REALWorld Law



Is it common for construction disputes to be referred to arbitration? If so, how does arbitration compare with litigation through the national/federal courts?

United States

United States

In order for a dispute to be referred to arbitration, the parties to the dispute must mutually agree to submit their dispute to arbitration. The parties may do so when the dispute arises, or, more likely, the parties will have provided in their contract that any dispute will be decided by binding arbitration.

Arbitration and litigation are different in many respects. In arbitration, disputes are resolved in private; in litigation, the procedure is public, as are the documents and evidence filed by each of the parties. In arbitration, the parties generally have a voice in selecting the arbitrator or panel of arbitrators. However, in the court system, judges are assigned randomly to cases without any input from the litigants; in some jurisdictions, a litigant may (but may not) have the ability to strike one judge without a reason.

Although not always the case, arbitration is intended to be an informal and streamlined process when compared to litigation. Absent a mutual agreement by the parties, arbitration does not involve discovery – no interrogatories are submitted to the other side, no depositions are taken, and the rules of evidence are not applicable. Because of this, disputes generally can be resolved more quickly. However, once the arbitrator renders its decision, there is no appeal to a higher authority except under extremely narrow circumstances, such as fraud or conflicts of interest. Courts encourage private resolution of disputes by parties and will avoid setting aside decisions made by arbitrators. Although laws vary among states, arbitration decisions generally can be set aside only for a ‘manifest disregard of the law’ or if a party can prove the arbitrator was biased.

An analysis of the cost of litigation as against arbitration depends on the size of the dispute and other facts. The fee for arbitration generally is a graduated percentage of the amount in dispute; the court filing fee generally is nominal. The arbitrators are paid an hourly fee for preparation and study time, travel, attendance at the arbitration, and deciding and preparing the award. The judges, however, are not paid by the litigants. Lawyers’ fees may be less in an arbitration, depending on the nature of the dispute. Because the process is quicker, less lawyer time may be required.