Things That You Should Know About Alternate Dispute Resolution

: Although alternate dispute resolution techniques, like arbitration, have been used in the United States for over 100 years, there is still a lack of acceptance by some members of the bar and owners.

By Robert F. Borg, P.E.

Most contractors, architects and attorneys are familiar with alternate dispute resolution, such as arbitration and mediation.

Arbitration occurs when an impartial person or panel hears the case and renders a binding decision. Mediation occurs when an impartial, trained facilitator guides the process of attempting to get the parties to agree. With mediation, if parties can't agree, they are not bound and there is no further obligation to continue.

Alternate dispute resolution techniques have been accepted in the United States since as early as 1868. Arbitration has been accepted by the Federal Arbitration Act and has been favorably enforced in cases decided by the United States Supreme Court. Despite its credentials, there is still a lack of acceptance by some members of the bar and owners. Among reasons cited are that the process results in decisions that cannot be appealed, arbitrators tend to split disputed amounts down the middle (which statistics prove isn't true) and the lack of a trial by jury. Also, some members of the bar object to the fact that there is limited discovery and pretrial examination. All of the above statements are true.

On the other hand, we must concede that those objections constitute virtues in arbitration rather than deficiencies. Arbitration is faster and less expensive and decisions are rendered impartially by experts who may know more about disputes than juries. These decisions are final, putting an end to contentious disputes.

The American Arbitration Association, through its National Construction Dispute Resolution Committee, has for many years published rules for arbitration. The rules that are presently being enforced provide for three types of arbitration the "fast track" for claims $75,000 and under, regular arbitration for claims above $75,000 and arbitration for claims in excess of $1 million. With the fast track, there is one arbitrator. With the other types, there are two or three. All of these cases are brought to arbitration by the parties through mutual agreement. The association maintains panels of trained and qualified arbitrators, including lawyers, architects, contractors, engineers or other types of experts.

In entering into arbitration, one of the essential aspects of the agreement is that it should be drafted with care and has withstood the test of time in its wording. The association recommends the following standard arbitration and mediation clauses:

• If a dispute arises out of or relating to this contract or breach thereof which cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation in the City of New York under construction industry mediation rules of The American Arbitration Association before having recourse to arbitration. In the event the dispute has not been settled in a satisfactory manner, then it is agreed that:
  
  
• Any controversy or claim arising out of or relating to this agreement or breach thereof, will be settled by arbitration in the City of New York in accordance with construction industry arbitration rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

One method of panel selection that should be avoided is when each party nominates an arbitrator and then the two arbitrators agree on a third neutral arbitrator. This method of arbitration is fraught with possible delays and frustration. This can bring the entire process to a halt.

The mediation process is completely voluntary. Again, trained neutral mediators are available from panels maintained by the American Arbitration Association. Statistics have shown that over 90 percent of mediations are resolved.

A more recent and less time consuming, mediation process is for the parties to select a neutral mediator to be named in the contract and serve during construction jobs. In case of disputes during the job, the mediator meets with the parties and renders a recommendation on the basis of the meeting or meetings. These recommendations may be binding or not based on the prior consent of the parties.

Save this article and show it to your attorney when you ask him for the inclusion of a mediation and arbitration clause in your next contract, if he is not enthusiastic about the idea.

Robert Borg is chairman of Kreisler Borg Florman General Construction Company in Scarsdale, N.Y.