One of the most common contracts used in construction and various energy industries is the arbitration clause. Many who specialize in construction law, when faced with a choice between the two, insist on arbitration despite its pitfalls. A bench trial is also a great and viable alternative to arbitration. Let’s talk about the two.
What is Arbitration?
Arbitration is a binding form of dispute where an arbitrator or judge hears evidence and renders a decision based on his/her knowledge of the facts presented. More times than not, the construction industry has favored arbitration over litigation as the go-to choice of binding a disputed resolution. Why? Well, both parties can select from a panel of arbitrators who are knowledgeable of the construction industry.
What is a Bench Trial?
A bench trial is decided by a judge rather than a jury. Both parties agree to a bench trial in a contract by agreeing to waive their rights to a trial by jury should it come to that situation. When a construction contract is being put together, there are important factors to consider when deciding between the arbitration clause and a jury waiver, such as the following:
- Expense – Compared to a bench trial, arbitrations are costly. Fees for arbitrations are associated with filing, arbitral administration organization fees, court reporter fees and paying the arbitrator. The filing fee for a lawsuit on the other hand is nominal, and the court reporter and judge are usually not paid personally by the person(s) filing said lawsuit.
- Appeals – The grounds to vacate an arbitration award are very tricky and usually a no-go option since the courts seldom vacate arbitration awards. This ends up being the biggest disadvantage. When deciding on arbitration, keep in mind that it is very difficult to reverse the award. You’ll be placing your fate in the hands of an arbitrator, which usually comes with risky outcomes. Appellate courts have broader powers of review compared to trial courts and usually reverse them for many reasons.
- Confidentiality – Arbitration is a private proceeding that is closed to the public, unlike a bench trial. Also, the documents in the arbitration can be kept confidential after they are subjected to the parties’ agreements and the arbitrator’s rules. While a trial is public, you can still protect your parties’ documents and information by entering a protective order and requiring confidential documents to be filed under seal.
- Judge – If you decide on arbitration, both parties can pick the arbitrator but cannot decide who the judge will be. This is an advantage as it allows both parties to pick and choose a fact finder that will be fair to them both. It also allows parties to choose someone with relevant experience on the subject matter of the dispute. This is really important since picking someone that is knowledgeable can reduce the risk of making a decision on a key issue. Understanding a specialized area of the law is important so that decision-making is fair and transparent.
- Enforceability – In many countries, arbitration is more likely to be enforced by a judge in a court. If you do happen to be contracting with a foreign entity with property overseas, but none in the United States, then you might want to include arbitration in your construction contract since, in a lawsuit, it is more likely to be enforced.
Fryer & Hansen Can Help You Decide
Arbitrations will always have certain benefits to consider. They offer the freedom to select the fact finder, allow privacy and will usually be enforced overseas should it come to that. Visit or call our construction law attorneys to help you decide which route to take when formulating your contracts.