By: Steve Whitehorn
Whitehorn Financial Group, Inc
One big question my architect and engineer clients ask me often : “When I sign a contract, is it better to choose arbitration or jury trial, in the event we need to resolve a dispute?”
This is an important topic. It’s one of those things that may seem like a minor “hypothetical” detail, because after all, most disputes that arise during a project get resolved by the parties themselves.
Yet like most “minor details” in a contract, you may not think much about it now, until you’re in a dispute that cannot be resolved, at which point you wish you had gotten the right advice from an expert BEFORE making an irreversible decision.
No “Slam Dunk” Solution
In my experience, arbitration and jury trial each has its own benefits. With that being said, I believe a lot of A/E’s are not shown the whole picture by advisors when they make this decision, and could end up paying dearly.
Most of my clients tell me they’ve been led to believe that arbitration is always the way to go.
There are a few reasons why A/Es have believed arbitration is preferred:
- A professional arbiter gives you more control, as opposed to a jury where the rules are rigidly established
- The arbitration process moves much faster and has less red tape
- Arbiters have greater flexibility to resolve disputes in creative ways and find areas of compromise over the court system
The benefits of jury trial
As someone who has been involved with thousands of architectural and engineering projects over the last 30 years, I’ve gotten input from attorneys and insurance claims people who have repeatedly told me that A/E firms actually get BETTER results at a jury trial. There are several important reasons arbitration can be pretty risky:
- No legal parameters. Arbiters are not confined by a strict legal process or even contract agreements. While this can have benefits, it’s generally not advisable to surrender control to such an extreme level
- No need to explain reasoning.Arbiters are not required to justify their ruling, which can lead to them judging based on the wrong set of factors, or simply using their personal perception and “gut instinct” of the most fair approach.
- No discovery.Unlike a trial, you have no way of knowing what the other party will bring as evidence in advance, because there is no mandatory disclosure, which can put you at a disadvantage
- Limited appeal options. Once a ruling is issued through arbitration, you have few options if any to appeal. A court trial gives you a much better shot at winning, even if you lose the first round.
Some more things to keep in mind…
In addition to the above reasons, it’s important to realize that arbitration has come under intense scrutiny by the courts lately, and if you don’t follow the arbitration system properly, you may be unknowingly breaching your contract, which can lead to all sorts of legal problems and complications. (Click here to see an interesting article on recent court rulings about arbitration.)
Another thing to keep in mind is that not all construction projects are created equal. Don’t assume just because you or one of your colleagues had a good experience with arbitration in the past, that means it’s the best option every time. Ideally, you should speak with an expert advisor before signing any contract, who understands the advantage and disadvantages of each approach, and has a track record for successfully advising in these areas.
If you are going to choose the arbitration route, (or it is not a negotiable item by contract), one more important thing you should remember is that some insurance carriers require advance permission if you are going to select arbitration as the dispute mechanism. So it’s crucial to check with your carrier BEFORE you make that decision.
Takeaway: While arbitration can be tempting, and many owners prefer it, you need to decide the absolute safest route for you and your firm, to avoid risk, keep your reputation stellar, and maximize the odds that you will get paid in full on every project.
Whitehorn Financial Group, Inc.
44 Main Street, Ste. 3
Millburn, NJ 07041
This article is published in ConstructionRisk.com Report, Vol. 19, No. 3 (Aug 2017).
Copyright 2017, ConstructionRisk, LLC