Mandatory Arbitration Program Guide:  Many disputes between consumers and contractors can be resolved efficiently and satisfactorily through arbitration. Mandatory arbitration is a process in which an impartial third person is appointed by the Contractors State License Board (CSLB) or its representative to make a final decision in a dispute between two or more parties. Because of the many advantages arbitration can offer, the CSLB offers arbitration for the resolution of disputes that meet certain criteria. The CSLB will pay for the hearing, the arbitrator, and the services of one state-appointed expert witness per complaint. Only contractors with good records will qualify for participation in arbitration. Complaints involving deceptive or fraudulent practices will continue to be investigated by the CSLB.

Criteria

A case qualifies for mandatory arbitration under Business and Professions Code Section 7085:

1. The dispute involves present or future damages of $12,500 or less;
2. The contractor possesses a license that is in good standing, at the time of the alleged violation;
3. The contractor does not have a record of prior violations;
4. The contractor does not currently have a disciplinary action pending against him or her; and
5. The parties have not previously agreed to private arbitration of the dispute, either in their contract or otherwise.

The complaint must be filed within four or ten years after the alleged wrongful act or omission causing the dispute occurred, or within the duration of any written warranty for which breach is alleged. The four-year time period applies to disputes involving patent defects and the ten-year time period applies to disputes involving latent structural defects (Business and Professions Code Section 7091).

Mandatory And Binding Arbitration

“Mandatory” and “binding” are key terms to understand before entering into arbitration. Participation in this program is mandatory if a complainant wishes to have his or her complaint resolved by the CSLB. If the complainant (the person filing the complaint against a contractor) chooses not to participate in arbitration, the complaint will be closed and no further action will be taken by the board. If the complainant chooses to participate in arbitration, the contractor will be obligated to participate. If the respondent contractor (the contractor against whom the complaint is filed by the complainant) refuses to participate in arbitration and the complainant obtains an award against the contractor, the award will be enforced as if the respondent had been present at all of the proceedings. Arbitration in this program is binding. This means that both the consumer and contractor whose dispute is resolved by an independent third person (the arbitrator) must comply with the decision of that third person. In binding arbitration, parties who refuse to comply with the arbitrator’s award may be taken to court and have a judgment entered against them. In addition, licensed contractors who fail to comply with an award that is issued against them may have their licenses suspended or revoked.

This brochure provides the information necessary to understand the CSLB arbitration program for the resolution of complaints in which the damage is $12,500 or less.

The CSLB Arbitration Program

An arbitration forum has been selected to administer construction disputes involving arbitration through the CSLB. The arbitration forum has expert arbitrators throughout California who have been trained to resolve consumer/contractor disputes. All have undergone intensive training to ensure that both parties receive a fair hearing. The arbitration forum will contact you after the CSLB asks that your dispute be scheduled for a hearing.

Arbitration At Work

Parties to a construction contract should consider arbitration when communications have broken down, when the consumer has filed a complaint with the CSLB, and the board had determined that the dispute could be effectively handled through arbitration.

Once a representative of the board determines that a complaint involving damages (financial injury) of $12,500 or less qualifies for arbitration, a Submission to Mandatory Arbitration form will be sent to the consumer and the contractor. This form, indicating the names and addresses of the respective parties, will outline the claims and relief sought by each party. This form will advise both parties of the consequences of failing to participate in arbitration. If the complainant does not return a completed and properly executed (signed and dated) submission form to the CSLB within 30 calendar days of the board’s mailing date, the complaint will be closed and no further action will be taken by the board.

If the respondent (contractor) does not return a properly executed Submission to Mandatory Arbitration form within 30 calendar days, and the complainant does, the complaint will be resolved through arbitration and any award rendered against the licensed contractor will be enforced as if both parties had been present at all of the proceedings.

The CSLB will send copies of the signed submission forms to the other party so that both of them will know exactly what issues are in dispute and what remedies are being sought. Both can then prepare their cases for presentation at the arbitration hearing. A copy of the signed submission forms will also be sent to the arbitration forum to handle your case. In most cases, a party will not be permitted to add to the issues in dispute or to increase the amount of damages sought after the submission form is sent to the opposing party.

Scheduling The Hearing

When the arbitration forum receives a signed Submission to Mandatory Arbitration form, it will select an arbitrator to conduct the hearing. The arbitration forum will then set a hearing date, time, and place, and they will notify the parties in writing of the scheduled hearing.

Case Preparation

Each party will be responsible for his or her own case presentation at the hearing. Parties may hire an attorney to represent them, at their own expense or they may present their own cases. In either instance, case preparation is very important. Both parties should review the submission form for an understanding of all of the issues and as preparation for gathering relevant evidence. Any documents previously sent to the CSLB for the complaint file will not be forwarded to the arbitration forum.

Expert Witnesses

The CSLB will pay for one state-appointed expert witness per case.

An expert witness is a person who has extensive work experience and is competent to evaluate the work that is in dispute. If an expert witness is needed, the CSLB will hire one prior to referring the dispute to arbitration. This expert will become the state-appointed expert for the dispute. The CSLB has the discretion to hire an expert, depending on the circumstances of the dispute. If the CSLB hires an Industry Expert to qualify the complaint as an arbitration referral, a second expert will not be hired.

When a state-appointed expert is used, both parties will receive a copy of the report of the expert witness shortly after the dispute is referred to the arbitration association. Either party may use the expert witness at the arbitration hearing. A party who wishes to use the testimony of the state-appointed expert at the hearing will be responsible for making arrangements with the witness to ensure his or her attendance at the hearing. At the time the referral is made to the arbitration forum, the name, address and telephone number of the Industry Expert is provided to the parties. If that information is not provided, the Enforcement Representative that handled the complaint and the referral should be contacted for the information. Arrangements to have a state-appointed expert testify should be made with the expert at least 15 days prior to the scheduled hearing.

The consumer or the contractor may use an expert who is not appointed by the state.

A party who uses the services of an expert witness who is not appointed by the state will be responsible for arranging and paying for the services of that expert witness. A party will not be able to collect this cost from the opposing party.

To locate an expert who is not appointed by the state, consult local sources, references, trade associations, building exchanges, or the yellow pages of the telephone book. The local office of the CSLB can also provide you with a list of expert witnesses who you can hire to assist in your dispute.

The Hearing

Arbitration hearings are conducted in an informal setting and are designed to bring out the facts involved in a case. The informality of the setting should not be considered as a casual discussion. The witnesses and information that the parties bring or do not bring, will have a tremendous bearing on the outcome of the hearing. Preparation for the hearing is essential. The award is binding.

The consumer presents his or her claims, evidence, and witnesses first, then the contractor follows with his or her claims, evidence and witnesses. Parties may be represented by legal counsel, if they wish, but at their own expense. The rules that govern arbitration hearings under this program are found in Business and Professions Code section 7085.5.

When a hearing is completed, the arbitrator has 30 calendar days in which to render a decision. The arbitrator has the authority to rule on the claims asserted and to award monetary damages.

The Award

The arbitrator’s award is final and binding on both parties. In other words, the contractor and the consumer must abide by the terms of an award. If either party does not comply, the other may petition the superior court to have the award confirmed and made a judgment of the court. The court can then enforce the award as its civil judgment.

The procedure for enforcing awards can be found in the Code of Civil Procedure starting with section 1285. However, if court enforcement is necessary, an attorney should be consulted.

Consumers or contractors, who wish to appeal an award in court, must do so at their own expense. A consumer or contractor’s refusal to accept the terms of an award will not preclude the CSLB from taking action after an award is granted.

The CSLB has the authority to discipline contractors who do not comply with an arbitration award. Most awards will specify a final date for compliance. If the award is against the contractor and the contractor does not comply within the time specified in the award, the consumer should notify the CSLB’s Sacramento Case Management office in writing, at Post Office Box 26888, Sacramento, CA 95826. The board will investigate the report of noncompliance, and, if appropriate, the board may suspend the contractor’s license. If the contractor complies with the arbitrator’s award within 90 days, his or her license may be reinstated; otherwise, it will be revoked.