Thursday, July 31, 2008

AAA vs. Home Improvement Contractor Arbitration Program

At one point in time, I would guess that if a contract contained an arbitration clause, it most likely would have included an agreement to use the American Arbitration Association (AAA) for the arbitration itself. Nowadays, AAA has many competitors, but it is still a very popular option for construction contracts. There are pros and cons to choosing arbitration to resolve disputes, but the purpose of this post is to compare two arbitration organizations: AAA and the Massachusetts Home Improvement Contractor Arbitration Program (HIC).

Price: AAA is more expensive. The fees for arbitration are based on the amount in controversy, and the arbitrator is paid by the hour. There is no limit on the amount of time to be spent in arbitration. The HIC program has a fixed price ranging from $450-850.00 depending on the amount in dispute. This fee provides for a half-day arbitration that also includes a site visit if the homeowner so chooses.

Arbitrator: AAA sends out a list of arbitrators to choose from that can be rejected by the parties. The HIC program assigns the arbitrator. As long as the arbitrator has no conflicts, there is no choice (that I know of).

Appealability: AAA arbitrations are binding and final. Generally the only bases for overturning arbitrations are bias of the arbitrator and fraud of the arbitrator. Other states will also consider an appeal for "manifest disregard of the law." HIC arbitrations are appealable to the district or superior court with a new trial. The findings of the arbitrator become evidence in the trial.

Participation: A AAA arbitration can take place without the participation of the other side. The HIC program makes every effort to bring the parties in to arbitrate. Contractors impliedly consent to participate in the HIC arbitration when they register with the state.

Experience of arbitrator: Both organizations offer experienced arbitrators to arbitrate disputes. AAA has a construction panel and the HIC group consists of experienced construction attorneys, engineers, contractors, etc. I am on both panels, and I believe a number of the other arbitrators are as well.

I particularly like the Construction Industry Rules of the AAA. That said, M.G.L. c. 142A (the Home Improvement Contractor Statute) also offers guidelines for the HIC program.

At the end of the day, I would say that AAA is more "high end." The HIC program is intended to help homeowners and contractors to resolve disputes without the participation of attorneys (although many parties to hire attorneys for the process).

What you choose for your contract is up to you. Just make sure you know what you are agreeing to and how that might impact your claim if you end up involved in a dispute.

Thursday, July 10, 2008

The Building Permit and the Homeowner

I cringe when I hear that a homeowner has pulled a building permit. Homeowners do not consider the responsiblity that goes along with pulling the permit and do not really think things through before doing so.

Here's the good news-the average homeowner who pulls his own permit does not have to have a Home Improvement Contractor or Construction Supervisor license if he satisfies the following requirements:

"Exception: Any Home Owner performing work for which a building permit is required shall be exempt from the licensing provisions of 780 CMR 108.3.5; provided that if a Home Owner engages a person(s) for hire to do such work, that such Home Owner shall act as supervisor. This exception shall not apply to the field erection of a manufactured buildings constructed pursuant to 780 CMR 35 and 780 CMR R3. For the purposes of 780 CMR 108.3.5, a "Homeowner" is defined as follows: Person(s) who owns a parcel of land on which he/she resides or intends to reside, on which there is, or is intended to be, a one or two family dwelling, attached or detached structures accessory to such use and/or farm structures. A person who constructs more than one home in a two-year period shall not be considered a home owner. "

Here's the bad news:

1. If a "weekend" worker is hurt on your property, you are liable. If you hire a company, their workers are required to be covered by worker's compensation insurance (at least in Massachusetts).

2. You cannot avail yourself of the benefits of the Home Improvement Arbitration Program or the Guaranty Fund.

3. If your work causes damage to your neighbor's property, you are liable.

4. If you cause damage to your own property, your own insurance may be less inclined to cover the damage (although most insurance does not cover damage due to defective work).

5. You are responsible if your work is not up to code.

6. You are the "general contractor" and will need to coordinate the subcontractors.

Bottom line: Is it really worth it to pull the building permit yourself?