As discussed below, after the dispute has arisen is too late to effectively consider the merits of arbitration, which has proven to be adaptable to the parties’ needs.
Arbitration clauses are contractual and, as such, allow the parties to design a process to best suit their needs, project complexity and budgets. As between litigation and arbitration, one critical difference is time and costs. With arbitration, parties may come to a resolution faster, spend less money and benefit from a more streamlined process of dispute resolution. Further, the parties will select their own arbitrator with specific subject matter expertise. In nearly every case, trial judges will not have much experience with the construction industry’s nuances, which impact everything from vocabulary to work, or patience with the granular details of construction litigation.
One significant reason for cost savings is that arbitrators generally resolve everything from discovery disputes to evidentiary disputes without motion practice. Arbitrators discourage formal motions and promptly schedule hearings/conferences to resolve the dispute. In court, especially in the era of COVID-19, these disputes can sit for months after briefing.
It is not enough, however, to merely place a “form” arbitration provision in your contract. Because arbitration is a contractual process, the arbitration clause may be customized to meet the specific needs of the contractual relationship. For example, the American Arbitration Association promulgates rules for different industries, including the Construction Industry Rules. The contracting parties can select the applicable industry-specific rule. Similarly, the parties may also customize (and expand upon or limit) their discovery process, hearing location, use of technology, choice of law, and confidentiality. Historically, the most significant knock against arbitration has been the lack of appeals for issues such as errors of law. While this often must be weighed against the benefit of finality, the American Arbitration Association has developed a panel to conduct appellate review. Importantly, the parties must agree to its use.
We are grateful to Eugene Farber, of Farber, Pappalardo & Carbonari, and Michael Marra, VP of the Construction Division of the American Arbitration Association for sharing their insight and experience related to arbitrations. You can learn more in their recent webinar, “The Right Tool for the Job – Customizing the Proper ADR Process.”