While all litigation is costly, arbitration offers the prospect of a quicker and less expensive method of dispute resolution. It is often quicker because (1) there are fewer opportunities for discovery and pretrial maneuvering which often bogs down court actions in a series of endless legal skirmishes (2) it is easier to get before a panel of arbitrators than a judge and jury and (3) there is less likelihood of an appeal. Arbitration may also be cheaper because less legal time is wasted on inconclusive pretrial maneuvers and on post trial appeals. However, the savings in legal fees may be offset at least in part by arbitration costs such as arbitrator fees and administrative costs which can be expensive depending on the number of hearings and the size of the claims. But arbitration is not a matter of right as is the initiation of a court action. Instead, it is a matter of agreement. Arbitration of disputes is not available unless the parties agree to submit their disputes to arbitration. There are essentially two forms of agreement. The first is where the contract contains an explicit arbitration provision. The second is where the contract contains no arbitration provision but it incorporates other documents by reference, such as general conditions, which include an agreement to arbitrate. By court decision, an arbitration agreement incorporated by reference is just as binding as one stated in the contract.
Where there is an agreement, either side may compel arbitration; but both sides may also waive arbitration by ignoring it and litigating in court.
Arbitration is initiated by a demand describing the dispute and the relief sought. The responding party may answer and file a counterclaim. Arbitrators are then selected and hearing dates assigned. Arbitrations are conducted by either one arbitrator or a panel of three, depending on the amount claimed. The arbitrators are empowered to schedule hearings, set the ground rules, and hear the parties’ proofs. The technical rules of evidence observed in court proceedings are not binding in arbitration, resulting in less formal hearings and the possibility of getting to the heart of contested issues quicker. Following the close of hearings, arbitrators are normally required to make their award within thirty days. That award is almost always just a statement of which party must pay, and how much.
To enforce an award, the winning party must file it in court and seek judicial confirmation. Except when an award is tainted by fraud or grants relief beyond the powers given the arbitrators in the contract, arbitration awards are almost always confirmed. Few appeals are taken because a judgment based on an arbitration award is afforded a degree of finality much greater than a judgment resulting from a trial in court.
An arbitration award usually cannot be overturned on appeal even where it is apparent the arbitrator has made legal error.
Arbitration has its attractions, but also its drawbacks. Weak or disinterested arbitrators have the power to frustrate quick and efficient dispute resolution by allowing hearings to be postponed and to drag on interminably. The finality of arbitration awards serves the interest of speed and efficiency but at times sacrifices justice where arbitrators make an award based on clear legal error which the court will not correct. And subcontractors having bond rights on public contracts, which includes the right to legal fees incurred during trial in court, have no right to legal fees incurred in arbitration proceedings.