What is Construction Arbitration?

M. Lupica

Construction arbitration is a process whereby two parties to a construction agreement elect to settle a dispute in arbitration rather than go through an expensive and time-consuming litigation process. Construction arbitration typically involves the disagreeing parties going through an informal process where they make their arguments to an independent third party — called an “arbitrator” — who makes a ruling on their disagreement that is generally binding on the parties. There are many advantages of arbitration over litigation, including the fact that special construction arbitrators are often preferred over judges because they usually have technical knowledge of the construction industry. This technical knowledge helps them better understand the rights and needs of the parties.

Construction arbitration is necessary in situations when two parties in a construction agreement have a dispute.
Construction arbitration is necessary in situations when two parties in a construction agreement have a dispute.

Usually, construction contracts will have arbitration clauses that indicate that upon any disagreement arising under the agreement, either party may elect to have the dispute settled in arbitration. Arbitration is typically preferred because of the relatively low cost as well as the fact that it is less time consuming due to its informal nature. Further, construction arbitration is typically settled by a special branch of arbitration organizations because of the technical nuances that are often part of the parties’ arguments. Arbitration organizations are able to employ people with such technical knowledge to preside over these special cases.

Depending on the contract provision, the electing party will have to choose the arbitrating organization and file a commencement of construction arbitration with that organization. This generally includes filing a general statement of demand as well as a copy of the arbitration provision within the contract. If the commencement is accepted, the organization will then give notice to the other party that he or she is now obligated to respond to the claim. If no response is filed, the arbitration proceedings will continue as if the party simply denied all the filing party’s demands.

Arbitration is very much like an informal court proceeding. The construction arbitration proceedings generally consist of one or a few informal hearings, depending on the complexity of the issue. The goal is simply to examine any and all evidence provided by both sides of the disagreement in a thorough but expedient manner and render a decision. Generally, any arbitration clause in a construction contract will mandate that the ruling of the arbitrator is binding. Therefore, the parties are contractually obligated to follow the ruling that is handed down at the conclusion of the construction arbitration hearings.

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