Whether you have a high-priced lawyer on retainer, a lawyer friend, or no legal advisor whatsoever, before you sign on any dotted line - you must personally read the contract - the whole contract - thoroughly understand it, and ensure you can live up to its terms. Many believe that as long as the business terms are acceptable, they do not have to pay attention to all the legal "mumbo jumbo." Nothing could be further from the truth. There are a number of boilerplate terms in construction contracts that everyone assumes are understood, when, in reality, they can be confusing, contradictory, onerous and even unconscionable. In fact, they can completely eviscerate the value of your good business terms.
Alternative Dispute Resolution Clauses (ADRs) are potential pitfalls because many people don't read them and understand them. There can be multi-step processes in the contract to address dispute resolution, starting with negotiation, then mediation and through arbitration. If so, make sure that each step has a very specific and defined start and end. That should be in the form of certain dates, like 30-days after first notice, or a specific event, like notification from one party that "negotiation" is over and mediation must begin.
ADR terms in contracts are as varied as the lawyers who draft them. Any time you agree to waive your right to go to court and submit to some type of ADR, you need to understand what that process will be. Most construction contracts have arbitration provisions. These can either save time and money or they can be onerous and burdensome. For example, if the contract calls for arbitration under "AAA Complex Commercial Arbitration Rules," you should understand that these rules are almost the same as court rules and probably will not save any time or money in the resolution of a dispute. They contain provisions for serving and responding to written questions, for obtaining and providing documents, and for pre-hearing depositions. While all of these can be good if you are the one who needs information, the provisions can be tedious and time-consuming if you are the one who has to provide information, open up your project file, or produce witnesses for deposition. It may end up costing as much and taking as long to resolve the dispute through arbitration as it would through the court.
Also, be aware that arbitrators do not necessarily have to follow the law. For example, in one arbitration dispute the contract had a liquidated damages provision. Under the provision, if my client prevailed on the merits of its claim, the exact amount of the damages were spelled out in the contract. The arbitrator found in favor of my client on the merits, but refused to award the entire amount of liquidated damages; instead, she "split the baby." While the outcome of any dispute resolution process, including traditional litigation, is unpredictable, there are many protections set up in court proceedings that mitigate some of that uncertainty.
One of those protections in the court system is the ability to appeal an adverse decision. A pitfall of arbitration is that, normally, the decision of the arbitrator is final. If the arbitrator gets the law wrong, or the facts wrong or makes a procedural mistake, unless the contract provides for court review, there is no direct review of that decision. The only claim under the law that you could take to court would be that the arbitrator was biased, or that the other side committed fraud. Arbitration is normally final and binding; you have to live with the decision.