California Construction Contracts And Arbitration

11 Jan California Construction Contracts And Arbitration

Arbitration has become the primary means of resolving most disputes related to construction contracts in California, primarily due to the relative speed and simplicity of arbitration rather than courtroom litigation. Arbitration decisions are made by a neutral, third-party arbitrator and are just as binding as a court decision.

A dispute between a contractor and a client can be resolved within weeks and any payment corrections that need to be made are made very quickly, typically within 30 days.

Some people grow anxious at the thought of arbitration, but in the world of home construction the arbitration process is a much more beneficial and helpful experience than you might expect. The goal is not to limit your ability to seek resolution — on the contrary, the purpose of arbitration in construction contracts is to keep things fair and moving along smoothly.

That said, construction arbitration is something that should be discussed and decided when signing construction contracts. The contract can set very specific parameters for when, why, and how you might see an arbitrator. For example, arbitration commonly only applies to disputes under a certain dollar amount.

The Arbitration Process to Resolve Contractor Disputes

In California, small disputes (under $12,500) can be handled by the state’s Contractors State License Board. The CSLB pays for the arbitrator and for an expert witness for each side. Your costs would be limited to any attorney fees.

For larger disputes or for any situation not covered by CSLB arbitration, you would generally be dealing with the American Arbitration Association. That organization has a specialized set of arbitration protocols that streamline the process for disputes related to construction contracts.

The basic steps of arbitration:

• Set an appointment with an arbitrator
• At the hearing, each party submits documents such as photos, contracts, emails, etc. and presents their case. You can do this with or without an attorney.
• The arbitrator judges the facts and considers California contract law.
• The arbitrator makes a final decision and if one party needs to pay money or fix something, the “award” must be delivered within a set timeframe.

Is Arbitration Ever Mandatory for Construction Contracts in California?

You may hear the phrase “mandatory arbitration” for California construction contracts. This does not actually mean that arbitration is mandatory for construction disputes in the Golden State. Rather, it means that if you do file a complaint against a licensed contractor in California for a dispute under $12,500, the contractor is bound to resolution by arbitration if you do pursue the hearing. That is, once arbitration is set in motion with the CSLB, your contractor cannot refuse to participate and the award will be binding.

Setting Arbitration Terms in Construction Contracts

When agreeing to construction contracts, make sure you understand when arbitration might occur. The language may be adjusted as part of the contract negotiation. Areas to discuss include:

• Which party decides between arbitration and litigation
• Disputed dollar amounts that may be covered by arbitration
• How the arbitrator is hired
• Whether arbitration occurs immediately or after completion of project
• Deadlines for award amounts to be paid after arbitration

Before choosing a contractor and signing anything, we recommend reading all bids and contracts carefully and passing them under the eyes of a lawyer who is familiar with construction contracts. Then, be sure to hash this out with your builder during the contract phase to make sure everyone is on the same page. Contact us for more information.