ConstructionPro Week, Volume: 2 - Issue: 40 - 10/04/2013

Should One Party Be ‘Sole Arbiter’ of Claims and Disputes?

By Bruce Jervis

 

Construction contracts sometimes establish one party to the agreement as the sole arbiter of all claims or disputes under the contract. In other words, one party plays judge and jury on matters involving that party’s financial self-interest. The unfairness and conflict of interest could not be more apparent.

 

It is common for an employee or agent of one party, usually the project owner, to serve as the initial gatekeeper of claims. The role of the project architect under the American Institute of Architects contract documents would be one example. Project engineers on public projects play a similar role. But these individuals are not sole arbiters, or final decision makers, on claims. Further review by independent arbitrators, administrative boards, or judicial bodies is stipulated.

 

The self-serving nature of “sole arbiter” provisions can be their downfall. An example is found in a recent New York case. A subcontract established the prime contractor as sole arbiter of disputes. The New York court ruled this was unenforceable. It impaired the subcontractor’s mechanic’s lien rights, in violation of the state lien law, and created a conflict of interest, in violation of the state construction trust provisions.

 

Have you seen contracts which establish one party as the sole arbiter of claims? Are there situations where a project owner, or prime contractor, attempts to impose these terms as a requirement for their business? Would you agree to work under these terms? I welcome your comments.

 

COMMENTS

I have seen contracts with such language and won't agree to allow my clients to sign them. I have also become very suspicious of the arbitration clause and the arbitration system itself.

Recently, during two arbitrations for non-payment by one contractor, the arbitrations were held in the contractor's attorney's office conference room. I would advise anyone entering into arbitration to demand a neutral site and never allow it to be held on the opposition's attorney's home court.

After all of the rules and conditions were reviewed and agreed upon, one stipulation was that no new discoveries could be entered or entertained at the last minute. On both occasions, the rule was violated and the arbitrator allowed the introduction of additional discoveries contrary to the agreed upon rules. The contractor's attorney had the advantage of having immediate access to a list of information that was not available to the claimants attorney.

The final straw was that the contractor's attorney was also an arbitrator and on excellent terms with the appointed arbitrators overseeing the proceedings. On both occasions, several documents were introduced in the last hour and the claimant's attorney was not given sufficient time or the opportunity to offer any defense or rebuttal.

I now advise any client to never agree to an arbitration clause except under very stringent conditions that insure a level playing field and that the opposition attorney is not an arbitrator. When you know how far you can push the rules and what is acceptable but the same information is not shared with the other side, it gives an unfair advantage to the defending party.
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They get sucked into the fabulous, engaging blog articles and vibrant communities, forgetting that

there is a big picture hidden behind all the theory and discussion. Most

children are stunned when they first hear about death because they have no understanding

of what it is. The ultimate outcome of mental divergence

is information without knowledge or knowledge

without wisdom or wisdom without ultimate truth.
Posted by: Menendez - Wednesday, April 06, 2016 3:37 PM


Hey! I realize this is kind of off-topic but I had to ask.

Does building a well-established blog like yours take a large amount

of work? I am brand new to running a blog however

I do write in my journal on a daily basis.

I'd like to start a blog so I can easily share my

experience and thoughts online. Please let me know if you have any

ideas or tips for brand new aspiring blog owners.

Appreciate it!
Posted by: Thurman - Sunday, April 10, 2016 4:26 AM


 









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