During contract negotiations, members of the construction industry must decide whether to send their disputes (if any) to private arbitration or to litigation through the court system. Unfortunately, more times than not, these dispute resolution procedures are overlooked until it is too late. This article looks at the two procedures by which construction disputes are typically resolved and the pros and cons of each.
A chief consideration in the decision to pursue either arbitration or litigation is cost. Arbitration is widely believed to be a cheaper form of dispute resolution. A survey asked attorneys to estimate both litigation and arbitration costs for a fictitious case. The resulting estimates placed arbitration at approximately 27 percent less expensive than litigation. The lawyers estimated that more time would be required to prepare and respond to motions leading up to trial than preparing for arbitration. Also, the group of attorneys felt that discovery expenses, a large cost factor in any dispute, could be better controlled in arbitration. Nonetheless, the costs of arbitration have been increasing quite dramatically over recent years.
The general consensus in the legal community is that arbitration is a faster way to resolve a dispute. A survey of construction cases in federal court determined that the average time until a ruling was 22 months, about twice as long as the typical construction arbitration case. However, the speed in either route depends on the complexity of the issues, the judge or arbitrator\’s schedule, and the working relationship of the parties.
The Decision Makers
A possible benefit of arbitration is the ability to select knowledgeable parties to be the decision makers. Arbitrators in construction law cases are often individuals with knowledge of the industry or other construction attorneys. This can drastically reduce the amount of time and effort the parties spend trying to bring 12 jurors or a judge up to speed about complex issues.
On the other hand, a jury trial may be preferable if the case involves relatively simple issues and a sympathetic party or bad facts on the part of the other party.
Another possible benefit of arbitration is the availability of confidential proceedings. Litigation is inherently a public procedure. The documents submitted to the court and its findings will all likely be available to the public. Parties in an arbitration can agree to keep the proceedings confidential. This would protect both parties from potentially embarrassing or harmful testimony and evidence revealed during arbitration proceedings.
Arbitration is a one-way street. The decision of the arbitrator, barring extreme misdeeds, is final. This is good if the decision is acceptable because it keeps costs down by preventing the other party from appealing. Of course, the downside is that party could be stuck with an adverse ruling that cannot be appealed. Litigation offers several layers of potential appellate review that arbitration does not typically allow for.
Whether to arbitrate or litigate your construction dispute needs to be carefully decided when negotiating your contracts. Hopefully the above list of items allows one to understand the ramifications of choosing one over the other.
The other popular form of dispute resolution is mediation where a third party acts as an \”in between\” among the parties to help generate a dialog and seek a mutually acceptable resolution. Unlike arbitration or litigation, mediation is only binding if the parties reach an agreement.
Susan Zuckerman, Comparing Costs in Construction Arbitration & Litigation, Dispute Resolution Journal, May-July (2007).
Construction Industry, Arbitration v. Litigation: The Lines Aren\’t Drawn Where You May Think, available online at www.adr.org.
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