Arbitration is a form of alternative dispute resolution which makes use of a third party to review the evidence in a case and render a decision between disputing parties. Although arbitration takes place outside of court, decisions in arbitration cases are legally binding and can be enforced in court.
Arbitration is used in a variety of contexts to settle all manner of disputes, including the construction industry. Part of the reason arbitration is popular as a forum for resolving construction disputes is that a courtroom is not always the best place to sort out the details involved in construction disputes. Arbitration can allow parties to better address these technical details, though there are some risks with the arbitration route as well.
As experts in the field know, it is important to carefully craft arbitration clauses in construction contracts to ensure that there are no unfair disadvantages and that costs are contained. One way to do this is to limit the authority an arbiter may exercise in handling a dispute. This can help check the scope of arbitration, as well as its duration and, ultimately, the cost of the process.
While it is common for construction contracts to include a standard provision saying that all disputes are to be settled by means of arbitration, construction companies can take a different route and change the language so that there are specific limitations on the scope of authority arbitrators may exercise. These provisions should be carefully crafted in light of experience rather than putting forward boilerplate language. For this, it is important to work with an experienced attorney.
Source: nyrej.com, “Cost effective construction arbitration agreements,” Gary Rubin, Nov. 11, 2014.