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Contracts & Legal

Arbitration

In Plain English

A private process where a neutral third party hears both sides of a dispute and makes a binding decision.

Definition

Arbitration is a private dispute resolution method in which parties present their case to one or more neutral arbitrators who render a binding decision. It is faster and less expensive than litigation and is a common dispute resolution mechanism in AIA and other construction contracts. Arbitration awards are enforceable in court and typically are final with limited appeal rights.

Why It Matters in Bidding

Arbitration clauses in construction contracts shape how disputes over scope, payment, and delay are ultimately resolved, so estimators and GCs should understand the contract's dispute terms before bidding because they affect risk and the cost of pursuing or defending a claim. A binding arbitration provision can speed resolution but limits appeal rights, influencing how much contingency a contractor carries for potential disputes on a given job.

Example

Before submitting, a GC's team notes the contract mandates binding arbitration under the AIA agreement and factors the limited appeal rights into how it prices contract risk and contingency.

Related Terms

Dispute ResolutionMediationClaimAIA Contract

Frequently Asked Questions

The dispute-resolution clause determines how payment, delay, and scope disputes get decided and how costly that process will be. Mandatory binding arbitration limits appeals and can reach a final result faster than litigation. Understanding these terms helps a contractor price contract risk and decide how much contingency to carry before signing.
Arbitration is private and typically faster and less formal than court litigation, with a neutral arbitrator instead of a judge or jury. Awards are generally final with very limited appeal rights. Litigation offers broader discovery and appeal but takes longer and costs more, which is why many construction contracts default to arbitration.
Yes. A binding arbitration award is enforceable in court, meaning a party can have it confirmed and collected like a judgment. Because appeal rights are narrow, the decision usually stands. Contractors should treat the arbitration outcome as essentially final when assessing the financial exposure of a potential dispute on a project.

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