What does a 25% chance of recession mean for a remodeling business? If there were the same odds of bad weather, a car accident, or cancer, what would you do differently?
How does your contract address dispute resolution? It probably says arbitration is the preferred method. And why not? It’s been favored by construction professionals for years. But that popularity may be fading. In fact, the American Institute of Architects contract forms now state that if the parties don’t specifically select arbitration as the way to deal with a dispute, then the choice automatically defaults to litigation.
Problems with Arbitration
Most people don’t realize that arbitration can actually be just as time-consuming and expensive as litigation. Discovery may be limited, but it isn’t eliminated. Document production and depositions remain integral in moving a construction case forward. And arbitrators’ fees—which aren’t cheap—are paid by the parties, whereas judges and juries are paid by the taxpayers.
What may be the most important distinction between arbitration and litigation is the little-known fact that arbitration decisions are rarely able to be appealed
But what may be the most important distinction between arbitration and litigation is the little-known fact that arbitration decisions are rarely able to be appealed. Short of a showing of bias or fraud perpetuated by the arbitrator, it is unlikely you can have a bad outcome overturned, even a decision based on an incorrect interpretation of the law. That is not true in litigation. You have the absolute right to appeal a judge’s ruling or jury’s verdict if you don’t agree.
So, What Should You Do?
For starters, put a requirement for mediation into your contracts. Many mistake mediation for arbitration. That would be wrong. In an arbitration, an arbitrator hears evidence and renders a decision that is enforceable in a court of law. In mediation, a neutral third party negotiates with the people involved and looks to find a middle ground which might settle the dispute. The mediator makes no decisions and his or her recommendation does not have to be accepted. An arbitration continues to a decision while a mediation can reach an impasse when the sides simply do not agree.
Set a time frame for a mediation to occur before any next steps take place. Courts in most jurisdictions now require mediation before a trial can proceed. If mediation is futile, then litigation, preferably before a judge, should be pursued.
To be clear, none of these options is pleasant. But having no stated path to resolving a dispute is worse.
Finally, make sure to have a prevailing party attorney’s fee provision. You wouldn’t want to go through all this, win your case, and then have no way of recovering some of the legal expenses you have incurred.