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Q: Joe, I am negotiating a construction contract and my general contractor wants a mandatory arbitration clause. I have heard you say many times you don't like them. Can you tell me why? [name withheld]
A: Mandatory arbitration is a wonderful tool in theory, but in practice it often fails to accomplish its goal of reducing the cost and inefficiency of resolving a dispute short of formal litigation.
What makes arbitration clauses difficult for me to accept in construction agreements is that (1) arbitration requires the additional cost of paying private arbitrators, (2) often all parties have not signed the same arbitration clause in the same contract, resulting in troublesome issues related to interpretation and enforcement, (3) arbitration does not afford the same opportunity for discovery of the opposing viewpoints, (4) it is not easy to appeal an arbitration for mistakes in applying law (although the loser almost always wants to try), and (5) the parties' agreement to arbitrate waives their Constitutional right to a jury.
My greatest criticism is that I have seen less certainty in arbitration. Limitations on discovery and the inability to join third-parties to the proceeding in many cases render arbitration inferior to a formal court adjudication. Unless there exists a specific reason why the local court system should be excluded, rarely do I agree that arbitration would be a better alternative. It has the disadvantages noted above, and is not necessarily any cheaper or quicker than a court proceeding in most jurisdictions.
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