ARBITRATION AND OTHER ALTERNATIVE dispute resolution (ADR) techniques are the methods that more and more residential builders, remodelers, homeowners, and subcontractors are using to resolve disputes between and among themselves. They generally find that it is faster, cheaper, easier, more efficient, and—more often than not—fairer and less combative than turning to the courts to settle their differences.

In addition to arbitration, which generally ends up with an arbitrator or a panel of arbitrators resolving the dispute with a binding decision, mediation is a favored ADR technique. With mediation, the mediator talks to the parties either individually or together in an effort to resolve their differences by some give-and-take on each side.

To prepare for any future disputes, you need to designate specific ADR techniques in your contracts. Most often, a contract between parties spells out how disputes will be settled. Sometimes, the contract says that disputes will be resolved by the laws of a particular state or under a court in a particular state. In other cases, the contract calls for disputes to be settled by arbitration or mediation and if mediation fails, by arbitration. That's a start. But it is much better if the contract specifies the rules or the ADR organization under whose rules the disputes will be settled. A clause such as: “any disputes which arise between the parties hereto shall be settled under the rules and procedures of the American Arbitration Association (AAA)” is a good way to specify how disputes will be handled.

I have seen many contracts that call for disputes between the parties to be settled by arbitration, but the contracts do not identify an arbitrator, how he or she will be picked, the qualifications required, the training he or she should have, or a precise timetable, set of rules and procedures, costs, or division of costs. Parties who agree at the onset of a project that disputes will be settled by an administered arbitration under the rules of a designated authority are assured that the dispute will be handled in a reliable, cost-effective way.

Rules Of The Road I am most familiar with the rules and procedures of the AAA, so I will use its procedures in most of my examples, but I am sure that other ADR organizations have similar rules and procedures. Here are the essential things you need to know about administered arbitration/mediation:

  • Rules and procedures that will govern the conduct and resolution of the dispute while respecting the dispute resolution clause in the contract are clearly set out.
  • Fees for administration and neutrals—arbitrators or mediators—are set out in advance.
  • Case managers are assigned, from the very beginning, to ensure that fees are collected and are available for dispersal. They also ensure that timetables are clear and adhered to, all documents have been exchanged, and that the matter and all parties are ready for the hearing. Case managers are available for consultation to all parties and the arbitrator if an unforeseen administrative matter should arise, and they can sometimes be helpful in breaking stalemates or probing for a settlement.
  • Procedures for selecting the arbitrator or panel of arbitrators are set forth, while assuring that the arbitrators will be well trained, knowledgeable (in residential construction or construction law, if the parties want), and neutral, and that they will abide by a code of ethics.
  • Fees, timetables, and procedures that are appropriate and vary with the size and complexity of the case are set.
  • The AAA has supplementary procedures for residential construction disputes, a set of procedures, fees, and time frames designed to resolve disputes, including pre-closing disputes between homeowners and builder/contractors from less than $10,000 up to $75,000.

    Self-Defense How do you ensure that you get the benefits of ADR? It is up to the parties, their counsel, and the arbitrators to ensure that the sought-after results of quick, inexpensive, and efficient dispute resolution are achieved through the ADR process.

    The trick is to hone in on and stick to the important aspects of the case. In residential construction, the scope of work, engineering, specifications, materials to be used, standard of workmanship, codes to be complied with, schedules, etc., are generally not too esoteric. By limiting the number of (or having no) affidavits, examinations before trial, depositions, motions, etc., each party can save a lot of time and money. The parties can agree on exhibits and exchange them in advance.

    Sometimes, many of the benefits of the ADR process are lost because the parties or their representatives insist on conducting the hearing like a trial. Try to avoid that and practice self-control. The arbitrator should have a substantial role in managing the arbitration process and actively managing the arbitration hearing in order to achieve the benefits of ADR.

    One of the nice things about arbitration is that if you want to go through the process without a lawyer (representing yourself), you can do so. You can also bring in a non-lawyer whom you think is capable of properly representing you. This is true in almost all states with the exception of Virginia, West Virginia, and possibly a few others. Check with the local office of the AAA or the state attorney general if you are not sure.