Construction contracts contain multiple dispute resolution procedures. Most contracts will include either an option for or mandatory mediation, litigation or arbitration. Each procedure comes with different benefits and drawbacks. 

When negotiating or agreeing upon dispute resolution procedures, it is important to keep the differences between the three procedures in mind. 

Mediation 

Mediation is a relatively informal process where both parties sit with a neutral third party to try to resolve a dispute. The third-party neutral, the mediator, usually hears from both sides individually, and then together. 

After hearing each side of the dispute, the mediator tries to orchestrate a settlement that both parties agree to. The mediator’s recommendation regarding how she or he thinks the case should be resolved is non-binding, which means both parties have to voluntarily agree to any proposed resolution for the dispute to be resolved.

Mediation can occur at any time during a dispute, and does not involve the same sorts of “discovery” (depositions, requests for documents, formal written questions) that litigation and arbitration allow. Lawyers are not necessarily needed when mediating a dispute. Mediators are traditionally paid by the hour for preparation and to conduct the mediation, which is often attempted before arbitration or litigation because it is less expensive and more efficient. 

Litigation

Litigation is a formal, public process where a complaint in civil court is filed to initiate a lawsuit. A filing fee is paid, the complaint becomes part of the public record and a judge is assigned. 

Traditionally, litigants do not have a say in which judge is assigned, but there is frequently one opportunity to ask for a new judge at the beginning of the proceedings. And while parties in the litigation do not have to pay for the judge’s time to resolve the dispute, litigation is very expensive because of the cost for a lawyer to advocate a position and to comply with numerous court deadlines (only some of which actually help move a case along). 

Litigation is usually the longest and most expensive process of all dispute resolution options. 

Litigation allows for certain timelines for “discovery” regarding the other party’s case (including depositions, requests for documents, formal written questions to the other party, etc). It also usually means waiting the longest time for a resolution because of how busy courts are because requests made to the court have to be made formally — for example, via written motion. 

In litigation, the dispute is finally resolved through a trial. In a trial, a judge or jury determines how the case is resolved, and their decision is almost always final. There are limited options to appeal in certain circumstances. 

Arbitration

Arbitration is a private dispute resolution process. Parties pay a filing fee, and pay a private neutral third-party by the hour to resolve the dispute. Depending on the terms of the project contract, it can be either binding or non-binding arbitration, with very limited avenues the appeal the decision. 

Typically, parties have more say in who the arbitrator is as compared to what judge is assigned in litigation. Having more say in which arbitrator is selected to hear the dispute is a powerful tool because the selection of an arbitrator that has experience in the construction industry can be beneficial. Having an arbitrator that understands, for example, why phasing construction makes a project significantly more expensive than not phasing the project, means saving significant time and money needed to provide that type of background education for a judge or jury. 

Since arbitration is a private process and is less formal than litigation, it is often completed much quicker and more efficiently than litigation. Arbitrators typically have less cases and are more available to the parties than a judge is.  
For example, while courts can take several months to resolve a motion made by either party, arbitrators are usually available to hear motions in a matter of weeks. Arbitrations also have less administrative hurdles than litigation, which can save time and money since there are less formal compliance requirements.