Understanding the Challenges of Arbitration
Arbitration is often considered a streamlined, efficient alternative to litigation. It offers confidentiality, procedural flexibility, and the potential for faster resolutions—qualities that make it particularly attractive to those looking for an expedient and cost-effective way to resolve a challenging dispute.
But even arbitration isn’t without its challenges. As a California-based arbitrator with deep experience in construction matters, I’ve seen firsthand how avoidable pitfalls can derail what should be a more efficient process. Whether you’re a contractor, subcontractor, materials supplier, design professional, or project owner, understanding these hurdles—and how to avoid them—is critical.
Common Challenges Parties Face in Arbitration
- Vague or Poorly Drafted Arbitration Clauses
Many disputes become more complex due to imprecise arbitration provisions. When the clause doesn’t clearly specify governing rules (e.g., AAA Construction Industry Rules), venue, or number of arbitrators, parties may be forced to initiate litigation to obtain an order directing the case to a specific arbitration provider, and/or find themselves needing to have an initial arbitrator determining procedural issues before the arbitrator deciding the case is formally assigned. Either way, it can be painful to spend time and money resolving procedural issues before ever addressing the merits. - Arbitrator Selection That Lacks Industry Insight
Construction disputes often involve complex technical issues. Appointing an arbitrator who lacks relevant industry knowledge can lead to misunderstandings, missed nuances, and ultimately, decisions that don’t reflect the realities of construction projects. - Limited Discovery and Evidence Challenges
Arbitration generally offers narrower discovery than court proceedings, which can be efficient—but it also requires focused preparation. In construction disputes, where documentation like change orders, RFIs, or project schedules can be extensive, parties need to plan early to avoid discovery bottlenecks. Additionally, although the courts have extensive rules related to the presentation of evidence, arbitration tends to provide a more flexible framework for evidence to be presented. - Cost Considerations
While arbitration is often more cost-effective than litigation, the incurred cost per party can be impacted by the number of parties in the case, contract terms specifying how fees will be allocated, and contract terms pertaining to factors such as discovery, third party discovery, and the submission of motions in advance of the evidentiary hearing (equivalent to a trial in the courts). However, even with these costs in mind, the hope is that the overall streamlining provided in arbitration will reduce the costs of litigation from what they would have been if the case were to proceed in the courts.
Practical Strategies to Avoid Arbitration Pitfalls
- Draft Strong, Clear Arbitration Clauses
Be specific. Define the applicable rules (e.g., AAA Construction Rules), venue (almost always, the county where the project is located, since related matters like mechanic’s liens, and issues related to the enforcement may need to be connected with a court in the same county) the number of arbitrators, how the arbitrator(s) will be selected (pursuant to the provider’s rules or some specific selection procedure), and governing law (typically, the law of the state where the project is located). For construction contracts, clarity prevents confusion and helps both the parties and the arbitrator hit the ground running. - Choose an Arbitrator with Construction Experience
Select an arbitrator who understands the terminology, common construction processes and procedures, the standards to which the parties will be held, as well as key factors such as allocation of risk for different potential liabilities. This ensures your dispute is evaluated through the right lens—whether it’s a defect claim, loss of use claim, changes in scope, time, and/or price, or payment disputes.
Final Thoughts: Smart Preparation Prevents Arbitration Pitfalls
Arbitration offers real advantages—especially in the construction industry—but only if approached with strategy and clarity. The most common challenges can be avoided with thoughtful contract drafting, appropriate arbitrator selection, and early planning.
Key Takeaways
- Draft precise arbitration clauses that define rules, venue, and governing law.
- Select an arbitrator with industry-specific knowledge.
- Understand the costs of arbitration, and how it may be impacted by the participation of additional parties, as well as the requests the parties make as to the scope of discovery, and motions determined in advance of the evidentiary hearing.
The Right Stuff
Jason Turner is a neutral with over two decades of construction litigation experience, who understands the importance of taking a reasonable approach to construction disputes, regardless of whether the parties involved are a general contractor, subcontractor, materials supplier, project owner, or a design professional.