Arbitration has become a very common and effective way to resolve construction disputes in lieu of traditional litigation, and it is easy to understand why:
- The parties can select arbitrators with construction expertise who speak their language and are more likely to understand complex construction issues than a general court of law.
- Arbitrations are characteristically speedier from inception to award.
- Discovery (the parties’ exchange of information and taking of depositions) is often more truncated and can, therefore, be less costly.
- Arbitrator awards are typically binding and not normally subject to an appeals process that tends to add more time and cost to the outcome.
We would be remiss, however, if we did not mention that arbitration is not for everyone. Parties are often required to pay filing and other administrative fees that are considerably more expensive than the cost of court filings, and they must also pay the arbitrators, who typically bill by the hour (feel free to insert your own generic lawyer joke here). In the construction context, we find that owners, developers, and public entities often will elect litigation over arbitration.
The finality of the award cannot be overstated. This article about a recent federal court decision – in which a party discovered after the award that one of the arbitrators failed to disclose a number of serious charges that included the unauthorized practice of law – drives the point home. Under the Federal Arbitration Act, courts may only vacate an arbitration award under very limited and extreme circumstances:
- the award was obtained by corruption, fraud, or undue means;
- there was evident partiality or corruption in any of the arbitrators;
- the arbitrators were guilty of misconduct for refusing to hear evidence relevant and material to the dispute; or
- the arbitrators exceeded or imperfectly executed their powers.
In other words, a court will not disrupt an arbitration award simply because the arbitrators may have “gotten it wrong.”
It can be strange and counterintuitive to think about how a dispute should be resolved when signing a contract. Most parties to a construction contract are, understandably, thinking about the excitement of starting a new project, how to build the project cooperatively and safely, and how to manage it in a way that will be profitable to the companies involved. It is nonetheless important to think about dispute resolution while negotiating your construction contract. This is so because the decision to arbitrate or litigate is often one that is made within the contract document itself rather than by the election of the parties after the dispute has arisen. If a dispute develops, the language of the contract will have important implications for how your dispute is decided, who will decide it, and how much time and money it will cost to resolve.
Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men. Tony also serves as an arbitrator on the Roster of Neutrals for the American Arbitration Association.
Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.