Contract documents

June 17, 2024

Despite the best efforts of all involved, disputes may arise on a construction project. While the result of the dispute may be uncertain, with a dose of foresight, the process to achieve that result can be tailored to best suit the needs of the parties and the project. When a dispute cannot be resolved informally, the parties will need to obtain a binding decision – how this is accomplished will be determined by the contract documents.  

Both AIA A101TM-2017 and the B101TM-2017 empower the parties to decide how a dispute will be resolved in a binding fashion.  If the dispute could not be resolved by mutual agreement, the parties should select whether they wish to proceed to arbitration, litigation, or another option of their own choosing. While arbitration and litigation may appear similar at first, each has different benefits and potential drawbacks. Therefore, it is a decision that should be made in an informed manner. This article will provide a summary of the key differences between arbitration and litigation.  

Litigation is the formal process of resolving disputes through the court system. Parties will be bound by relevant rules of civil procedure, rules of evidence and any local rules. The forum of any lawsuit arising out of the project can be contracted-for, but the judge assignment will be the court’s decision. Parties will incur filing costs, fees for service of process, and more.  Unlike arbitration, a decision through the court system will be based on existing legal decisions, – called “precedent” – and can create new legal precedent. In the event of noncompliance, an application can be made to the same court to compel compliance as necessary. 

Arbitration requires the parties to agree on a neutral third-party arbitrator, either an individual or panel of decision-makers. This process is less formal than litigating in the court system and allows the parties and arbitrators to tailor the process to best serve the needs of stakeholders. The form AIA A201TM-2017 will refer the parties to the American Arbitration Association Construction Industry Arbitration Rules.   The selection of the arbitrator is a key step in this process; rather than receiving the judge appointed to the case, the parties are empowered to select their arbitrators which may allow them to select those with subject-matter experience. Generally, arbitration is viewed as a more efficient approach to achieve a binding resolution in terms of both cost and time. If a party does not comply with the arbitrator’s decision, it will have little choice but to turn to the court system anyway.  

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.