For years, arbitration clauses have been popular inclusions in business contracts. Companies realized that requiring arbitration from their suppliers or clients would limit their chances of going to civil court.
However, mandatory binding arbitration clauses have become the subject of public scrutiny. Many individuals and small businesses feel strongly that such clauses disadvantage them. Some prefer to avoid them when possible.
Despite the aversion some people express to arbitration clauses, having some way to resolve a dispute outside of court is valuable for a business. Can you require non-binding arbitration in your construction contracts?
Arbitration does not need to be mandatory or binding
When people have no choice but to use arbitration for a dispute, and they have no recourse if the outcome is unfavorable, they may feel disadvantaged. Including a clause that mandates arbitration or that states it must be binding if you do attempt to resolve your dispute this way may deter people from signing agreements with your business.
There are ways to balance what protects your company with what makes people more inclined to do business with you. Your construction contracts can require that you use alternative dispute resolution systems, like arbitration or mediation, for any significant disputes. Allowing the other party to choose the method might help them feel more comfortable with trying to settle the matter outside of court.
Given that arbitration is similar in some regards to civil court, in how one person makes a decision about what is appropriate given the testimony and evidence provided by each side, it can be an indicator of what might occur in litigation. The suggestions made by the arbitrator could be a place to start negotiations with the other party rather than a binding ruling.
Learning more about construction dispute arbitration can help you minimize the impact of conflicts on your construction business.