Experienced trial lawyers will tell you that the judicial system is ill-suited to resolving certain types of complex civil cases, and if pressed for an example are as likely to point to construction disputes as any other. It's not just that construction cases aren't sexy (and perhaps for many judges and juries downright boring). It's that their blending of arcane questions of engineering and architecture with the practicalities of construction means and methods cries out for a particular expertise in the decision-maker. This explains the popularity of arbitration in construction cases, a dispute mechanism now largely enshrined in form contracts like those promulgated by the AIA.
Of course forms can be altered, and arbitration clauses can be stricken from a proposed contract so that litigation will become the default mechanism for dispute resolution. Not knowing what some future dispute will look like when you pick up a pen to sign your contract, predicting which procedure will yield the fairest result at the least cost can be difficult, particularly since these two considerations are often in tension.
The conventional wisdom is that arbitration is less expensive than litigation despite the fact that the arbitrator and any arbitration administrator (such as the American Arbitration Association) will charge a fee for their services. Proponents of this conventional wisdom point to the relative speed of the arbitration process as compared with courts, its limitations on "discovery" (e.g., depositions) that often run up huge bills in litigation, possible avoidance of expensive expert witnesses to educate a judge and jury on matters already within the arbitrator's expertise, curtailment of "motion practice" that marks many court cases, and the diminished likelihood of an appeal (I'll have more to say on appeals from arbitration awards in a future blog). But these considerations should be tested before you agree to arbitrate up front. Here are some practical questions to ask yourself:
First, is the contract price at least six figures? If not, chances are that the amount at stake in any future dispute won't justify the expense of paying an arbitrator and an arbitration administrator, even under the streamlined rules governing smaller arbitrations. Not having to pay a judge and a jury for their time may save you more than not having to pay for the "discovery" costs that litigation can impose but that arbitration will limit or even prohibit absent the parties' consent.
Second, is the scope of work complex or tricky? If not, there is less likelihood that an expert witness will be required at trial to educate a judge or jury untrained in engineering or in construction means and methods. One of the things you are buying when your arbitrate is the expertise of the arbitrator; don't be in a rush to buy it if it isn't likely to be needed.
Third, is budgeting your time predictably critical to your bottom line? For the busy businessman, arbitration offers more flexibility and certainty of schedule. The parties schedule the arbitration hearing when convenient for them, and don't get "bumped" by a court which has suddenly found its priority criminal docket to be beefier than anticipated when the trial was first scheduled. Those "bumps" can end up costing you. (This can be a money-saver in legal fees as well; your attorney won't have to gear up for trial twice.)
Arbitration may have other advantages over litigation that may tip the balance. For one, it is a private procedure, unlike a trial in open court that creates a public record of the result. If confidentiality is of value to you, arbitration becomes more attractive. And if you are the type of person who gets nervous on the witness stand in front of a jury of your peers, you are likely to prefer the informality of the conference room to the formality of the courtroom.
In residential construction, the psychological factor must be considered as well. Because jurors can more easily identify with them, homeowners may fare better than their contractors with a jury than with an arbitrator, and vice versa. I typically counsel residential contractors to present their customers with a contract containing an arbitration clause for this reason. But you never know!
Of course forms can be altered, and arbitration clauses can be stricken from a proposed contract so that litigation will become the default mechanism for dispute resolution. Not knowing what some future dispute will look like when you pick up a pen to sign your contract, predicting which procedure will yield the fairest result at the least cost can be difficult, particularly since these two considerations are often in tension.
The conventional wisdom is that arbitration is less expensive than litigation despite the fact that the arbitrator and any arbitration administrator (such as the American Arbitration Association) will charge a fee for their services. Proponents of this conventional wisdom point to the relative speed of the arbitration process as compared with courts, its limitations on "discovery" (e.g., depositions) that often run up huge bills in litigation, possible avoidance of expensive expert witnesses to educate a judge and jury on matters already within the arbitrator's expertise, curtailment of "motion practice" that marks many court cases, and the diminished likelihood of an appeal (I'll have more to say on appeals from arbitration awards in a future blog). But these considerations should be tested before you agree to arbitrate up front. Here are some practical questions to ask yourself:
First, is the contract price at least six figures? If not, chances are that the amount at stake in any future dispute won't justify the expense of paying an arbitrator and an arbitration administrator, even under the streamlined rules governing smaller arbitrations. Not having to pay a judge and a jury for their time may save you more than not having to pay for the "discovery" costs that litigation can impose but that arbitration will limit or even prohibit absent the parties' consent.
Second, is the scope of work complex or tricky? If not, there is less likelihood that an expert witness will be required at trial to educate a judge or jury untrained in engineering or in construction means and methods. One of the things you are buying when your arbitrate is the expertise of the arbitrator; don't be in a rush to buy it if it isn't likely to be needed.
Third, is budgeting your time predictably critical to your bottom line? For the busy businessman, arbitration offers more flexibility and certainty of schedule. The parties schedule the arbitration hearing when convenient for them, and don't get "bumped" by a court which has suddenly found its priority criminal docket to be beefier than anticipated when the trial was first scheduled. Those "bumps" can end up costing you. (This can be a money-saver in legal fees as well; your attorney won't have to gear up for trial twice.)
Arbitration may have other advantages over litigation that may tip the balance. For one, it is a private procedure, unlike a trial in open court that creates a public record of the result. If confidentiality is of value to you, arbitration becomes more attractive. And if you are the type of person who gets nervous on the witness stand in front of a jury of your peers, you are likely to prefer the informality of the conference room to the formality of the courtroom.
In residential construction, the psychological factor must be considered as well. Because jurors can more easily identify with them, homeowners may fare better than their contractors with a jury than with an arbitrator, and vice versa. I typically counsel residential contractors to present their customers with a contract containing an arbitration clause for this reason. But you never know!
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