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Arbitration vs. Litigation for Contractors

arbitration vs litigation for contractors

The contracting field is rewarding, but it has its challenges like everything. You might encounter customers who complain about services and, in extreme cases, refuse to pay. When faced with one of these situations, there are two main legal routes to take — arbitration vs. litigation. Which is the better choice for contractors?

What Is Litigation?

Litigation is a formal legal process between the defendant and plaintiff where a dispute is resolved. It follows civil procedure, meaning there are specific rules and structures to follow for every step of the process. Typically, you must attain a contractor's license in California or the state you're in to file a litigation claim, but there are exceptions. Litigation processes are generally lengthy and expensive because the second stage involves obtaining testimonies. 

Unfortunately, litigation is now overrun by frivolous cases. An expensive discovery process costs defendants and plaintiffs years and thousands of dollars to resolve. According to the U.S. Chamber of Commerce Institute for Legal Reform, frivolous litigation cases disproportionately impact the legal system because they use up significant amounts of legal resources.  

The uncertainty of litigation can stress the parties involved and the court system becomes burdened with resolving legal disputes that could otherwise be handled outside of the court. 

What Is Arbitration?

what is arbitration?

The alternative to litigation is arbitration, but what is an arbitration clause? It's also a form of dispute resolution, but it's not as lengthy or expensive as a full-blown courtroom battle. An impartial third party, known as the arbitrator, works with the two parties to reach a resolution that works. 

At its core, arbitration is a lawsuit without court involvement. Both parties agree beforehand to process their dispute through arbitration rather than filing a lawsuit in court, giving the arbitrator the power to reach a legally binding decision. If you're a business owner, it's advisable to become a member of an arbitration program to prevent the stress from the costs and time involved in potential litigation lawsuits. 

What Are the Differences Between Litigation and Arbitration for Contractors?

Whether you're an independent contractor or self-employed, knowing the difference between arbitration vs. litigation for contractors is important so you can make an informed decision.  


Since arbitration has a more streamlined process and fewer formalities involved, it's typically not as expensive. Litigation fees can escalate quickly with lengthy discovery proceedings, attorney fees and use of court resources. When you compare arbitration vs. litigation for contractors, arbitration is almost always the more affordable option. 


Litigation cases are processed in the courtroom, so they can take a few months to start, as the parties need to wait until availability. With arbitration, the parties must decide on an arbitrator to start the process. 

In the construction field, project delivery is often on a tight schedule, and lengthy discovery processes can reduce necessary work hours and interfere with the project process, which could affect a company's finances. Litigation can easily become a prolonged legal battle, creating added costs and time constraints. 


During litigation, the attorney collects evidence, conducts interviews and issues subpoenas, which can be quite extensive. With arbitration, the parties involved must satisfy what's known as the "burden or proof." The arbitrator determines when the evidence is admissible and the parties gather evidence such as invoices, party correspondence or digital pieces. Evidence is exchanged between both parties and the arbitrator gets a copy as well. 

Appeals Process

Litigation is a courtroom process, so the losing party can appeal the court's decision if they choose to. With arbitration, the decision is final, which prevents further lengthy appeals and saves time in the long run. 

Expertise and Experience

One of the major benefits of arbitration is that parties can choose an arbitrator with knowledge of construction fields to improve efficiency and speed. An arbitrator with knowledge of the nuances of construction will be able to deliver a better-informed decision and make accurate determinations of the technical areas in the field. With litigation, parties typically hire an attorney and the court makes the final decision. 

Confidentiality and Privacy

Arbitration is typically a private proceeding where only the parties involved and the arbitrator are present. Litigations are held in a courtroom, where they are considered public proceedings.

The matter of confidentiality and privacy depends largely on the type of company involved. For instance, arbitration for moving companies might be a better option than litigation since there may be private topics that can't be addressed in a courtroom.  

Flexibility and Customizations

In the matter of litigation vs. arbitration for contractors, arbitrations definitely offer more flexibility and customizations. Litigations follow formal legal procedures held based on court availability, not yours. Whereas arbitrations can be decided around the party's availability. Those involved can customize the language, rules and location of the proceedings. They also choose the arbitrator and agree on procedural timelines that suit their availability. 

Fairness and Impartiality

While both arbitrators and judges are sworn into being impartial and fair, judges may not have the specific experience required to understand the construction field. With arbitration, parties have the opportunity to select an arbitrator who is knowledgeable on laws for contractors and has a profound background on the nuances that contractors face. 

Parties can select an arbitrator with no preexisting biases and a foundation in their area of work, allowing the arbitrator to make an informed, unbiased decision. 

What Are the Disadvantages of Arbitration?

Arbitration may be better for contractors, but litigation also has an important place in the law, especially when dealing with more complex, high-profile cases. Here are some of the disadvantages to consider with arbitrations: 

  • There isn't an appeal process, so the losing party might not be pleased with the results. 
  • If witness information is presented, the witness can't be cross-examined. 
  • The discovery process is limited. 

Partnering with the Business Consumer Alliance (BCA) offers you ongoing support for any legal hurdles you may face as a small business. It also saves you the time, money and effort of having to locate an arbitrator for every legal problem. 

Benefits of Having a Third-Party Arbitrator on Standby

The reality of working in the construction industry is many projects end in legal disputes, whether it's managing unpaid invoices from clients or dealing with unsatisfied customers. Having a third-party arbitrator on standby can save you a lot of money and time. Most small businesses don't have a human resources or legal department and hiring these services only when needed can end up costing you more in the long run. 

Having a third-party arbitrator on standby means you'll always know where to go when you're dealing with any other legal issue. This arbitrator will also help you develop an understanding of your unique business propositions and field of work. 

Get a BCA Membership Today

private arbitration services

BCA offers private arbitration services to our California members, and most cases are cleared within 90 days. Our members get personal attention from our private network of attorneys and we offer independent business ratings. With over 25 years of experience serving small businesses, we can't wait to partner with you and relieve your legal stresses — become a BCA member today

About Business Consumer Alliance Business Consumer Alliance (BCA) is a non-profit company that started in 1928. The broad purpose of BCA is to promote business self-regulation. BCA's mission is achieved by assisting consumers in resolving complaints with businesses and using that complaint information, along with other relevant information such as customer reviews, to forecast business reliability. With community support, BCA can identify trustworthy and ethical businesses and warn the public to avoid unscrupulous businesses whose purpose is to defraud the marketplace. BCA also helps businesses promote themselves by providing services and tools to protect their business and reach out to their customers. BCA obtains its funding from member businesses who support the mission and purpose of the organization and who agree to abide by high standards of ethical business practices.