Tuesday, April 28, 2009

The Arbitration Clause-Points to Include

Here is an arbitration clause that I included in a contract for the construction of a new home:

The Contractor and the Owner(s) hereby mutually agree in advance that in the event that the parties have a conflict concerning this Agreement, either party may demand arbitration of the dispute. The parties will select a mutually agreed-upon arbitrator. If the parties cannot agree on an arbitrator, then each party will select an arbitrator who will then mutually agree upon an arbitrator.

The arbitration will be conducted according the Construction Industry Rules of the American Arbitration Association and will take place in Norfolk or Middlesex Counties in Massachusetts. The Arbitration Award will be binding upon all the parties. Judgment upon the award may be entered in any Court having jurisdiction thereof.

Any controversy or claim arising out of or related to this Agreement involving an amount of less than $2,000 (or the maximum limit of the court) must be heard in the Small Claims Division of the Municipal Court in the county where the Contractor’s office is located.

As long as both parties agree, they may at any time and without consequence opt out of such alternative dispute resolution and seek a remedy for breach of this Agreement in any court of competent jurisdiction.

We, Contractor and Owner(s), have read the above provision and both have signed it as our free act and deed, thereby assenting to the procedure.

Consider the following:

1. How will the arbitrator be chosen?

2. Will you designate an arbitration organization to be used?

3. Are there rules that will be followed (I like the Construction Industry Rules of AAA)?

4. Where will the arbitration take place?

5. How will the arbitrator be paid?

6. Will the arbitration be binding?

7. Should smaller cases go to small claims court?

8. Should the parties have the option of not going to arbitration?

9. Do the parties want to include a mediation clause as a primary step before going to arbitration?

10. Are there any exceptions to the kinds of disputes that will be decided through arbitration as they relate to the project?