It is common for construction contracts to include mandatory arbitration provisions. It is less common for construction contracts to contain a provision allowing either party to agree that either party may elect arbitration. A sample provision looks like this:
At the election of Customer or Contractor, any dispute arising out of, or in connection with or in any way pertaining to this Contract shall be settled by arbitration, administered by the American Arbitration Association under its Construction Arbitration Rules or by JAMS pursuant to its streamlined arbitration rules and procedures and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.
When confronted with the option to arbitrate, it is important to be aware of the benefits of arbitration and consider the following.
Quality of the decision maker
Arbitrators, especially construction arbitrators, have experience dealing with construction disputes and procedures. This means that they have expertise (or at least familiarity) in the subject matter and can more quickly and meaningfully hone in on and move through the issues. In litigation, it is not uncommon for the judge or jury to lack any construction experience. That means simple concepts like explaining why the owner’s request to phase the job resulted in delays and cost expenditures to the prime or subcontractors. The lack of the judge or jury’s expertise will usually result in a less thorough and slower (and thus expensive) process.
Control of the decision maker
In litigation, the extent of a party’s decision regarding who will decide their dispute is quite limited. Initially, the court assigns a judge to the case. The parties usually have one chance to “preempt” (or select a new) judge. The parties can also assist in selecting a jury, but again, are limited in terms of preemption and other factors such as the available jury pool. That is usually the extent of a party’s choice in deciding who their finder of fact is.
In arbitration, the parties are usually afforded the option of a list of arbitrators with construction experience, have the opportunity to review their resumes, and have the opportunity to “strike” several arbitrators that they do not want to arbitrate their dispute. The process is also flexible. The parties could agree to request another list of arbitrators if they did not like any of the options presented. The parties can also elect to have a single arbitrator or a panel of arbitrators. As such, arbitration usually results in more party control over who the decision maker is.
Rules
Litigation comes with strict rules related to the timing of certain motions, what sort of evidence will be allowed in at the hearing, and what procedures will govern the hearing. Arbitration is significantly more relaxed. The arbitrator is afforded greater discretion than judges are in deciding which evidence to hear and may consider issues that a court would have been required to exclude.
Availability
Arbitrators are usually private attorneys are able to control their case load in a way that judges cannot. (A judge is usually assigned a equal share of cases that come in and an attorney has the option to accept or deny cases.) Because arbitrators can control their schedule in this way, they usually spend more time on fewer cases (and judges usually spend less time on more cases). As such, arbitrators are usually more available to the parties to resolves issues via teleconferences or via email instead of longer briefs.
Time
Litigation can (and often does) take years to conclude. Arbitration usually provides for a more streamlined discovery and hearing process. A faster resolution to the dispute means business executives and team members can get back to their real jobs more quickly.
Private
Pursuing arbitration also means that the case will stay more private. Documents filed in litigation come part of the public record. Position statements, company policies and other potential litigation weaknesses are disclosed for any interested party to read (and potentially for other parties to use against you in litigation). Arbitration is a more private process. Documents are not publicly filed and are not generally available to non-parties.
Cost Savings
Arbitration is usually cheaper than litigation. As described above, the process is shorter and more informal and usually translates to spending less on attorney’s fees. An experienced construction arbitrator is also usually able to move through the arbitration hearing more quickly than a judge or jury because of their understanding of the complexity of construction issues.
Finality
Arbitration also provides finality. In litigation, a decision regarding the case is made at a trial court level. Most jurisdictions have an appeals court and a state supreme court. Practically, the trial court’s decision could be subjected to the review of two separate appellate courts. Each court could have the case for years before it goes to the next court. Arbitration, on the other hand, can be binding. That means the arbitrator’s decision is usually final, and whether a party wins or loses, at least is it finally over.
