If a dispute goes on long enough, it will ultimately result in litigation or arbitration. Parties need to think about whether they would rather end up in court, or with a private arbitrator, or arbitration panel.
Many of the well-accepted trade association contracts have a “check-the-box” approach, in which you need to say whether you are going to arbitration or the courts in the event a dispute is not resolved through negotiations, mediation, or the like. While there is no right answer for all situations, parties need to carefully think about what is in their best interest.
Courts, while never speedy, have only become slower during COVID and post-COVID times, particularly in urban areas. This means that the person chasing the money will likely have to wait much longer to have his or her case resolved in court than in arbitration. On the other hand, someone defending against a claim might be happy to be on the slow train through the courts.
Arbitration costs are typically much higher than court costs, but you will be dealing with a presumably knowledgeable arbitrator, or arbitrators, deciding your dispute. In contrast, a judge or a jury may be very unfamiliar with construction problems and disputes, having never struggled with anything more complicated than remodeling a basement. There is also a much greater chance of increased legal fees in the court system due to motion practice, discovery, and the like.
In short, those interested in short-cutting time and costs may favor arbitration, while those interested in preserving all their rights, including a right of appeal, may be more interested in litigation.
One final thought. Some contracts provide that the drafter of the contract gets to determine whether any dispute goes to arbitration or the courts. This is an unfortunate provision for the downstream party because there often will be disputes about whether the upstream party is electing to proceed to arbitration or not, which simply delays the proceedings further. Therefore, that type of optional one-way dispute resolution provision is strongly discouraged.
