In a recent client conference I was asked, “So what is arbitration, anyhow?” In the context of a construction claim or in seeking to prevent a construction claim, there are several significant advantages that arbitration can provide in lieu of litigation. In today’s challenging business environment being aware of the various options available could make a significant impact on your business.
Changes are an unavoidable aspect of construction. Although thorough effort and coordination are required in preparing the original project contract, specifications and construction drawings, there will still be changes. This is why owners are provided the right to make changes to the work under a typical contract changes clause.
The minimum wage and overtime provisions under federal and New York law affect all employers, but contractors are further subject to an additional, unique wage scheme in the form of prevailing wages.
New York Labor Law provides that the wages paid to laborers, workmen, and mechanics on public works construction projects may not be less than “the prevailing rate for a day’s work in the same trade or occupation in the locality within the state where such public work . . . is to be situated, erected or used.”
Contractors in New York may face significant liabilities on any violations and are well advised to understand these requirements under New York law in the article available for download here prior to being cited with any violations.
John Caravella, Esq. is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email at John@LIConstructionLaw.com or by telephone at (516) 462-7051.
Arbitration is an established alternative to court litigation in construction disputes. Challenging an unfavorable construction arbitration award is so difficult that homeowners may wish to give serious thought before submitting their disputes with contractors to arbitration. Courts give great deference to the decisions of arbitrators, refusing to review arbitration awards even for errors of law or fact. There are few exceptions to this rule, and courts only invoke them in rare circumstances.
Under New York law, a construction arbitration award can be vacated for (1) corruption, fraud or misconduct in procuring the award, (2) partiality of the arbitrator, (3) the arbitrator exceeding his power, or (4) failure to follow the procedures of CPLR Article 75. New York courts have also found that an arbitration award should be vacated if “it violates public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power.” To emphasize how rarely the courts vacate an arbitration award, only one case I reviewed in preparation for this article overturned the challenged arbitration award.
Construction Arbitration Case Study
In the Matter of Omega Contracting, Inc. v. Maropakis Contracting, Inc., the court found that an arbitrator had abused his discretion when he refused an adjournment, and one of the parties was consequently prevented from presenting crucial evidence. In every other instance, the court refused to vacate the award regardless of its underlying merits.
A prime example of the injustice that may be worked by this standard is the all-too-common situation when a contractor employed by a homeowner turns out to be unlicensed. While strong public policy precludes an unlicensed home improvement contractor from collecting from homeowners, the deferential standard of judicial review of arbitration awards allows for judgments that arguably violate that public policy.
One case on point is the Matter of Hirsch Construction Corp. v. Anderson, in which a homeowner sought to vacate an arbitration award in favor of a contractor whose license had temporarily lapsed during construction. The homeowner argued that the amount awarded by the arbitrator included payment for work performed when the contractor was unlicensed, but the court refused to delve into the facts of the case and confirmed the construction arbitration award. Since the arbitration award did not say in so many words that the award included monies sought for the time during which the contractor was unlicensed, the court could not inquire further, regardless of any evidence that the homeowner might have presented to the court.
Cases such as Hirsch caution that, for all its benefits, arbitration may not suit homeowners in all situations. Keeping in mind the difficulty of vacating an unfavorable award, special care and consultation with experienced construction law counsel are necessary before homeowners agree to arbitration and in selecting an arbitrator and bringing a case through arbitration.
 Matter of Matra Building Corp. v. Kucker, 2 A.D.2d 732, 734 (2d Dep’t 2003).
 CPLR § 7511(b).
 Matter of Sheriff Officers Assn., Inc. v. Nassau County, 113 A.D.3d 620, 621 (2d Dep’t 2014) (quoting Matter of Shenendehowa Cent. Sch. Dist. Bd. of Educ. [Civil Servs. Empls. Assn., Inc., Local 1000, AFSCME, AFL-CIO, Local 864] 20 N.Y.3d 1026, 1027 ).
 160 A.D.2d 942, 943 (2d Dep’t 1990).
 180 A.D.2d 604, 604 (1st Dep’t 1992).
 Id. at 604-05.
Few topics in construction law are more controversial than Labor Law Section 240, better known as the Scaffold Law, which imposes absolute liability on contractors, property owners, and their agents for elevation-related injuries to construction workers. The number of Scaffold Law cases has increased by 500% since 1990.
Many homeowners who consult with me regarding construction disputes are not only financially damaged but emotionally distressed, and understandably so. Our homes are not only our biggest financial investments but our sanctuaries, and misconduct by unscrupulous contractors that damages those sanctuaries makes us feel that we have no place of safety and, in some instances, makes us worry that we may be homeless altogether. Thus, the question is often posed to me whether homeowners can collect damages for emotional distress that results from construction contract disputes, in addition to their economic damages.
Perhaps the most common construction-related dispute is the refusal of a party to make payment to its contractors or subcontractors. While litigation is the traditional avenue for resolving such disputes, methods of alternative dispute resolution such as arbitration and mediation are enjoying growing importance in the field of construction law.
Owners of New York based construction businesses are more likely to be mindful of construction law issues relating to contract performance and defective work. Many however are unaware they are also under increasing risks of liability in compliance with newly enacted requirements under New York Employment and Labor Laws.
Construction contracts require contractors and subcontractors to carry commercial general liability, or CGL, insurance and to name not only the contracting parties but additional third parties, such as project owners, as additional insured. Recent commercial general liability litigation, however, suggests that contractors and subcontractors should review the language of their CGL policies carefully because third parties to the contract, even if they are contractually required to be additionally insured, may actually be excluded by the insurance policies.
Contractors and subcontractors frequently consult with their attorneys in the negotiation of construction contracts before they are signed, but counsel’s involvement generally ends at that point until and unless litigation arises down the road. Nevertheless, additional consultation with attorneys after execution of contracts can ensure that contractors and subcontractors meet their respective obligations and may confer savings that far offset the costs.