Do You Really Want Mandatory Arbitration in Your Construction Contract?

Christopher G. Hill | Construction Law Musings | May 14, 2019

If you are in construction, you have likley run across (or even drafted) a dispute resolution provision into your construction contract.  If you’ve been building for any length of time, you’ve read dispute resolution provisions containing mandatory arbitration clauses.  These clauses can be found in the AIA documents and in many of the contracts that I review for my clients in my role as construction lawyer and counselor.  More often than not, these arbitration clauses require arbitration (read “private court”) and refer to one of several sets of rules, though most likely the American Arbitration Association (“AAA”) Construction Industry rules.  In Virginia, as in most of the United States, these clauses are read liberally and enforced by courts except in limited cases such as waiver.

The main justification for requiring arbitration over litigation is to avoid the fees and expense of the litigation process.  In the right circumstances, arbitration does just that.  With a carefully drafted arbitration clauses and with the right case that requires expertise in construction that a judge does not have (they have to liten to all manner of disputes so are necessarily generalists), arbitration can and should be a streamlined and less expensive version of litigation.

However, in my time as a construction attorney, I have more often run into situations where the arbitration process is at least equally expensive and frankly not much more streamlined.  The additional administrative burden coupled with the possibility of paying for at least half of the hourly charges of one to three arbitrators is often not worth the additional expertise of those arbitrators.  Many construction claims simply come down to non-payment and whether the work was performed properly.  In my opinion, the fine judges in the Commonwealth of Virginia are more than capable of hearing this evidence and making a ruling.

Does that make arbitration the wrong choice in every instance? No.  I added “mandatory” to the title of this post for a reason.  Parties can always agree to arbitrate (or even better mediate)regardless of the contract. Even better, in our fine state where the contract is king, the dispute resolution provision can allow for a choice to be made between litigation and arbitration at the time of the claim.  This allows for flexibility and use of the appropriate tool for the job.

Where arbitration is the right way to go, that can and should be the choice, however where it is not the right way to go, mandatory arbitration clauses force the use of a process that may not be the best for either party to the contract.

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