This is the next post in my series on construction-related disputes between owners and contractors. My last article discussed how Washington construction companies may file a Mechanic’s Lien to secure and ensure payment for their services. It is important to understand that a Lien must be in the proper (and special) form, must be properly executed, and must be recorded and sent to the owner within strict time limits. Otherwise, it will not only be unenforceable, it may be an actual liability to the contractor, exposing the contractor to the owner’s attorney’s fees even if the owner owes the contractor money. Retaining an experienced attorney can help to ensure that the lien is drafted, recorded, and otherwise handled properly.
In this article I will discuss another important topic – the use of Alternative Dispute Resolution (ADR) forums. Alternative dispute resolution refers to several dispute resolution methods, all different from traditional courts, in which disagreements are resolved. The two most common are “mediation” and “arbitration.” I will discuss each of these in turn.
Washington contractors may possibly attend mediation or arbitration when there is a payment dispute
A mediation is a setting in which the contractor/business-owner/property-owner will meet with the other party to a contract involving some dispute (which may involve a payment dispute, some dispute about the quality or performance of the work, or some other dispute (such as a delay or changed scope claim)). A third-party, known as a “mediator,” will have back and forth discussions with each of the parties, trying to negotiate a settlement. The parties will typically be in separate rooms and the mediator will go back and forth. The mediator will also typically attempt to talk each party down from their current position by pointing out flaws in their arguments or other problems they may have with their case. This is often a good opportunity to hear the best arguments of the other side, which can be useful even if the case does not settle. If a settlement is reached, a written settlement agreement will be signed shortly thereafter resolving the case. Payment, if any is required, will be made and the matter will be wrapped up, with a dismissal of the lawsuit (if one has been filed). If either party fails to perform the settlement, the remedy is usually to sue for breach of the settlement. This is usually a smaller claim but much less disputable one, which makes it easier to win and win cheaply. It is important to understand that mediation is a negotiation. Neither party is required to settle or reach an agreement with the other.
Arbitration is different from mediation. While mediation is a negotiation, arbitration is an adversarial hearing. It is like a trial. However, it usually, but not always, has less formality and ceremony than a traditional trial. Each side will present evidence to a third-party, who is known as the “arbitrator.” The arbitrator will hear the evidence from each, as a judge would in court, and issue a ruling. The effect of this ruling will depend on whether the parties attended a “binding” or “non-binding” arbitration. If the parties agreed to a binding arbitration, then the arbitrator’s ruling will be considered a final and enforceable order and can become a court judgment. If the parties agree to was non-binding arbitration, then the arbitrator’s ruling is not final or enforceable, and either of the parties may choose to file a lawsuit instead. If they don’t, the ruling can then become a court judgment. Most contracts require that the parties use binding arbitration. Arbitration’s similarities to a trial mean that a Washington construction contractor should retain an attorney to assist them with the process.
Also, in Washington, smaller claims (usually claims less than $50,000) are subject to Mandatory Arbitration. That means that arbitration will be required for all such contract lawsuits. The case is filed in court as a normal case, but, rather than setting a trial, the case is transferred to arbitration and decided by a member of the court’s arbitration panel (usually a local attorney with experience in the kind of case involved). These arbitrations are not binding, but there are consequences if a party rejects the arbitration decision and asks for a trial. Specifically, if the party asking for a trial does not get a result that is better for them than the arbitration result, they will have to pay attorney’s fees the other party incurred after arbitration.
Olympia and Tacoma companies may find themselves in alternative dispute resolutions due to the terms of their contract
Whether a company or customer is required to attend a form of alternative dispute resolution are often dictated by the terms of the written contract between them. Properly drafted contracts will have terms which indicated whether a dispute is to be settled in ADR and which process will be used. Many contracts require both mediation and arbitration. In other words, a contract will often state whether the parties are required to attend mediation, arbitration, and whether arbitration is binding or non-binding.
If you are a small construction company then it is best to have counsel to assist you with the ADR process. Contact my office today to speak with an Olympia lawyer. Our firm also serves the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Puyallup, and Lakewood, the Lewis County cities of Centralia, Chehalis, the King County cities of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.