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Is it normal in a arbitration clause to see that the arbitrator has to be acceptable to the contractor?

IN THE EVENT THAT THE CONTRACTOR AND THE OWNER CANNOT AGREE THAT THE SETTLEMENT OF THE FOUNDATIONS HAS BEEN CONTROLLED AND SETTLEMENT IS WITHIN THE TOLERRANCES SPECIFIED ABOVE, THE OWNER MAY RETAIN A REGISTERED PROFESSIONAL CIVIL ENGINEER OF TEXAS, ENGAGED SOLELY IN THE PRIVATE PRACTICE OF HIS PROFESSION AND KNOWLEDGEABLE IN SOILS AND FOUNDATIONS IN THE AREA, AND WHO IS ACCEPTABLE TO THE CONTRACTOR, AT THE SOLE EXPENSE OF THE OWNER TO THE ACT AS THE ARBITRATOR TO EFFECT BINDING AGREEMENT BETWEEN THE PARTIES.

What would happen in the event the contractor finds no one acceptable except people he (may) already know?

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There’s an implied “acting reasonably” in there

Both parties to a contract are bound to give effect to that contract. Therefore, the contractor must accept a proposed engineer unless they have good reason not to. If the contractor attempts to frustrate the contract the owner may approach the court for an order to appoint a particular engineer.

Of course, this clause has other issues. An engineer cannot act as an arbitrator - they are different professions. I suspect that the parties actually meant “expert determiner” not “arbitrator”. Or, possibly, they need to find a civil engineer who is also an arbitrator- there will be some but then, they wouldn’t be “ENGAGED SOLELY IN THE PRIVATE PRACTICE OF HIS PROFESSION”.

There’s also the casual sexism in assuming a civil engineer is necessarily a “he”.

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What would happen in the event the contractor finds no one acceptable except people he (may) already know?

Since arbitration is strongly discouraged anyway (due to the negligible chances of reversing them on appeal no matter how arbitrary they are), it would be in the owner's best interest to instead persuade a court to rule that the contractor's obstructive conduct forfeited his arbitration rights.

A pattern of contractor's rejection of arbitrators defeats the purpose of "arbitration as a speedy and relatively inexpensive means of dispute resolution", Service Employees Intern. Union v. Cupertino Union School District, 31 Cal.Rptr.3d 858, 871 (2005). The contractor's pattern is largely equivalent --or counterpart-- to "a party's [legally inexcusable] failure to timely demand arbitration", Platt Pacific, Inc. v. Andelson, 6 Cal.4th 307, 319 (1993) (brackets added). That failure "results in a contractual forfeiture of the right to compel arbitration", Id.

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