Construction Disputes: What is Arbitration?

Many construction projects involve disputes at some point in the process. If you are managing a construction firm, you’ve likely experienced disputes on a number of projects. What happens when there’s a dispute? In some cases, the dispute goes to trial before a judge or jury. But in many other cases, a process called arbitration is used.

What is Arbitration?

Arbitration occurs when all of the parties to the dispute agree (either in their contract or by separate agreement) to use a third-party neutral to decide the case instead of using a judge or jury. Why not just go to court? There are a number of reasons. Arbitration is private and confidential, unlike court which is public and out in the open. Arbitration can significantly reduce the cost of resolving the dispute and can resolve the dispute much more efficiently. Arbitration also brings finality; unlike going to court with its endless appeals, there are very limited ways to overturn an arbitration award. This is because the decision by the arbitrator (the third-party neutral) is legally binding on all parties.

If the dispute relates to a contract and that contract includes an arbitration agreement, you may have already agreed to go to arbitration. What does that mean? It means that you must use an arbitrator and cannot choose to bring a lawsuit before a court. It does not mean, however, that you can’t try to mediate your dispute first. So how does this play out practically? A dispute arises, the parties try either formally or informally to resolve the case through mediation and negotiation. If that is unsuccessful, then the case is brought before an arbitrator who will make a decision to resolve the dispute.

The Pros of Arbitration

There are some real benefits to using arbitration, particularly in construction cases. The process is less formal, meaning the rules of evidence and procedure are not as strictly enforced – this gives the parties and arbitrators more latitude to frame the issues as they see fit. Additionally, in a court of law, the judge presiding over the case is not a construction specialist. With arbitration, however, the parties can select an arbitrator who is a construction expert and better suited to decide construction law issues. The arbitration process can also be less costly and, because there is no appeals process, a final decision is rendered faster. The process is also private and confidential.

The Cons of Arbitration

While the lack of an appeal process can be a pro in the sense that a final decision is rendered more efficiently, it does mean that a party cannot appeal the decision if they are unhappy with it. You should also ensure that you have proper representation in an arbitration case. Because the arbitrator is likely a construction expert, you need an attorney who is well versed in both construction law and the arbitration process. This is less of a con but more of a warning to ensure your attorney has the proper qualifications prior to engaging in arbitration – particularly since there is no appeals process if you don’t get the desired result.

If you are facing a construction dispute and either have arbitration in the contract or are considering arbitration as an option to resolve the dispute, give us a call. We will walk you through the process and be by your side each step of the way.

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