Alternative dispute resolution refers to any method for solving disputes other than by litigation. It is a constrictive dispute resolution method to the extent that a decision by such a method cannot be overruled by a public court of law. A public court of law cannot also give awards different from the ones issues by the method. The two most common used methods of alternative dispute resolution are arbitration and mediation. These methods mainly include evaluation of a case that is done on neutral basis, negotiations, conciliation, mediation and finally arbitration. Alternative dispute resolution methods are becoming preferable due to the need to move away from crowded courtrooms, increasing litigation costs, and the delays experienced in courts before judgment is delivered. These reasons have compelled many people across the states to favor alternative arbitration programs. Some of these programs are voluntary while others are mandatory.
One of the most informal processes used is mediation. In this form of informal litigation, mediators pair the opposing sides and try to control the process. Mediators are trained personnel who are trained to work out settlements and tries to influence accept or reject decisions. This process is also favored since the parties agree amongst themselves and come up with a resolution unlike a court where a judge is influenced by many factors.
Arbitration on the other hand is a basic model of trial that has limited detection and the rules of evidence are simplified. An arbitral panel regulates the process and makes the final decision. Both sides under dispute appoint the arbitrary panel members. The two sides may decide to appoint one person to serve as an arbitrator or they may appoint two people to represent each side and then the two people select a third person to the arbitrator. Arbitration hearings are quite longer than mediation hearings. A typical hearing can take from two days to a week. During that period, the panel convenes a few hours a day to deliberate on matters discussed earlier. After all facts have been delivered based on the arbitration standards, the panel delivers its verdict in a written decision or through an arbitral award. Opinions in this case are not treated as public records.
Arbitration is mostly used in place of industrial courts to solve matters in industries such as construction and securities regulation.3 The process is gaining popularity and more people are adopting it to solve their disputes. Arbitration agreements are enforceable under federal and state laws. The agreements and awards derive their powers from Title 9 of the U.S. Code. The code bases on Congress plenary power that oversees interstate commerce. Title 9 on itself is more superior to state law. A substantial number of states, approximately forty-one in the United States have adopted the Uniform Arbitration Act. The original version was formed in 1956, while the revised version was done in year 2000.
Every year, many transactions take place in the construction scene. Intermittently, some disagreements arise in the course of this transactions hence the need for arbitration since litigation may cost both parties significantly. This is in addition to the privacy, fairness and promptness of the process.4 When a dispute occurs, the opposing sides may submit their grievances for arbitration. The arbitrators are supposed to be impartial and any conflicts of interest are unethical. According to the American Arbitration Association, the arbitration process has four major rules: the regular track procedures, the procedures for the resolution of disputes through document submission, and the procedures for large complex construction disputes. These rules provide guidelines whenever there is a dispute particularly in the construction sector.
The best way to avoid intervention by the courts as much as possible is to employ institutional arbitration, which provides a framework that can establish an arbitral tribunal and activate the process despite any disagreements or problems that arise. Thus, the institution can appoint arbitrators, make decisions on disqualification, see to the smooth operation of the procedure and the meeting of deadlines, set arbitrator compensation (which is a very tricky undertaking when the parties deal directly with the arbitrator without going through an institution) and set parameters for the award, as required and in accordance with pre-established conditions.
Initially, the United States Code governed alternative dispute resolution processes. It was amended in 1998 to provide for some features due to the advent of time. The amendments allowed all districts to adopt the provisions of the Act under Section 2071 (a). The amendment also gave powers to neutral evaluation, ministerial, mediation, and arbitration as means of solving civil cases. This was provided under Section 654 to 658 (Clare, 2003). The Act provides for a new statutory payment regime, which introduces a right to interim or periodic payments and a final payment and requires an adequate mechanism in a contract for determining what will become due and when. Default provisions are provided for, which automatically apply in the event that no adequate mechanism is provided in the contract and requires the payee to give a ‘payment claim notice’ to the payer of what is to be paid and how it is calculated not later than five days after the payment date.
The payer may not reserve funds unless it has given a rejoinder (akin to a pay-less notification) to the payment request notice, stating the amount it intends to delay from the sum due and the reasons for doing so not later than 21 days after the repayment claim date as stipulated in the contract or the Schedule. Receivers may suspend enforcement when the sum due is not paid by the closing date for payment. Consequently, there is a prohibition on contractual terms that make payment subject upon the payer being reimbursed from a separate source (‘pay when paid clauses’). Persons to whom the Act touches will need to be cognizant of the truth that if the agreement does not provide for a sufficient mechanism for payment when the statutory default payment provisions will apply.
One goal of a ‘pay when paid’ clause usually used in the construction business was to exempt the contractor from liability to compensate the subcontractor until the employer had settled it. The outcome of this kind a contractual condition was to enable the contractor to pass the danger of default by the employer to its subcontractors further down the construction chain. The application of these clauses is now forbidden by section 3(5) of the Act. The only exception to this ban is in case that there is a related bankruptcy event in a construction contract. In cases where the employer is solvent, a ‘pay when paid’ clause in a contract between contractor and subcontractor will not permit the contractor to withhold payment from the subcontractor. While the legal validity of such terms may be questionable in practice, engineers and architects acting for employers have been required to observe them.
Persons not receiving payment in full now have a new statutory right to suspend work under the Act, provided proper notice and particulars are given. The provisions appear to entitle a payee to suspend performance of any or all of its contractual obligations related to the work. There are hopes that the right to suspend will be limited to the actual construction obligations or also, for example, extend to suspension of the right to insure the works or suspension of works in related areas connected with the payment in dispute. Partial payment will not suffice to render suspension unjustified. It will be important to make sure that any seven-day advance notice is clear and served in accordance with the Act’s requirements.
Works can be suspended, but only up until such time as where the payment dispute is referred to adjudication or where full payment has been made of the amount due. Much weight will have to be given to the fact that contracts may also need redrafting to allow payees to suspend in accordance with their entitlement under the Act. The Act expressly states that the period of suspension is to be disregarded for the purposes of contractual time limits. To ensure that the contract provisions and time for completion are not thwarted by the operation of the Act, a review of current contractual conditions is strongly advised.
For the first time, the Act has introduced a statutory settlement procedure for the settling of payment disputes. Both parties will be permitted to discuss a payment dispute under the agreement to a mediator, whose judgment is required within 28 days (which period may be extended by a further 14 days by agreement between the parties).14 This is not the case in the UK, alternative dispute resolution under this Act will only apply to a payment dispute. The Act does not exactly describe what institutes a payment dispute and it is well known that it is stated in the Act to be “any dispute relating to payment”. It will be motivating to see how this will function in practice and if guidance is given in the Code of Practice concerning payment disputes once the Code is published.
The Act specifies that the arbitrator’s award is obligatory until reversed by another formal process. The opposing parties are required to conform with the decision of the arbitrator, even if they plan to go to court or arbitration proceedings. This will aid in avoiding any deferral to payment. Certainly, the Act provides for a further right to suspend in situations where one party fails to honor (within seven days) any sum due pursuant to the decision of the adjudicator. The opposing parties in such legal proceedings by this means may remove any implied confidentiality or ‘without prejudice’ can depend upon the judgment of the intermediary protection as would say relate to the intermediation process. Definitely, this will have an impact on a verdict by a party on whether to refer the issue on to arbitration or to the courts, if it is likely that a court or arbitrator would be unwilling to obstruct the arbitrator’s judgment unless justified in the circumstances.
In fact, the Act specifically agrees the arbitrator to use his or her “ingenuity in determining the facts and the law”, if he or she so wishes. An arbitrator’s judgment will be requisite even if it is wrong and the Act explicitly provides that an arbitrator may not reconsider or re-open any characteristic of the decision. It is therefore significant to defend parties that settle on all important terms and conditions in your contracts clearly and in advance in order to reduce the potential for any payment dispute arising at the outset.