Keep in mind that when you specify arbitration in your contract, you are agreeing to have an arbitrator make a “final and binding” decision that is not appealable as it is in court. When the arbitrator issues the “Arbitration Award” (verdict), you are done with the dispute resolution process. No appeal for either party if a party doesn’t like or agree with the Arbitration Award. You can see how very important it is to have both binding arbitration and the arbitration provider specified in your contract. If you specify arbitration only and do not specify an arbitration provider, if the parties can’t come to an agreement on the arbitrator, the parties end up in court having the judge appoint an arbitrator, who in most cases is an attorney not familiar with construction.
An example of minimum proper contract language is: “Any and all disputes related to this contract shall be settled through binding arbitration as conducted by and according to the rules and procedures of _____________.” Here is where you specify the arbitration provider. Note that this is a very simplified dispute resolution clause. I recommend that any clause that you put into your contract be approved by your attorney to make certain that it works well in your contract and does not conflict with any other clauses in your contract.
Arbitration is generally faster, simpler and less expensive than going to court. Most cases going to litigation through the courts require the parties to hire an attorney to represent them. In most arbitrations that I have seen, the parties represent themselves and do not use an attorney as the disputed issues were not legal in nature but were more oriented towards construction issues. Parties are free to utilize attorneys to represent them in arbitration, but it is not required. Should your dispute involve any major legal issues, most arbitration providers have several qualified construction attorneys on their panel who can serve as the arbitrator.
The decision of a judge or arbitrator may make or break you in business. It makes good sense to make certain that you have a decision-maker with the construction knowledge to know right from wrong. I must say that I have also heard horror stories of parties who have utilized arbitration but did not specify their arbitrator or who had an arbitrator who did not have the construction knowledge to render a meaningful, equitable and fair Arbitration Award. Specifying both binding arbitration and an arbitration provider won’t guarantee that you will win your case, but it certainly gives you a better chance of being the prevailing party should a dispute develop.
Peter G Merrill is the President and CEO of Construction Dispute Resolution Services, LLC. who is widely recognized as the largest exclusive provider of construction ADR in the USA as they have Construction ADR Specialists located in all 50 states, Washington DC and in several foreign countries. Mr. Merrill serves on the Steering Committee of the New Mexico State Bar Association Dispute Resolution Committee and chairs the Arbitration Subcommittee. He is currently serving as the chairman of the ABA Arbitration Committee’s Arbitration Rules Subcommittee. He also serves on the Executive Board of the National Association of Home Builders, is a Past President of the Santa Fe Area Home Builders Association and in 2000 served as President of New Mexico Home Builders Association. For more information check out CDRS’ website: constructiondisputes-cdrs.com.
Here’s what Michigan law says (from Article 24 of the Occupational Code which governs residential builders and M&A contractors:
“A licensee may contractually provide for an alternative dispute resolution procedure to resolve complaints filed with the department. The procedure shall be conducted by a neutral third party for determining the rights and responsibilities of the parties and shall be initiated by the licensee, who shall provide notice of the initiation of the procedure to the complainant by certified mail not less than 30 days before the commencement of that procedure. The procedure shall be conducted at a location mutually agreed to by the parties.
The department shall not initiate a proceeding against a licensee under this subsection if the licensee has contractually provided for an alternative dispute resolution procedure that has not been utilized and completed unless it is determined that the licensee has not complied with a decision or order issued as a result of that alternative dispute resolution procedure, that alternative dispute resolution procedure was not fully completed within 90 days after the filing of the complaint with the department, or an alternative dispute resolution procedure meeting the requirements of subdivision (d) is not available to the complainant.”
“Failure of the person bringing a complaint against a licensee to utilize a contractually provided alternative dispute resolution procedure shall be an affirmative defense to an action brought in a court of this state against a licensee under this article.” l