5 Benefits of Arbitration for Construction Disputes

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As the economy and the courts begin to reopen, it is becoming clear that businesses seeking to resolve disputes in court will find themselves in a very long line. At the end of 2019, records showed that civil case filings in both state and federal courts had increased by more than 5%. Then, in March, COVID-19 broadsided the court system, resulting in the postponement of virtually all in-person proceedings and all jury trials. As we begin to feel the full economic brunt of the COVID-19 crises, the backlog of cases will only grow with an expected tidal wave of new litigation seeking to resolve problems created or exposed by the crises. This will create a legal disaster that will last for years.

RELATED: Why Builders Should Reconsider Arbitration Clauses in Construction Contracts

The prospect of waiting years to obtain a determination on a legal dispute will compound the problems being litigated rather than providing a path to resolution. Businesses faced with the choice of spending years and thousands of dollars litigating disputes will either abandon the effort or will compromise their position just to end an expensive and exhausting process. Sophisticated businesses are already looking at positioning their disputes to allow alternative paths to resolution, and arbitration will likely absorb most of those cases.

For those litigants with the knowledge and ability to clear the entry hurdles, arbitration will provide a fast-track to resolving many issues that will be delayed or complicated by the COVID-19 crisis.

Arbitration or Litigation?

Most companies are familiar with the benefits of arbitration and probably have had opportunities to experience the proceedings. Most companies, particularly those that do business with other businesses as opposed to consumers, do not look to arbitration as a primary vehicle for resolving disputes. The potential reasoning behind this ranges from a “that’s the way we’ve always done it” attitude to the company wanting to guarantee an employee’s right to resolve the dispute in court. Depending on the claims, there are few hurdles to initiating a lawsuit in court. Arbitration, in contrast, requires that the parties agree to submit any disputes to arbitration. Once agreed upon, the potential benefits of arbitration are significant.

Benefits of arbitration

Speed. The COVID-19 backlog will continue to increase until the courts are fully open and able to handle trials without the precautions associated with COVID-19 restrictions. As a result, arbitration’s most significant advantage is that disputes can move forward immediately with no backlog, as the pace is determined by the parties, depending on each dispute’s complexities. Once the demand for arbitration is filed, the parties move forward to select an arbitrator – or for larger cases, a panel of three arbitrators. Once empaneled, the arbitrator or panel chair approves a schedule. Generally, arbitrations are resolved within a year of the matter being filed. Compared with possible multiple-year delays due to COVID-19, this is a huge benefit.

Cost. Getting a result resolved in a reasonable manner will likely offset any short-term increase in costs. Typically, costs to prepare for arbitration are lower than those associated with preparing for a trial. The rules of evidence are often more relaxed than in a trial, so documents can be submitted in place of witness testimony. Additionally, procedures implemented in arbitration are streamlined, which avoids many of the procedural maneuverings that dominate court proceedings. So long as restrictions are in place due to COVID-19, arbitration proceedings will likely be far more streamlined than court proceedings, resulting ultimately in cost savings to the participants.

Expertise. While most jurisdictions enjoy talented and qualified judges, arbitration provides the parties with an opportunity to specifically choose arbitrators who have experience and expertise associated with the dispute or the industry involved. While judges may have some experience in an industry through prior experience as a lawyer or judge, the ability to engage an arbitrator with an understanding of the industry contributes to moving the process along quickly and in a more cost-efficient manner.

Technology. While courts had already been seeking technology upgrades for the presentation of exhibits and testimony, the COVID-19 pandemic forced courts to move faster on these initiatives. Now litigants are encouraged to invest in the technology – or hire a third party – to ensure that testimony and exhibits can be provided to the judge or jury. And all of this must now be done without compromising any of the restrictions in place to protect the court, jurors and litigants during the global epidemic. Arbitration had already moved forward with virtual conferences, and because of a more streamlined process, testimony and exhibits are easily provided through virtual or technologically based presentations.

Privacy. Unlike a trial, arbitration is essentially a private procedure. If the parties desire privacy, the dispute and the resolution can be kept confidential. In addition, most arbitrations are binding, which presents very limited opportunities for either side to appeal, so arbitration is the end of the dispute. This gives finality to the arbitration award that sometimes is not present with a trial decision. This will become an even greater benefit as the trial court backlog works its way into the appellate courts.

An efficient resolution

With arbitration, most business disputes are viewed pragmatically, and reaching an efficient and acceptable resolution within a reasonable time is of paramount importance. Businesses far too often have experienced the time and costs associated with litigation delayed by the volume of disputes in our court systems. Delays due to the COVID-19 crises will exacerbate this situation. As a result, businesses have a choice; abandon disputes due to the inability to obtain a resolution expediently, compromise the dispute to gain some efficient resolution, file and invest the time and money to gain a resolution likely to be years after any dispute, or seek a more efficient and timely resolution through arbitration.

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