Avoid Arbitration in Your Contract!

1. For larger construction disputes, the cost of arbitrators is relatively small compared to the amount in dispute, making it worth the extra cost to have arbitrators with significant construction experience.
2. Small disputes may not justify the expense of paying an arbitrator, leading to claimants being discouraged from prosecuting their claims.
3. It may be wise for subcontractors with relatively small contract amounts to strike any requirement in the contract to arbitrate disputes, rather than litigate them.
4. If parties want to strike an arbitration clause, they must make it 100% clear that disputes will not be resolved through arbitration to avoid ambiguity.
5. A recent payment dispute between a general contractor and subcontractor was sent to arbitration due to ambiguity in the arbitration provision of their contract. 1. The subcontractor made handwritten changes to the arbitration clause, indicating a potential disagreement with the language regarding arbitration.

2. The subcontractor argued that the last sentence of the arbitration clause implied that arbitration was only proper if agreed to by all parties, and did not agree to arbitration on this basis.

3. The general contractor and surety contended that the subcontractor did agree to arbitration based on the language in the subcontract, which stated that claims in certain subparagraphs “shall be arbitrated.”

4. The general contractor and surety also pointed out that the subcontractor’s interpretation of the clause ignored the language giving the sole option to arbitrate to the general contractor.

5. The interpretation and application of the arbitration clause in the subcontract was a point of contention between the subcontractor, general contractor, and surety. – The court found that the parties agreed to arbitration.
– The court interpreted the arbitration clause in favor of arbitration under the Federal Arbitration Act.
– The court stayed the lawsuit pending the outcome of the arbitration of the dispute.

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