Arbitration v. Litigation: A Snapshot of the Differences

Deciding whether to utilize a mandatory arbitration clause in a contract is important, especially in the construction industry, where most contracts in fact contain mandatory arbitration provisions. Advantages and disadvantages of litigation versus arbitration should be carefully weighed before entering into a contract or subcontract. Here are some factors to consider:

  • Time. Arbitration frequently results in a quicker decision than taking the matter to trial, largely due to the absence of extensive pretrial discovery.
  • Cost. Arbitration tends to be less costly than litigation, most often because of the limited discovery process, but also because there are fewer hearings and where hearings are conducted, they are generally done over the telephone. However, keep in mind that a filing fee with the American Arbitration Association is determined by the amount of damages being sought by the claimant. The filing fee could be easily 10X or higher than a court filing fee.
  • Confidentiality. Litigation is a matter of public record easily searchable via the internet for many court filings. Arbitration on the other hand is a private proceeding, and thus more likely to ensure confidentiality.
  • The Decision Maker. An experienced arbiter or panel with expertise in the subject area can greatly streamline the process and bring credibility to the decision.
  • Appeal. Litigants can appeal disputed results, while an arbitrator's decision is generally not subject to appeal. If finality is a priority, arbitration is likely the better option. Litigation is preferable if you want to maintain the option to correct decision mistakes through appeal.