through the Arbitration process. The general idea behind Arbitration is that it is supposed to lead to a quick, cost effective, binding resolution of the dispute. Unlike Mediation, which is non-binding, Arbitration is binding on the parties involved. Generally, the dispute is brought before an arbitrator who is chosen from a panel of experienced, neutral, trained professional, with experience in the field involved in the dispute. Both sides present their case pursuant to the arbitration rules, and a binding decision can usually be rendered quickly enough to allow the project to continue. Arbitration can also sometimes be used to decide a dispute after the conclusion or termination of a contract, and in many cases, the Arbitrator's decision cannot be appealed. Additionally, in most cases, the Arbitrator's Decision (which cannot be appealed) can also be immediately filed in a Court of Law and turned into a judgment, and enforced just as if the parties had gone to Court, had a trial (without a jury) and completed any appeal, which allows the Arbitrator's decision to be legally effective and enforced immediately.
The American Arbitration Association (AAA)
Why use the AAA:
In the Construction Industry, and with commercial disputes in general, The American Arbitration Association is the most commonly used Arbitration agency. In fact, the AAA has specific Construction Industry Arbitration Rules and Mediation Procedures, and the AAA has been around for more than 80 years. The rules are complex and the decision of the Arbitrator is usually final and binding, so it is still just as important to be represented by an attorney in Arbitration as it is in Court.
AAA Mission and Principles:
The American Arbitration Association was founded in 1926, following enactment of the Federal Arbitration Act, with the specific goal of helping to implement arbitration as an out-of-court solution to resolving disputes. This legal framework was passed by Congress and signed by President Calvin Coolidge. The AAA's staff members and neutrals continue to live out the principles on which the Association was founded. The AAA's official mission statement and vision statement are based on three core values : integrity, conflict management, and service. The AAA has long held its mediators and arbitrators to strict codes of ethics and model standards of conduct to ensure fairness and impartiality in conflict management. To further ensure the AAA's integrity, however, the Association also developed Standards of Ethics and Business Conduct for its staff, as well as a general Statement of Ethical Principles to expand on its core values as an organization. Finally, the AAA -- as a not-for-profit organization -- has a core dedication to service, and particularly education, in the field of alternative dispute resolution.
Should you Arbitrate or include Arbitration in your Contracts:
The answer depends on various factors. First, if you used a general AIA contract, you may already be bound to go to Arbitration, if you did not strike the Arbitration clause out before you signed the contract. If you are considering signing a contract that includes an Arbitration clause, there are many things to consider. First, you have no right to a jury and except in very rare circumstances, no right to appeal. Also, if the Arbitration clause is very basic, sometimes the costs and legal fees can be just as high as if you had gone to Court. Therefore, you may wish to have an attorney draft a very specific Arbitration clause which can limit the overall scope and costs of going to arbitration. Also, the arbitrators, who are always industry professionals, but not always attorneys, may allow you to have your case decided by someone with experience and understanding about your dispute, rather than a random person selected for a jury, or a Court Judge, who may have little or no background in Construction. Thus, you should discuss your case with an attorney to decide if Arbitration is right for your case.
Injunctions and Emergencies:
Even if you have an Arbitration clause in your contract, you may still be entitled to go to straight into Court in the event you need immediate Court intervention, such as in the case when you might need to stop damage from occurring to your property during an excavation or to overturn the decision of a building department, or if you need to challenge a bid acceptance or denial.
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