Originally from: AAA Handbook on Construction Arbitration and ADR - 2nd Edition

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Every construction company owner has heard horror stories about pursuing project-related claims in court cases that last for years, sapping much-needed cash from projects. When subcontractors are able to specify alternative dispute resolution (ADR) procedures, subcontractors may be able to avoid some of the expense and other downsides of litigation. Not all ADR procedures are appropriate for all subcontractors, however. When evaluating dispute resolution options, subcontractors need to pay special attention to subcontract agreements.

Common ADR procedures include American Arbitration Association (AAA) arbitration and mediation procedures, as well as contractually specified procedures such as submission of disputes for review by dispute review boards, senior executives, project engineers, architects, or construction managers. A white paper published by the American Subcontractors Association (ASA) entitled “Dispute Resolution: The Procedure” explains some of the advantages of ADR and examines what kinds of contract provisions are appropriate when ADR procedures will be used to resolve subcontractor claims.

One of the biggest potential advantages of ADR is that it can reduce time-consuming and expensive procedures associated with litigation. For example, in litigation of claims, subcontractors pay a substantial sum for collection of evidence and preparation of legal arguments even before the trial begins. The ASA’s white paper explains that the AAA rules for mediation encourage “a realistic assessment of the likelihood of ultimate success before extensive discovery and trial preparation have begun” and focus on getting the parties to present the merits of their arguments. If the dispute is not settled in mediation and moves to arbitration, the AAA "Construction Industry Arbitration Rules" disfavor expensive and time-consuming forms of discovery. In addition, the Federal Arbitration Act virtually guarantees that there will be no lengthy and costly appeals process once the arbitration is complete.