While you might imagine that the vast majority of construction disputes involving builders, suppliers, developers and homeowners are resolved via litigation, this isn't necessarily the case.
Indeed, many of the contracts entered into between these types of parties include what is known as an arbitration clause, which essentially mandates that any legal disputes that arise will be resolved via this form of alternative dispute resolution.
What type of conditions are typically set forth in arbitration clauses?
It's important to understand that arbitration clauses do more than just definitively establish arbitration as the legal forum through which any conflict will be resolved.
Indeed, most clauses set forth in painstaking language the rules and procedures to be used in arbitration, or name a third-party service to handle the arbitration, and whether it's rules and procedures will apply.
To illustrate, if the clause dictates that the American Arbitration Association will handle any disputes, it will likely also establish that its Construction Industry Arbitration Rules and Mediation Procedures will govern the proceedings.
What types of rules and procedures might parties that opt not to utilize the services of a third party include in their arbitration clause?
There is no clearly defined set of rules and procedures that must be followed when it comes to arbitration. As such, parties are essentially free to draw up the terms as they see fit.
Some of the issues they will likely want to ensure they address include how many arbitrators will oversee the dispute, how the arbitrator(s) will be selected, how long the arbitrator(s) have to render a decision, how relaxed the rules should be concerning evidence and discovery, and how relief can be awarded.
We will continue this discussion in our next post, examining more about how the arbitration process works and why it's the de facto legal forum for so many in the construction industry.
If you require assistance with the negotiation and drafting of a construction contract, or require representation in arbitration, please consider speaking with an experienced legal professional.