There has been a perception among some litigators that arbitration is more expensive than court due to several factors. Among them:
- The “upfront” costs are higher in that filing fees for arbitration exceed those in court. Arbitrators are paid, whether hourly or a flat rate, and the three arbitration panels can become very expensive.
- Some arbitration clauses preserve statutory discovery rights, basically defeating the advantage of a simplified arbitration process. Discovery wars are extremely expensive. Depositions are the most costly of discovery, and in arbitration, as opposed to court, depositions are limited or do not exist.
- Some arbitration clauses integrate the statutory rules of civil procedure, making arbitration almost equivalent to litigation. These types of clauses do the parties no favors.
These notions are all dispelled in a recent American Arbitration Association (AAA) study comparing the length of time in court, based on published federal court statistics, to the length of time in arbitration, based on data from the AAA. The study demonstrates that federal courts take much longer to resolve cases by trial and appeal than arbitration by AAA. The full report can be found here. The executive summary provides the following synopsis:
- On average, US District Court cases take more than twelve months longer to get to trial than cases adjudicated by arbitration (24.2 months vs. 11.6 months).
- US District Court and Circuit Court cases required at 21 months longer than arbitrations to resolve when the case went through appeal (33.6. months vs. 11.6 months).
- The direct costs associated with additional time to trial required for District Court cases as compared with AAA arbitration were approximately $10.9-$13.6 billion between 2011 and 2015, or more than $180 million per month.
- Direct minimum losses associated with additional time through appeal required for District and Circuit court cases as compared to AAA arbitration were approximately $20.0-$22.9 billion over the same period, or more than $330 million per month.
- Comparing the length of time from filing of the claim (the filing of the complaint to the award/beginning of trial) shows that it takes considerably longer in court, especially in jurisdictions with the largest caseloads, such as California and New York.
While with all statistics we may want to quibble with some of the assumptions, the bottom line message is clear: Court proceedings take a lot longer than arbitrations in the U.S., as well as in many non-U.S. jurisdictions, which the study does not review. There is considerable cost associated with the delays in resolving disputes. This study should lay to rest the surmise that arbitration is more expensive than litigation. Construction contractors want expeditious decisions at a reasonable price. Arbitration appears to fulfill that requirement.