5 Reasons To Consider Arbitration For Your Construction Dispute

In a recent client conference I was asked, “So what is arbitration, anyhow?” In the context of a construction claim or in seeking to prevent a construction claim, there are several significant advantages that arbitration can provide in lieu of litigation. In today’s challenging business environment being aware of the various options available could make a significant impact on your business. Briefly stated, arbitration is a private, informal process by which all parties agree, in writing, to submit their dispute to one or more impartial persons authorized to resolve the controversy by rendering a final and binding award. [i] What makes this process unique is the ability, with some advance consideration, to customize and tailor the dispute resolution process to suit your company’s needs.

CUSTOMIZATION – Customization allows you to tailor the dispute resolution process by stating the location of arbitration, the number of arbitrators and even the specific technical qualifications of the arbitrator(s) to best suit the dynamics of your claim. This is especially important in the construction arena where you are not likely to be appointed a judge who has any specific technical knowledge or appreciation of construction. In arbitration, you can request an arbitrator with the level of construction appreciation you feel appropriate. As stated by Michael Marra, Vice President Construction Division American Arbitration Association, “There is no concern about the arbitration process that a good [contract arbitration] clause cannot fix. People do not always realize they can customize the process to their specific project needs.”

COST SAVINGS – As a process intended to be less formal than litigation, the entire case preparation and information exchange can be streamlined saving both counsel and clients’ time and resources. Further, it is often possible to have an entire dispute brought before the arbitrator in a one-day hearing and possibly without the need for court reporters and fees. This is an accomplishment not often found in litigation. There is, however, some debate in the field whether arbitration is less costly than litigation. Arbitration for larger and more complex claims may not produce the cost savings found in less complicated claims.

TIME FRAME – When considering taking an action to the Supreme Court for litigation, it is important to keep in mind the time frame in which the matter can expect to be concluded. Based on a recent litigation filing from my office, the time between when a matter is assigned an index number to resolution is approximately two years and six months, or 914 days.[ii] This is much greater than the anticipated time frame in a corresponding arbitration claim. Based on a recent administrative study by the American Arbitration Association for cases under the American Arbitration Association Commercial Arbitration Rules, with claims between $75,000.00 and $500,000.00, the median claim was resolved within 297 days of filing. [iii]

LESS FORMAL – It’s fair to say that most people don’t mistake Supreme Court for the Hilton. In fact, many clients have a great deal of apprehension or anxiety regarding the thought of having their dispute brought out in open court. In the context of an arbitration, however, the hearing can be conducted in either your attorney’s conference room, or in any other suitable location, making the process considerably less stressful.

RECOVERY OF FEES AND COSTS – Where properly stated and agreed to in writing, the arbitrator may be free to award the reimbursement of all fees and costs associated with bringing forth the claim to either party, including all filing and attorneys fees. This is an example of how some advance planning and consideration with your attorney can make a future claim more to your businesses’ advantage. Although arbitration may not be available for every dispute or conflict [iv], where available, its numerous possible advantages make it well worth consideration.

i The Amer. Arb. Assoc. Guide to Drafting Alternate Dispute Resolution Clauses for Construction Contracts, rev’d Oct 1, 2009 at pg 4

ii This is a preliminary estimated time assigned by the court. Individual justices and case specifics may vary this estimate.

iii Study of Amer. Arb. Assoc. cases administered under the Amer. Arb. Assoc. Commercial Arbitration Rules awarded in 2003.

iv Pursuant to N.Y.G.B.L Section 399-c, mandatory arbitration provisions in construction contracts for residential home improvement are void.

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