Private Arbitration

Construction industry people become familiar with dispute resolution either through court proceedings or through arbitration conducted under the auspices of the American Arbitration Association. There are also other methods of resolving disputes.

Use of American Institute of Architects construction contract forms without modification usually leads to dispute resolutions through arbitration managed by the American Arbitration Association. That Association provides the mechanics for conduct of arbitration proceedings from selection of arbitrators to the administration and ultimate arbitration award. The Association also provides rules for the governance of arbitration proceedings, arranges such matters as the place of hearing, and it handles the paperwork involved and provides clerical support. The Association provides very fine and competent services. Its fees are in proportion to a dollar amount involved in the dispute.

Apart from use of the American Arbitration Association, disputing parties are at liberty to have their disputes resolved by private arbitration under the laws of most states.

Private arbitration is simply a means of dispute resolution where the parties fix their own terms to govern how their dispute is going to be resolved. They establish a method for selection of arbitrators and their own ground rules. They are only limited to the extent that the parties cannot agree among themselves as to any facet of their arbitration process.

A private agreement to arbitrate should be written and should cover the basic terms such as:

(1) identification of the arbitrator(s) or their method of selection,

(2) an agreement that the parties will be bound by the arbitrator(s)’ decision without right of appeal,

(3) any special requirements for the arbitration award,

(4) when and where the arbitration hearings will be held, and

(5) any matters required by any applicable arbitration law of the state involved.

The parties are free to make their proceedings as formal or informal as they wish. Agreeing simply to “let Joe look at the plans and specifications and decide who’s right” is insufficient.

The principal advantage of private arbitration is that it can be tailored to the parties and particular dispute circumstances involved.

Items such as compensation of the arbitrator(s), time for rendition of the award, opportunity for inspection of documents in the possession of other parties, depositions of witnesses, prehearing identification of witnesses and exhibits, and subpoenas for witnesses should also be considered.

Properly arranged, a private arbitration award can be entered and enforced just like a court judgment. Substantial savings of time, emotions, expense and risk may also result.

From a psychological standpoint, if the parties direct the attentions to formation of an agreement for conduct of the arbitration of their disputes, they may establish a sufficiently friendly relationship that, in the process, their disputes might be settled without any proceedings at all.


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