As you draft your construction contracts, one of the biggest issues before you is which dispute mechanism you should choose. Your construction law firm will have the best advice as your personal construction attorney should be intimately involved at every stage of the contract. In general, however, there are some things to bear in mind that can help you make a decision when choosing arbitration, mediation, or litigation.
In many cases, arbitration is cheaper and faster than litigation. Unfortunately, many an expert and construction law firm has also found the opposite to be true. It all depends on the precise wording of the contract and a thorough understanding of the pros and cons of arbitration.
Some of the best benefits to arbitration include the fact that discussions can remain confidential and off the record. Arbitration can also go very well when the contract specifies a certain level of expertise be required of lawyers involved in the arbitration process, should it become necessary. Finally, a good contract should also agree to certain discovery requirements in advance. If all these conditions are met, arbitration can go well and does have the potential to be faster and cheaper than other methods.
There are also some potential downsides to arbitration. For one thing, arbitration typically does not allow for appeal and can only be vacated for extreme reasons, such as corruption or misconduct on the part of the arbiter. Even if there was an error in the law, it may be difficult, if not impossible, to get rid of a binding arbitration judgment.
Another issue is that arbitration is not always as quick as one might hope. It can take weeks for the different parties and the construction law firm involved with each to appoint a panel. Then the actual arbitration takes place, but it is often necessary for the winning party to go to court to enforce the decision of the arbiter.
Finally, arbitration services can be expensive, depending upon who is chosen to do the work and how long it takes. Fees are often calculated based on the size of the claim, not based on the actual work involved, so larger claims may not see a savings through the use of arbitration.
Mediation is another way of resolving disputes. Mediation can be included in the contract and can be required before either litigation or arbitration. Mediation simply involves engaging a third party to assist in negotiations. Mediation has several benefits:
- Flexibility and Privacy As with arbitration, proceedings in a mediation are private and out of the public eye. Unlike arbitration, mediation can be highly flexible. Because there are no rulings, neither party is obligated to agree to the mediator’s settlement.
- Speed Most mediation can be done in just a day or two. At that point, it will become clear whether mediation is of any use or whether the situation must continue to litigation or arbitration. This is a very small investment to make for possibly big savings of money and time.
- Control Mediation is always safe because it is not binding. Neither party is at any risk of losing out, unlike with litigation or arbitration.
- Relationally Superior Once the situation progresses to arbitration or litigation, the business relationship is almost certainly dead. Mediation provides a way of possibly preserving the useful relationship by helping to parties to understand one another’s situation better.
Litigation will naturally involve a construction law firm. This is often the most expensive option, but there are times when using a litigation attorney in court is the best option. This may be the case when one party’s negligence is crystal clear, or if one party refuses to engage in arbitration or mediation. One of the other benefits of litigation is that the party ruled against is less likely to attempt to avoid a judgment than with arbitration or mediation.
None of these options are ideal. In an ideal world, contracts would be clear and all parties would live up to their obligations at all times. Until we have an ideal world, the best idea is to hire a good construction law firm and have their attorneys make sure that all your contracts are clear and fair.