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An expert panel assesses the cost of arbitrating and litigating a hypothetical two-party construction dispute.
The key question everyone asks about arbitration is whether it is cheaper than litigation. The problem with answering this question is that rarely does one have the opportunity to arbitrate and litigate the same case. It is only possible under a statutory scheme providing for non-binding arbitration and allows a dissatisfied party in arbitration to seek a trial de novo.1 The only other basis of comparison is the rare instance in which a lawyer has the opportunity to arbitrate and litigate two similar cases.2
For this article, we asked three experienced construction litigators and arbitrators from different parts of the country-Joseph F. Canterbury, Jr., of Dallas; Christi L. Underwood of Orlando, Florida; and Howard D. Venzie Jr. of Philadelphia3-to estimate the claimant's cost of arbitrating or litigating in state court4 a hypothetical two-party construction dispute5 in order to see how they compare.
Wanting more than a cursory "bottom line" estimate, we asked our experts to first opine on how the case would be staffed by counsel and to set the attorney fee rate.
Then we asked them to identify the varied representational activities they typically see at each stage of construction arbitration and litigation, and then estimate the hours required to perform them. (We are not suggesting this is the "ideal" arbitration or litigation.) We asked them not to artificially increase the cost of litigation by adding litigation activities (e.g., a motion to join third parties).
Our experts determined that this hypothetical would likely be staffed by a mid-level partner, an associate and a paralegal. The hypothetical rates charged for their services are $300, $200 and $100 per hour, respectively.
We calculated the arbitrator's compensation using a $2,200 per diem rate, and the mediator's compensation using a $310 hourly rate. These rates represent an average of the rates charged by AAA arbitrators and mediators from different parts of the country.
Table 1, which represents the costs of the hypothetical arbitration, shows a total outlay for the owner of $94,500, while the costs of litigation, shown in Table 2, are 27% higher at $120,300. We show the estimated costs of the owner's outlay for mediation in Table 3 at...