When two parties discuss entering into a construction contract, the fact that disputes may arise during the construction process may be entertained. However, do these disputes automatically mean a trip to court is necessary? Not always. Parties in California executing a construction contract often include provisions on using alternative dispute resolution procedures to resolve disputes before resorting to litigation. Two popular methods of alternative dispute resolution are mediation and arbitration.
In mediation, the parties will work with a third-party mediator to try to work out a resolution to their dispute. The mediator is not a decision-maker. Instead, the mediator is a neutral party who helps facilitate discussions between the parties. It is intended that the result of mediation will be a written settlement that can then be approved by the court. That being said, mediation is non-binding. If mediation fails, the parties can move their dispute to the courtroom.
In comparison to the relatively informal process of mediation, arbitration is more formal way to resolve a dispute out-of-court. Not unlike a hearing, both parties will make their arguments and present evidence to a neutral, third-party arbitrator per the terms of their arbitration agreement. Unlike mediation, the arbitrator’s ruling is legally binding and enforceable. An arbitrator’s ruling can be appealed, but only if the arbitrator was biased or the proceedings were marred by fraud.
Ultimately, if you are considering including a mediation or arbitration clause in your construction contract, it is important that you know exactly what these clauses entail and what they mean regarding your ability to later litigate disputes if necessary. There are positives to alternative dispute resolution, but any agreements should be carefully considered to ensure you understand their consequences.