Litigate Versus Arbitrate in Construction Contracts

Litigate Versus Arbitrate in Construction Contracts

Litigate Versus Arbitrate in Construction Contracts

To Bind or Not To Bind, That Is the Question

By Robert Wolf

“I just heard that my favorite baseball player was awarded $15 million in arbitration from his team.  THAT is what I am looking for.”

When clients talk about wanting arbitration, it typically stems from watching a little too much SportsCenter on ESPN.  Unfortunately, most arbitrations are not as simple or exciting as the arbitration proceedings we hear about on sports channels.

In fact, in many situations, arbitration can be a BAD CHOICE FOR CLIENTS.

What’s the Big Difference?

Arbitration

Generally speaking, arbitration (or an arbitration “hearing”) is a procedure where the parties actually have a trial, but instead of being in front of a jury, they are in front of a panel of 1-3 lawyers or former judges.  There is no jury, and the panel of 1-3 individuals decides the outcome of the case based on the evidence presented.

Once a decision is reached, that decision is binding.  While one can appeal an arbitration decision, they are rarely overturned unless the arbitrator is found to have some type of undisclosed conflict of interest or some other unfair bias.

Mediation

Mediation is a different type of dispute-resolution procedure.  Mediation is NOT a trial.  The parties in a lawsuit start the day by sitting around a large conference room table, with each side puffing their legal chest, explaining why their side is the side of truth and justice.  The mediator is the referee, and usually keeps things from getting too out of hand.  This mediator is impartial and has no stake in the outcome, since the mediator receives a pre-set hourly rate or flat rate for his or her services.

After the opening comments/chest-puffing, the parties split into separate rooms, and the mediator goes room to room analyzing the strengths and weaknesses of the case.  The mediator then gives an opinion as to what a judge or jury might decide if the case actually goes to trial.

No one can force you to do anything at a mediation, except to show up in good faith and try to get the case resolved.  If you do not like the offer made by the opposing party or the demand made of you, then at the end of the day of mediation, you can just go home.  Nothing has been decided for you, and your case continues.

What is Right for My Business?

The answer to this question is often issue-specific.  Ask yourself if you would rather have a jury or a panel of lawyers and/or former judges deciding your case.  Jurors are always told to check emotion at the door when they walk into a courtroom, but they are only human.

If your issue is one for which you want to avoid the emotions of twelve people who do not know a lot about you or your company, then arbitration is a potential for you.  Keep in mind, though, that arbitration is still expensive – you still go through the process of taking depositions, exchanging documents, and arguing about evidence before the arbitration hearing itself.

I have seen many companies choose arbitration, as opposed to trial (or requiring a mediation), when handling subcontractor agreements.  Sometimes companies are afraid that a jury might side with the “little guy” when a general contractor tries to enforce certain provisions in the subcontract agreement.  Therefore, arbitration might make more sense in that situation.

Discuss your goals with an attorney before you decide whether to require the other party of the contract to go to arbitration, or before you sign a contract waiving your rights to a jury trial.  Always make sure you understand the advantages and disadvantages of each, and determine what is right for you.

Remember, the question of arbitration or trial (and mediation before trial) is a lot more complicated than whether a sports team or a sports player has the winning salary idea for a baseball player.

Robert Wolf is a senior associate with The Beckham Group in Dallas, Texas.  The Beckham Group has extensive experience with, and specializes in, business litigation both as a Plaintiff and a Defendant.  The firm drafts and prosecutes/defends civil cases involving numerous types of contracts.

Vince Fudzie – The Blogger Reality Bite:

For years I felt that arbitration was the best way to avoid costly litigation; therefore, we included an arbitration clause in our subcontracts.  However, after being a defendant in a couple of frivolous lawsuits, I am not longer a fan of the arbitration process for a few reasons.

1.  There is not much control over how much the arbitrator can charge the parties for his/her services, which can sometimes overshadow the most costly law firms.

2.  The arbitrator often doesn’t have a clue about how our industry works.

3. Arbitrators often try to “split the baby down the middle” instead of making a soundly supported decision.

The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2014 TMV, LLC (Triune).  Any and all rights reserved.

 

Delegation of Authority and Notifications for New Contractors

Delegation of Authority and Notifications for New Contractors

New To Federal Contracting?  Or, Just Have New Problems In Government Contracting?

Delegation of Authority and Notifications

By Kay Kendall

Competition for construction contracts in the private and non-government sectors has been increasing. Contractors that previously never considered federal government projects are starting to enter the federal construction arena.

Government money.  Construction contracts.  Put existing workforce to work instead of laying them off.  Increase revenues.  Sounds simple, right?  Not necessarily!

What many of these contractors are finding is that contracting with the federal government is a whole other ball game.   The government has its own set of regulations that are strictly followed and enforced.  Phrases like “good enough for government work” used to mean a high standard, but in the commercial world of construction today, it means barely good enough to get by.  Barely good enough to get by in commercial construction will probably not meet today’s government standards.

Problems arise on government projects, just like on any other project.  The difference on government projects is that you have to follow the government’s rulebook – the FAR (Federal Acquisition Regulations).  The FAR is a complex set of regulations that are often difficult to interpret.

When you run into problems, find someone with experience in federal government contracting to help.  In my early years working for a construction contractor that was just entering the federal government contracting scene, I would ask those that claimed to be government contracting specialists a specific question about a situation and would get a generic answer referring me to a FAR clause.

Not all federal government contracting questions can be answered with a general answer or by reading a single FAR clause.  Sometimes these “specialists” would just reference a book or website.  In today’s world, that just isn’t enough.

In federal contracting, complex issues arise.  Remember the old saying, “I’m here from the government and I’m here to help?”   Don’t believe it.  The government is not there to solve your problems and rarely will you get genuine assistance.  They have certain procedures they have to follow, and even their “language” is different.  They speak in acronyms and have their own terms.

In this article, we will discuss delegation of authority and notifications.

One of the first things contractors need to know is who in the government has authority to direct the contractor.  Usually at the beginning of the contract, or in the preconstruction conference, the contracting officer will provide letters of delegation of authority.  These letters will provide the person’s name, their title and specifically what they have the authority to do.

Some can just review submittals and pay requests and make recommendations to their superiors.  Others have authority to obligate the government to a financial liability, and those that do have the authority have a dollar limit to which they can obligate the government.  Many contractors get into trouble by taking comments from a government field representative, performing the work and not getting paid.  Because the contractor did not notify the contracting officer or another person with financial authority, the contractor performs the extra or changed work at its own risk.

If the contractor receives a directive that it believes is a change to the contract, or encounters what it believes is a differing site condition, the contractor is required to provide written notification immediately before the work and/or the schedule is impacted, and certainly before any work is performed regarding the directive.

It is important to notify the contracting officer.  Even though contractors communicate with the contracting officer’s technical representative (COTR) or other site personnel, the contract requires the contractor to notify the contracting officer – the one in ultimate authority.  The notice is also important because if, for example, the differing site condition may result in significant costs or delays, the government must be given the option to make a decision about the situation.  For example, the differing site condition may present a problem that can’t be corrected with the funds in the contract, and a termination for convenience may be in order.

Or it may take some time to resolve, and in order to keep costs down the contracting officer may order a suspension of work until they work out the problem.  Of course the government has the option to deny that a differing site condition exists and direct the contractor to continue the work.  At that point, the contractor has notified the government per the contract and should send a letter to the contracting officer stating that it disagrees but will continue the work and submit a Request for Equitable Adjustment (REA) or a claim at a later date. In a future post we will discuss REAs, Certified Claims and what the difference is between them.

Kay Kendall is currently president of Kendall-Dinielli Consulting, providing consulting services to government and commercial clients.  She has extensive experience in preparing requests for equitable adjustment proposals and claims for government construction contractors.  She has also consulted Contractors with DCAA audits and resolving audit disputes. You can visit Kendall-Dinielli Consulting at www.kendall-dinielli.com.

Vince – the blogger Reality Bite:  As a 17-year federal contractor our company has seen its share of REA’s, claims and audits; it is simply a part of doing business with the federal government. However, you can go a long way in helping your company successfully navigate these issues if you simply become an expert at understanding the requirements of the specific federal contract you are working on.  We go as far as breaking down the entire contract into a chart that focuses on the who, what, when, why and how of a contract. Try it and it will help you avoid getting into trouble.

The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2014 TMV, LLC (Triune).  Any and all rights reserved.