in our November newletter of RIBA.. our counsel advised us of the following in an article:
for those who are trying to decide:
Mediation or Arbitration ?
In mediation , a person listens to disputes and gives recommendations. Mediation is non-binding. Arbitration is final and binding. In many instances, many disputes are resolved through mediation. If a matter is not resolved through mediation, arbitration is perhaps the fastest way to resolve a dispute.
to those who use either of these in your contracts (we use Arbitration ).. the rules have changed
American Arbitration Association wants the laguage as follows:
“Any and all disputes concerning the performance or interpretation of this agreement shall be decided through the rules of the American Arbitration Association, specifically the Construction Industry Arbitration rules supplemented by the procedures for residential construction disputes. Any award shall be final and binding.”
and if you use a mediation clause:
“The parties hereby agree to submit any dispute concerning the performance or interpretation of this agreement through mediation administered by the American Arbitration Association under its Construction Mediation Rules.”
Mike Smith Rhode Island : Design / Build / Repair / Restore
Replies
and so i says ..
hey !
don't no one use arbitration clauses in their contracts ?
and if not , why not ?
Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike,
Good question and believe it or not, I don't know why we don't use Arbitration in our contract. We never got to the point where any formal proceedings were needed to solve a dispute, but that is not to say it will never come.
I will be speaking to my attorney on another matter and will inquire about this very subject. I am sure when I set down with him years back when we drew up my contracts it was discussed, but I can not remember the whys.
I can say that I have resolved a few problems that if not for my tactfulness, intelligence, good looks and charm things may have been different. Well, maybe for being tactful, but I am working on the other attributes :-)
Regards"One measurement is worth a thousand expert opinions"
woodrow... and bob... and all the ships at sea..
i stuck the clause in about 15 years ago after a Builder's Association meeting where the counsel made a presentation..
when it comes to mediation.. i can usually mediate my way out of most problems.. so that clause never appealed to me..
i've been around the perifery of a lot of legal disputes, including being "expert witness " in construction disputes, and several things that struck me about the process were:
the lawyers always get paid
the result is not guaranteed
the one with deepest pockets will probably prevail
an award may not cover the cost of the litigation
the result ( a court decision ) may take years... probably a MINIMUM of two years..
on balance i pretty much decided that i never want to wind up in court with one of my customers..
i have been named as a third party defendent in a slip and fall a year after we built a house... just being represented in depositions COST me $3000.
my one contract dispute that i was unable to satisfy wound up in Arbitration... the cost was about $500, the arbitrator basically split the baby, so the resolution cost me $2000 ($1500+500).... and that was THE END of the dispute
i think of an Arbitration Clause as legal insurance... it definitely gives me some peace of mind that i wouldn't have otherwise......
....there are sharks in these waters !
Mike Smith Rhode Island : Design / Build / Repair / Restore
That's funny .. I read the title .. and thot ... wonder what Mikey will have to say about this!
So ... which version do U go by?
And no .. out of pure laziness ... I'm yet to have it in mine ...
which I will/should fix within the week!
Still laywer-less ... but have dibs on a good one ...
maybe someday soon I'll have the whole contract given the once over by a real legal type mind ......
JeffBuck Construction Pittsburgh,PA
Artistry in Carpentry
You are correct, the one with the deapest pockets does prevail. But if you do not buy and shut up, the builder can file on you. If he does than you have to come up with an exorbant amount of money to file a counter claim to defend yourself... Even if your new house is so defective you had to move out into an apartment. The ceiling in our living room collapsed the first night in the house when my husband on the 3rd floor let 100 gallons of water out of his new garden tub. It came down with the ceiling in the dinning room, right on the dinning room table and went though the hardwoods and flooded the garage on the first floor. That was just previews of coming attractions.
We were threatened by the builder with arbitration. When you find out, with major construction damage and substandard construction.... it is going to cost you. Just to file the counter claim was $4200. dollars then $1575 for administration fees, and a $1750 deposit on the arbitrators fees and $75 dolllars to reserve the room and $600 dollars a day for each expert testimoney. This money does not inlcude attorney's fees. If you don't have the money ...no problem, AAA will ask for your credit card information and just charge it to you as fees accure. Then you not only won't have a home or money you will have credit card debt to last you the rest of your life.
It might keep little claims from being filed because it is so expensive. But if you have a legitament large claim and you are homeless because of a bad builder, you have already lost your home and the money you had put down.... then you have to come up with a minimum of $10,000 to get started in arbitration? That is just so not fair.
When you realize how much it costs and what your chances are of prevaling ...you don't file. But our builder filed on us. I think the real straw was when the builder sued the roofing company...public records "stature vs Astez' and used our house as their example of the worse defective home in our subdivsion of 44 homes. They admit they knew how bad the houses were constructed in 2001, under oath... yet sold us ours in the beginning of 2002.
I have seen nothing fair in this process. AAA arbitration is like some demented collection agency. They are a non- profit company that happend to make 84 million last year. It can be fast, ok that is true...but there is no appeal. This process is held behind closed doors and does not have to follow the rules of law. They also deny you the right to have the media present. It is a sick secret society that helps its' repeat customers, those which help it make it huge profits. The big builder knows this too. Many of the Arbitrators are partners of the builders attorneys.
I write because I do not want one more person to blindly go where we have been.Jordan Fogal AKA Lemonlady
Did you win or loose?
By the way where was your lawyer when you bought the house in the first place. Why would your lawyer let you sigh a contract that did not let you have access to the court after the arbitration. By your lawyer I don't mean the bank's lawyer that you paid for or the contractor's lawyer you paid for, I mean YOUR lawyer that you paid to repersent you.
When you realize how much it costs and what your chances are of prevailing ...
Why would you not prevail?? if you did nothing to cause the problems.
good response...
your experience was different than mine... my one arbitration cost $375 (each )
we both chose one arbitrator from a list
my customer brought an expert witness ( a roofing rep. )...
the outstanding balance was $3500... the customer claimed about $10,000 in rework was due
the arbitrator heard all the testimony , awarded me half.. and denied the customer's further claims..
he could not appeal
he could not bring further suit
three years later, he had the gall to show up in my office because he wanted to sue the roofing mfr.
my second experience with arbitration was as an expert witness on behalf of a homeowner against his builder
i proved that work had been billed that wasn't done.. that work had been done that wasn't on the plans... and that specifications that were on the plans were not followed
the builder presented signed Change Orders contrary to all of my findings..
the arbitrator saw the Signed Change Orders and denied all of the homeowner's claims...... cost: $375 to the builder
$375 to the homeowner PLUS my fees PLUS the homeowner's lawyer, WHO was present at the Arbitration and who DID participate.. a court would not have found differently
i have also been expert witness in court trials on behalf of homeowners
the cost was astronomical.. the findings were delayed and the outcome was no better than the usual arbitration ( split the baby )
i have also been named as third party defendent in a court suit..... this involved a threshold on an exterior door and a trip & fall... that one cost me three days, $3000 for lawyers and i was eventually dismissed from the suit
i have presently a customer who has spent $100K defending his title , the trial date took two years... the judge is overworked and has not issued a judgement in the case even though it was heard 3 months ago
the bottom line for me.... avoid legal proceedings and limit the scope of potential loss.... jutice delayed is not justice served.... and the party with the deepest pockets is probably going to prevail... Arbitration suits me best...
Mediation is for reasonable people.. i never have problems with reasonable peole so i will not include Mediation as one of my options.. it is not binding... long before i wind up in Arbitration or Court suit i will be attempting to mediate the dispute anyways
it would only take one customer in a typical job , taking me to court, to put our financial well being in jeopardy.... when we are doing contracts in the range of $100K to $500K we are really playing " bet the ranch ".... our ranch... not the customer's... i'm not going to leave that up to the whims of the court systemMike Smith Rhode Island : Design / Build / Repair / Restore
Mike,When were your two experiences with arbitration?
Jon Blakemore RappahannockINC.com Fredericksburg, VA
I generally recommend mediation, as it gives both sides to a dispute a reality check. It has the benefit of being non-binding. I usually settle my cases when we go to mediation. There are lots of good mediators around, including lawyers with construction experience.
Arbitration, as others have mentioned, is final and, for all practical purposes, not subject to appeal. For disputes less than 50K or so, arbitration is usually cheaper and quicker than litigation. However, using AAA can run the costs up substantially, because there are high filing fees and arbitrator fees and often other fees for use of rooms, etc. The way to avoid all that is to insert an agreement in the contract that disputes will arbitrated (either all disputes or those where less than $xx is in dispute,) but don't agree to submit the dispute to AAA. In any event, agreeing to arbitrate means you waive your right to a jury trial.
Most of us are subject to arbitation of disputes. Look at any brokerage agreement, for example.
Remember, arbitration and arbitrary come from the same root.
Edited 7/19/2006 2:47 pm ET by smslaw
Thanks Mike, you are understood. And I also see how when a smaller private contractor builds houses he is indeed betting the farm his farm...in our case we as buyers bought the farm. The bigger builders have this arbitration down to a win- win game and it is to keep you from complaining.
On hobb.org you can see where K&B abused the arbitration clause to the point they are not allowed to have it in their contracts any longer. Bad builders like bad people seem to be able to find a way to abuse the system.
I know there are pickie people who drive contractors crazy with changes and " the tile dosen't exactly match the flower in the wall paper in the back bathroom stuff...and that is not right either. Our situation is much different, much worse. The builder uses arbitration and filing on his own homebuyers... in an attempt to hide from resonsibility.
I bet if you had been building our house you woud have checked on your subcontractors and you would have been right there to make sure your investment was protected. These builders don't. They are grabbling up land and thowing up houses to get just as much as they possibly can. They are getting money from hud, afforable housing, TRIZ, water and sewer funds, bond money and tax credits, all the perks that usually aren't available to the smaller builder. I do not see how you compete other than with a quality product. It is so sickening to be homeless because of this builders unbridled greed.Jordan Fogal AKA Lemonlady
lemon.... i know that a lot of the merchant builders ( like K & B ) cut corners and put out inferior products ( building thousands of houses a year )
a lot of the smaller spec builders do also ( building two or three to a hundred )
if you are going to deal with goliath, there is no way you are going to prevail.. be it mediation, arbitration, or in the courts
dealing with smaller spec builders you may have a chance.. your finances and interests are more closely matched
to me ( a small GC) most of my customers represent Goliath ( in terms of their financial resources vs. mine ) so i choose the method of dispute resolution that gives me the most protection.. Arbitration
if i had to wait 2 - 3 years for a resolution of a $50,000 dispute, it would endanger my personal and business well being... losing a suit like that would probably bankrupt me ( $50K + court costs + lawyers fees )
in a lot of areas it is not the builder who determines the quality of the house, it is the developer who turns the raw land into building lots....... they control the costs by controlling the quality ( by cutting the quality )
i dare say... you never dealt with your builder.. i bet you dealt with a corporation three times removed from the building process...sales, marketing, and the bottom line drives that industry.. not quality or job satisfaction
Mike Smith Rhode Island : Design / Build / Repair / Restore
In my opinion, biz folks should talk to a lawyer about what approaches to take to dispute resolution. There are pluses and minuses to each approach and what's right for one might not be right for another.
Some added, random observations: Mediators often look for solutions which "split the difference." It is useful where it is unlikely who is to "blame." (as in the broken stud in the "fixing mistakes" thread: 36664.1)
Arbitrators sometimes do that as well, but they are more likely going to "find" for one side or the other.
Arbitration can have a steep "get it going" fee, which can help discourage nuisance actions.
With arbitration with a named arbitration (AAA isn't the only one), you're more likely going to get an arbitrator who understands the business, so you don't have to take as much time educating the arbitrator as to the difference between a rabbet and a raceway.
That can cut both ways, of course. If you're above average in your trade,. it'll probably help. If you're a bottom feeder, it'll hurt!
Albert Einstein said it best:
“Problems,†he said, “cannot be solved at the same level of consciousness that created them.â€
Your mileage may vary ....
now I have a lot to say on this subject.
But I think I'll save it for my lecture at tipifest, where you will not only be enlightened by my legal brilliance but charmed by my humorous yet riveting delivery.
unless, of course, someone beats me on the golf course, in which case I will be morose and uninspiring.
not that I'm trying to influence the outcome. I would never do that.
SHG
For every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
shaggy.. i'll hold you to that... even though i trust you will be moroseMike Smith Rhode Island : Design / Build / Repair / Restore
definitely not the response I was fishing for. We're playing handicaps, right?
Our contract specifies mediation first, in accordance with the rules of the AAA, and then arbitration in accordance with the same rules if mediation does not work. There's language re selecting mediators and arbitrators, etc.