Construction arbitration is a less costly and time-consuming alternative to litigation, where an independent third party arbitrator makes a binding decision. Special construction arbitrators are preferred due to their technical knowledge. Parties can choose arbitration through an arbitration clause in the contract and file a statement of demand. The arbitration process is similar to an informal judicial proceeding, and the arbitrator’s decision is binding.
Construction arbitration is a process whereby two parties to a construction agreement choose to settle a dispute in arbitration rather than go through a costly and time-consuming litigation process. Construction arbitration typically involves the disagreeing parties going through an informal process in which they make their arguments to an independent third party — called an “arbitrator” — who issues a decision 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.
Usually, construction contracts will have arbitration clauses which state that if there is a disagreement arising out of the agreement, either party may choose to settle the dispute in arbitration. Arbitration is typically preferred due to its relatively low cost and less time-consuming due to its informal nature. Additionally, construction arbitration is typically resolved by a special branch of arbitration organizations due to the technical nuances that often form 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 provision of the contract, the eligible party shall choose the arbitration organization and file a construction commencement arbitration with that organization. This generally includes filing a general statement of demand and a copy of the arbitration provision within the contract. If the start is accepted, the organization will inform the other party that it is now obliged to respond to the complaint. If no response is filed, the arbitration proceeding proceeds as if the party merely rejected all of the filing party’s claims.
Arbitration is very similar to an informal judicial proceeding. The construction arbitration proceeding generally consists of one or a few informal hearings, depending on the complexity of the matter. The goal is to simply go through all the evidence provided by both sides of the disagreement in a comprehensive but timely manner and make a decision. In general, any arbitration clause in a construction contract requires that the arbitrator’s decision be binding. Therefore, the parties are contractually obliged to follow the judgment that is issued at the conclusion of the construction arbitration hearings.
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