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Arbitration Versus Litigation


Complex construction claims and disputes bring with them a variety of factors from a legal standpoint: multiple parties, a web of legal and technical facts and information, related insurance issues, and millions of dollars for the parties involved, particularly general contractors.

These same factors make it a pivotal strategic decision whether to arbitrate or litigate, and in some cases mediate, complex construction claims. Importantly, the direction one chooses in these matters must be considered throughout the contract life cycle. Doing so ensures that the cost impact can be minimized through careful management of the process, from contract formation through project completion.

For parties in complex construction claims looking to make a decision in terms of choosing arbitration, litigation or mediation, here are some key factors to consider from the beginning:

  • Contract formation: During contract negotiations, it should be decided if arbitration will be mandatory. Hybrid approaches can include whether the general contractor will have the right to select arbitration or litigation after the dispute arises. It should be considered whether or not to require mediation prior to arbitration or litigation.
  • Time for a determination: If arbitration is mandatory, the contract should address whether the arbitration be completed within a set period of time. Acceleration of the process can be both cost effective and can provide a definitive determination of the dispute. Arbitration tends to be less time consuming.
  • Complexity of project and required discovery: Arbitration normally results in limited discovery. Depending upon the complexity of the construction project, there may be advantages to litigation where more extensive discovery is usually undertaken. The trade-off is there cost and what is reasonable for the project.
  • Cost savings: Arbitration tends to be less costly due to limited discovery. If arbitration can adequately address the issues in the dispute with limited discovery, that may be the preferred option. However, if it is assumed that substantial discovery will be necessary to develop the facts then, consider litigation.
  • Expertise of decision maker: Arbitration can allow for selection of arbitrators with a high level of expertise to address a construction dispute. Panels can be composed of lawyers and engineers/consultants. This specialized expertise can be very beneficial in a construction case. On the other hand, a specialized court may also be very beneficial. If litigation is preferred, a decision should be made at the contract formation stage to require a jury or a bench trial.
  • Appeal: Arbitration is normally binding with limited right to appeal. Litigation allows for an appeal, but the process can be very expensive and time consuming.
  • Choice of law and venue: These selections are extremely important and should be carefully considered at the time of contract formation.
  • Rules of evidence: Litigation will require that the rules of evidence apply. In contrast, arbitration is less formal and the arbitrators can consider whatever evidence they require, and will generally allow evidence to be introduced without the restraints followed by the courts.

To be sure, the inherent complexity of construction claims requires a thoughtful and strategic approach to construction contracts. General contractors should consider all of the factors listed above when choosing their preferred approach; however, they should also not reach any legal conclusions based on the information contained above without first seeking the advice of qualified counsel.

Gary A. Wilson is a senior principal and co-chair of Post & Schell, P.C.’s Construction, Government Contracts & Surety Law Practice Group resident in Washington, D.C. He has over 30 years of experience in construction litigation, energy/utilities, class action defense, commercial litigation, arbitration and mediation, reinsurance, contract formation, surety, and dispute resolution. He can be reached at (202) 661-6956 or GWilson@postschell.com.