Litigation Vs. Arbitration, Part 2

March 21, 2006

Tips from the Foundation's Project Management Courses

By: John Zink

Litigation Vs. Arbitration
As you read through your contract (BEFORE you sign it), consider the issue of dispute resolution.

There has been a trend in recent years to see contracts that require conflicts to be resolved by arbitration rather than the court system. The perception of arbitration being a cheaper, faster and more “fair” way to resolve a dispute seems to have taken a foothold in the minds of the average person, but do these perceptions hold true?

Some Downfalls of Arbitration
When considering arbitration, ask yourself the following questions:

  • Is it really faster?
    If you want to find a good arbitrator with expert knowledge in the construction field, it may require you to wait for one to become available. How long that wait will be depends entirely on the number of experts in the construction field who are available as arbitrators and their availability. With a limited number of such people in the country, you could find yourself waiting as long as you would for a trial case.

  • Can the expert really see the issue from your perspective?
    A class member who had been through the arbitration process before shared his experiences with trying to find an expert in the construction field. He had found that the majority of the expert arbitrators had been general contractors before turning to the field of arbitration.

    In arbitration between a subcontractor and the general, an arbitrator’s life experience could unknowingly skew his or her perceptions as to what is a “fair” resolution to the dispute. The hunt for an arbitrator with subcontractor experience may prove to be more difficult than you are prepared for.

  • Is it really cheaper?
    In the court system, you pay a single court fee for use of the courtroom, the judge, the bailiff and a host of other services. Arbitration is a different story.

    Check the backgrounds of arbitrators in general and you will find a large percentage of lawyers in their ranks. The per hour arbitration fees may not be much different than the fees that would be paid to a lawyer. If the arbitration is being done by a three person panel, multiply those per hour fees.

    If the arbitrators are from out of town, someone will have to pay for their hotel rooms and meals and other expenses. You may also have to pay for the venue where the arbitration will take place.

    Most arbitrators will not be able to just hear the two sides of the story and make their decision. They will also need some time to research the background of the dispute and review paperwork. All of this is billable time that one or both of the parties will have to pay.

In the end it is up to you, the person reading a contract, to make the decision to strike the arbitration clause out of the contract or to go ahead and sign it. Just be aware of the pros and cons so that you do not find that you are dealing with new surprises in the middle of what will already be a stressful situation. 


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