In case you are still interested in pursuing arbitration, here is how it works. If you are using the services of the American Arbitration Association -- the leading organization in this field -- you file your complaint with the local AAA. A fee is charged, and the amount depends on the amount you are claiming against your opponent.

The AAA will assign a caseworker, who will coordinate the proceedings. Both parties will receive a list of approximately 20 potential arbitrators. Each listing will contain a brief biographical statement on each individual. Both sides can, for whatever reason (or no reason) cross off as many names on the list as is desired. Once the American Arbitration Association receives the lists back from both parties, an arbitrator will be selected from among the individuals whose names were not deleted.

The arbitrator will then be assigned the case. A calendar will be submitted to both sides, who will be asked to cross off dates that are not available for the hearing. Once the arbitrator receives the list of available dates, and also determines approximately how many hours or days the arbitration proceeding will take, an arbitration date will be selected.

Under some circumstances, the rules of the AAA permit the parties to engage in a form of discovery proceeding, whereby either side may pose questions which must be responded to in writing, promptly by the other side. Discovery is at the discretion of the individual arbitrator.

Incidentally, you can have one arbitrator, or you can request a panel of three arbitrators.

On the day of the arbitration hearing, the arbitrator will conduct a relatively informal hearing. People often sit around a conference table at the local office of the AAA or in the arbitrator's office, and it clearly is much more informal than the court system.

Once the opinion is handed down by the arbitrator, it generally is binding on all sides. The case law throughout the country is very clear that mandatory, binding arbitration will rarely be overruled by the courts. Courts will only overturn the arbitrator if he or she was arbitrary or capricious in rendering a decision.

Many years ago, I was a strong advocate of the arbitration process. Over the years, however, I have changed my mind. I used to think that arbitration is less expensive than having to find a lawyer to take your case to court, but the recent Public Citizen study is of concern to me. Also, there are certain protections by using the court system, which may not be available with arbitration. The Rules of Evidence -- no matter how archaic they may seem -- will exclude certain evidence which has no place in a courtroom. For example, hearsay evidence, where one person testifies what another has told him or her, is generally not admissible in court.

In an arbitration proceeding, however, the arbitrator will usually admit all evidence submitted by both sides. The rules are lax and the arbitrator makes the call.

Another drawback to arbitration is that the arbitrator (or panel of arbitrators) is not required to file a written opinion. Often, the arbitrator hands down a one paragraph decision, awarding a sum of money to one side or the other. After months of frustration and uncertainty, the arbitrator's opinion often continues to confuse people, since no rational decision is given supporting the opinion of the arbitrator.

In a court of law, all of the parties in the litigation usually understand the rationale behind the judge's opinion – whether or not they agree with the final order. The judge will either give an opinion from the bench with a lengthy explanation, or write a comprehensive decision accompanying the court order.

Finally, one of the hallmarks of our legal system is the right to appeal a lower court decision. Judges are human and can (and do) make mistakes. The appellate process gives the losing party another bite at the apple. The appellate court will not overrule the trial court's determination of facts, but will carefully analyze the facts as they relate to legal principles. As indicated earlier, the arbitrator’s decision is generally not appealable.

And often, it has been my experience, that the arbitrator -- in an effort to be fair -- will "split the baby in half," whereby neither side gets what they are asking.

Clearly, there is merit to arbitration in many instances. If a dispute is in the $5-$20,000 range it may not pay to spend the same amount of money for legal fees in litigation. Often, however, small claims courts are the best means to resolve small disputes. You should check the jurisdictional amount for the small claims court located in the county or the city in which you live.

One suggestion for your construction contract. Whether you use arbitration or litigation, include the following sentence in your contract:

"The prevailing party in the litigation (or arbitration) proceeding shall be entitled to reasonable attorney's fees as directed by the Court (or arbitrator)."

We follow what is known as the American Rule of Legal Fees. Each side pays their own lawyers, unless certain conditions are applicable. One such condition is that the parties have agreed in a contract that the losing party will pay the winner's lawyer.

It’s clearly a tough decision, but you must make it before you sign your construction contract. Once the contract has been signed – and if you have agreed to resolve all disputes by way of arbitration – you will not be able to change your mind and bring your case into the Courts.

NOTE: The Public Citizen report can be found on their web-site at www.publiccitizen.org. F:\WP_FILES\CLIENTS\BKARTS\5-14-02.hc.wpd