Construction Arbitration vs. Mediation: What’s the Difference?

Construction projects involve numerous moving parts, including contracts, schedules, subcontractors, financial challenges, suppliers, and changing project conditions. Even with careful planning, disputes can arise over payment, delays, defective work, change orders, or contract interpretation. When disagreements occur, resolving them efficiently and without destroying business relationships is often a priority for everyone involved. Two of the most common forms of alternative dispute resolution are mediation and arbitration. While both offer alternatives to traditional litigation, they differ significantly in how disputes are resolved and the outcomes they produce.

Understanding the differences between construction mediation and arbitration is essential for contractors, owners, developers, subcontractors and other project stakeholders to understand how to resolve every type of dispute.

What Is Construction Mediation?

Construction mediation is a voluntary, non-binding process in which a neutral third-party mediator helps the parties negotiate a mutually acceptable resolution. Rather than deciding who is right or wrong, the mediator facilitates productive discussions, encourages compromise, and helps the parties explore potential settlement options. Mediation provides the parties with an opportunity to fashion their own outcome. Selecting a mediator who has relevant subject matter expertise, in addition to extensive mediation experience, is critical. Likewise, appropriate preparation and focus are mandatory in order to maximize the likelihood of a successful mediation.

Although the mediator does not issue a binding decision, when a resolution is reached at mediation the parties execute a binding settlement agreement to memorialize the resolution.

Benefits of Construction Mediation

Binding dispute resolution – whether it be litigation or arbitration – is time consuming, protracted and very expensive. Construction disputes tend to involve large quantities of documents, discovery and witnesses. Construction disputes are well suited for mediation not only because of the opportunity for an expedient and cost-effect resolution, but also because mediation  encourages collaboration instead of confrontation and can be a tool to preserve business relationships.

Typical advantages include:

• Settlement discussions guided by a knowledgeable construction lawyer
• Ability to fashion an acceptable outcome/Greater control over the outcome
• Private and confidential discussions (not admissible in any proceeding)
• Faster resolution than traditional litigation
• Significantly lower costs compared to lengthy arbitration or litigation proceedings
• Opportunities to preserve ongoing business relationships

When both parties are willing to negotiate in good faith, mediation can often resolve disputes efficiently while avoiding the uncertainty of a formal legal proceeding. The mediator can provide a different lens through which the parties can evaluate their positions and also provide meaningful insight as the strengths and weaknesses of the parties’ respective positions.

Common Situations Where Mediation Is Used

Construction mediation is frequently used to resolve disputes before they escalate into more costly legal conflicts.

Common examples include:

• Payment disputes
• Change order or extra work disagreements
• Project delays
• Scope of work conflicts
• Quality of work disputes
• Standard of care claims
• Contract interpretation disputes

Because mediation emphasizes cooperation, it can be especially valuable when the parties expect to continue working together on future projects.

What Is Construction Arbitration?

Construction arbitration is a binding dispute resolution process agreed to contractually by the parties in lieu of litigation. Because of the binding nature of arbitration, parties should give thought and attention to the details of the desired arbitration process when stipulating to arbitration in the contract. For example, the parties should (1) agree on the arbitrator; (2) agree on the applicable rules; (3) agree on whether the rules of evidence will apply; (4) agree on what discovery will be allowed; and (5) agree on the form of award that the arbitrator will issue. Depending on the nature of the project and the parties, arbitration may fit for some disputes but not all. Thus, the parties should also consider and contractually provide for which disputes will be arbitrated and which, if any, will be subject to litigation. Unlike litigation, arbitration awards are subject to very limited grounds for judicial review but carefully crafting the mediation provision of the contract is important.

Benefits of Construction Arbitration

Arbitration provides many of the advantages of litigation while often offering a more streamlined  and thus more expedient and cost-effective process.

Potential benefits include:

• Binding and enforceable decisions
• A structured dispute resolution process
• Greater privacy than court proceedings
• More efficient discovery
• Faster resolution than litigation
• Often lower overall legal costs than litigation
• The opportunity to have disputes decided by arbitrators with construction industry knowledge

For many disputes, especially those involving relatively small dollars, arbitration is the superior binding dispute resolution vehicle for the foregoing reasons.

Why Mediation and Arbitration Both Have a Place in Your Contract

Mediation should be the non-binding dispute resolution process in all of your contracts. Rather than proceeding directly to costly litigation or arbitration, a good faith effort to resolve the dispute is prudent. If mediation is unsuccessful prior to the commencement of binding dispute resolution, do not give up. The parties may not be ready to resolve the dispute until some focused discovery has occurred, or they have realized the costs of binding dispute resolution, or their assessment of potential risks/rewards has matured. Often, mediation is more successful after the litigation or arbitration process has commenced.

When it comes to selecting the most appropriate binding dispute resolution vehicle, parties should not accept boilerplate or just use what they have used on prior projects. Discussion with construction law counsel as part of the contract negotiation process will allow the parties to determine which option – litigation or arbitration – is the most appropriate binding resolution method given the specific anticipated challenges and exposures of the project at hand.

Contact Our Construction Mediation & Arbitration Attorneys

Every construction dispute is unique, and the best resolution process depends on the specific circumstances of the project, the nature of the dispute, and the terms of the governing contract.

For 30 years, our experienced construction lawyers have provided versatile counsel across the entire state of Connecticut. We represent parties in both public and private projects. We have prosecuted or defended virtually every type of claim that can arise on a construction project. In addition, Jeff Donofrio serves as a mediator and arbitrator of construction disputes. We’re standing by to provide support.