Extra Edition / Business Management

Arbitration Vs. Litigation

January 22, 2007
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The PHCC Educational Foundation’s Strategic Management Workshop gives attendees a chance to learn about analyzing financial statements, making accurate projections, avoiding litigation, and marketing design/build work from experts in the construction industry. The class also includes a discussion about settling differences by arbitration vs. litigation. Here are some tips on this important topic.

CONSIDERING ARBITRATION VS. LITIGATION

As you read through your construction contract (BEFORE you sign it), consider the issue of dispute resolution.

There has been a trend in recent years to see contracts that require conflicts to be resolved by arbitration rather than the court system. The perception of arbitration being a cheaper, faster, and more “fair” way to resolve a dispute seems to have taken a foothold in the minds of the average person, but do these perceptions hold true?

Some Benefits of Arbitration and Disadvantages of the Court Process
• In the court system, you are at the mercy of a judge who may know nothing about the construction industry.

• An arbitrator is usually an expert in the field of the case being arbitrated and can relate to the parties in dispute. A judge sees con artists, violent offenders, murderers, and the worst of society every day and has no problem sending these people to jail for life. The chances of getting sympathy on a case that could cost you your business is lower than with an arbitrator who may have seen someone in your shoes before.

• In the court system, your trial will be held when the system says it will be. It makes no difference how busy you are, who is in the hospital, or what else is going on in your life. Even when you are given a court date, you still do not know if your trial will be heard that day. Overburdened court systems may tell you to come back the next day, and the next, still without the guarantee that your trial will be heard in a timely manner. Arbitration puts the power of scheduling into the hands of the disputers.

• If you retain a lawyer at a local law firm with excellent construction law experience, you may find that the firm also represents the party you are in dispute with - leading to a conflict of interest. You may be stuck finding a new lawyer who lacks the expertise that could have aided your case.

Some Downfalls of Arbitration
When considering arbitration, ask yourself the following questions:

• Is it really faster? If you want to find a good arbitrator with expert knowledge in the construction field, it may require you to wait for one to become available. How long that wait will be depends entirely on the number of experts in the construction field who are available as arbitrators and their availability. With a limited number of such people in the country, you could find yourself waiting as long as you would for a trial case.

• Can the expert really see the issue from your perspective? A class member who had been through the arbitration process before shared his experiences with trying to find an expert in the construction field. He had found that the majority of the expert arbitrators had been general contractors before turning to the field of arbitration. In arbitration between a subcontractor and the general contractor, an arbitrator’s life experience could unknowingly skew his or her perceptions as to what is a “fair” resolution to the dispute. The hunt for an arbitrator with subcontractor experience may prove to be more difficult than you are prepared for.

• Is it really cheaper? In the court system, you pay a single court fee for use of the courtroom, the judge, the bailiff, and a host of other services. Arbitration is a different story.

Check the backgrounds of arbitrators in general and you will find a large percentage of lawyers in their ranks. The per-hour arbitration fees may not be much different than the fees that would be paid to a lawyer. If the arbitration is being done by a three-person panel, multiply those per-hour fees by three.

If the arbitrators are from out of town, someone will have to pay for their hotel rooms and meals and other expenses. You may also have to pay for the venue where the arbitration will take place.

Most arbitrators will not be able to just hear the two sides of the story and make their decision. They will also need some time to research the background of the dispute and review paperwork. All of this is billable time that one or both of the parties will have to pay.

In the end it is up to you, the person reading a contract, to make the decision to strike the arbitration clause out of the contract or to go ahead and sign it. Just be aware of the pros and cons so that you do not find that you are dealing with new surprises in the middle of what will already be a stressful situation.

Publication date: 01/22/2007

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