Parties to a construction contract are understandably focused on the scope and cost of the work, and often pay little attention to what the agreement says about how disputes will be resolved. But, it is worth taking a little extra time up front, when you are negotiating the contract, to decide what dispute resolution clause—arbitration or litigation—is best for your business. As you do so, here are some factors to consider.
Potential Benefits of Arbitration
- In arbitration, a neutral construction expert is the decision-maker.
- Generally, cases are resolved more quickly in arbitration.
- Arbitration may help preserve business relationships, if it is less contentious.
- Arbitration protects confidentiality, because the complaint, answer and decision are not filed publicly like they would be in court.
- Arbitration may be cheaper, if the arbitrator reins in the discovery process and the parties and attorneys are committed to keeping costs down.
Potential Drawbacks of Arbitration
- Arbitrators are generally less likely to dismiss weak claims before a full hearing.
- Arbitration is less predictable than litigation.
- Arbitration awards are final and not appealable.
- There are fewer established rules governing the arbitration process, which may give one party room to abuse the process.
- There is no record of decisions or rationale to provide guidance to an arbitrator.
- Arbitration may end up being no different (or less expensive) than litigating in court, if parties, attorneys and the arbitrator allow the case to follow the same trajectory as it would in court.
Each business must weigh these factors for itself, in addition to its own experience with arbitration and litigation, before concluding which dispute resolution venue is best for the project at issue. For example, if your work is so specialized or complicated that you think it may be difficult for a jury of lay people to understand, even with the help of an expert, you may be better off choosing arbitration and contracting for an arbitrator with specific knowledge of your trade. Alternatively, if there are critical provisions in your contract that you want strictly enforced—for example a clause limiting delay damages to extra time to complete a job—you may be better off in court.