Posted by John Rusk on Wed, Jan 27, 2010 @ 08:58 AM
Rusk Renovations founder John Rusk is here to answer all of your questions about renovations, choosing the best contractor, and much more.
Today, he tackles a reader question about handling a contractor dispute and tells you what you need to know about arbitration, mediation, and your contract.
Dear Rusk Renovations,
We're having problems with our contractor and it seems like its not getting any better. What are the options to resolving this mess? My husband is very interested in calling a lawyer but it seems like the costs will quite quickly get out of hand. We have an architect and he's tried to help but I'm not so sure that some of the fault isn't his. Probably ours too. What can we do?
Litigious on Long Island
Dear Litigious on Long Island,
It's too bad that its gotten to this point. First stop is your contract. If you've signed an American Institute of Architects contract, there is a section on dispute resolution. If it's the 87 version, disputes are to be resolved by the American Arbitration Association.
Arbitration is the resolution of disputes by an arbitrator. An arbitrator is someone familiar with a particular industry, who's been nominated and judged fair by his peers and has been "empaneled" by the AAA.
I've been empaneled for a few years now. People are usually represented by lawyers at an arbitration, but the qualified panel now practicing at the AAA usually sees past the lawyers' rhetoric to what probably actually happened, which is generally some cooperative dance to disaster.
An arbitration has someone else determining your fate based on the facts you give them. If you go to an arbitration, be sure you are very clear about the facts, make a very clear presentation about each of your claims and what you are asking for each of them monetarily.
Use as much objective proof (reciepts, copies of letters, witnesses, etc.) and shy away from unsubstantiated facts and disparaging comments. Don't lie. Arbitrators know their industry and they often know when they're being lied to and they don't like it. It is natural for parties to inflate their claims in anticipation of getting somewhat less than what they hoped for; just be sure you can in some way substantiate your inflation.
Arbitration can be very expensive, particularly if the case is over $100,000, which requires a three-person panel. Each panel member will be paid a day rate and it can exceed $1000 a day, though you'll be able to choose your arbitrators and can easily find many who charge less. Lawyers are very expensive and if they are thorough they can drag an arbitration out to a week. You and your adversary may end up spending $40,000 just to bury each other and end up with something very close to your last offers and counter offers.
On the other hand, a dispute under $100,000 is supposed to be completed in one day, and the arbitrator may be more willing to cut your lawyers off and push things forward to reach this goal. Both sides may still end up spending $4000 each for the privilege.
The newer AIA contract refers disputes first to mediation where a professional neutral (I'm also one of those) will meet with the parties, often without lawyers. It's a much more informal setting in which the neutral doesn't have to understand the whole problem, he or she just has to be skilled at helping the sides find agreement.
A good mediator first allows you to safely vent the anger that has built up and lets each side be heard (often for the first time), then comes up with enough settlement options until one rings a bell with both sides.
The nice part about mediation is that it usually improves the relationship (where court and arbitration only makes the two sides more adversarial). At the same time, the two sides remain in control of what they're getting. You can't "lose" a mediation. If you don't like the way the settlement is shaping up, you can walk away and try your luck at arbitration and therein lies mediation's strength. It forces both sides to seek an agreement that the other side can say "Yes" too as well or the whole process will fail and they'll end up with lawyers, an arbitrator and a lot more time wasted.
Contracts that lack these clauses can leave the parties to negotiate for one of these methods or litigate with lawyers before a regular judge. Each method has its place and there will always be disputes resolved in each of these ways, but if you can, find a neutral mediator before things go any farther.