When construction disagreements arise, not every conflict can be resolved through informal negotiation or dispute avoidance measures. In the construction industry, alternative dispute resolution (ADR) methods like arbitration and mediation can play a critical role in resolving disputes involving industrial, civil, commercial, and real estate projects. In this article, we’ll explore how construction arbitration and mediation work, key differences between the two approaches, and how arbitration clauses fit into construction contracts.
What is Construction Arbitration?
Arbitration is a process commonly used for resolving business disputes in which parties present their case to a neutral third party, the arbitrator, who issues a binding award. Arbitration is an alternative to litigation and is often less time consuming, less costly, and more efficient than bringing a case to court. At the American Arbitration Association® (AAA®), large-dollar construction cases involving claims of $1 million or more that closed in 2025 had a median time to award of 19.9 months, compared with a median time to trial of 34.1 months for U.S. District Court civil cases.
Construction arbitration is commonly used to resolve disputes involving project delays, payment or performance issues, scope of work disagreements, and other conflicts. It provides a structured, private process for parties to present their claims, defenses, and evidence, with the arbitrator’s decision typically serving as the final resolution.
How Arbitration Clauses Work in Construction Contracts
Many businesses include arbitration clauses in their construction contracts to provide a framework for dealing with disputes. The arbitration clause may be a single paragraph or a detailed multi-step clause that describes the applicable rules and procedures. Arbitration clauses are typically negotiated between construction parties before the contract is finalized. However, not every construction dispute that goes to arbitration is based on a contractual arbitration clause. Instead, some parties to a dispute may agree to arbitrate after the dispute arises, even if there is no corresponding clause in their contract.
The AAA is named as a dispute resolution forum in many standard industry form construction contracts, including those from the AIA Contract Documents and ConsensusDocs. Businesses can also use the AAA’s ClauseBuilder® or ClauseBuilder AI to easily draft customizable clauses for their construction contract.
How Does Arbitration in the Construction Industry Work?
Initial Filing
Construction arbitration begins when a claimant files with the AAA a Demand for Arbitration or other required claim filing, a copy of the applicable arbitration agreement or provision naming the AAA, and the required filing fee. The agreement may specify that the AAA Construction Industry Arbitration Rules or Home Construction Arbitration Rules apply. If the parties did not previously agree to arbitrate, they may instead submit an agreement to have the dispute resolved by arbitration through the AAA.
Once the filing requirements are satisfied and the case is ready to move forward, the AAA assigns a case manager to administer the matter and guide the case through the applicable procedural steps.
Arbitrator Selection
After the case manager has been assigned to a case, the arbitrator selection process begins. The method for selecting an arbitrator may be specified in the parties’ construction contract or may follow the applicable arbitration rules. Under the AAA Construction Industry Arbitration Rules, the selection process can involve the AAA providing the parties with a list of qualified arbitrator candidates, and the parties will select the arbitrator from this list in accordance with the applicable rules.
The selection process gives the parties an opportunity to consider arbitrators whose experience and background are appropriate for the construction issues involved in the dispute. Once an arbitrator is appointed, the case proceeds to the next stages of the arbitration process.
Preliminary Hearing and Discovery
Once the arbitrator or arbitrators are appointed to the case, they hold a preliminary hearing to establish the framework and schedule for the proceedings. The parties generally exchange information, such as documents, hearing exhibits, and witness lists. The AAA has established frameworks and guidance to streamline discovery procedures, including support for managing and safeguarding large volumes of electronic documents. Compared to litigation, discovery and document exchange in arbitration is usually narrower and more tailored to the needs of the case.
Hearing and Award
The arbitration hearing may take place in person, virtually, or in a hybrid format. During the hearing, the parties present evidence, witness testimony, and arguments, often with the help of legal counsel. The AAA also offers hearing support services through Optima Juris, including virtual and hybrid hearing support and electronic presentation of evidence.
After reviewing the claims, defenses, arguments, and evidence, the arbitrator issues a final award stating the decision on the matters submitted. Depending on the applicable rules and circumstances, the award may also include a brief explanation of the decision. The award is generally legally binding and may be entered and enforced in a court with jurisdiction.
Settlement Options
In many arbitration cases, the parties decide to resolve their dispute through settlement, which can happen at any time during the arbitration process. According to AAA data, 42% of construction cases closed in 2025 that settled did so before any arbitrator compensation was incurred.
Arbitration Procedures for Simple Construction Disputes
Construction arbitration cases may follow distinct procedures depending on the case’s size and complexity. The AAA has expedited procedures for lower-dollar-value claims. Fast track procedures — for claims under $150k — may allow for documents-only proceedings or other efficient, simplified processes to help the case resolve more quickly.
In 2025, the AAA launched the AI Arbitrator for use in eligible two-party, documents-only construction cases. Using AI technology, this innovative tool provides parties with a faster, more cost-effective way to resolve disputes. When used for these simple construction cases, the AI Arbitrator can lead to cost savings of 35% or greater and case resolution up to 25% faster. Although it is powered by AI, human oversight is still present at every step in the process, and a human arbitrator issues the award.
Arbitration Procedures for Large and Complex Construction Disputes
Administering organizations often have procedures for large, complex cases with higher-dollar-value claims or multi-party disputes. At the AAA, the Construction Industry Arbitration Rules provide a framework for handling large-dollar claims and complex technical issues. The AAA’s Procedures for Large, Complex Construction Disputes apply to disputes with claims or counterclaims of $1 million or more.
What is Construction Mediation?
Mediation is a voluntary, collaborative process in which a neutral third party, the mediator, helps guide parties to a mutually agreeable resolution. When businesses in the construction industry are unable to resolve their conflict through informal negotiation, mediation is often the next step.
Mediation differs from arbitration and litigation in that the mediator does not impose a binding decision on the parties. Instead, the parties retain control over how the dispute will be resolved. The mediator’s role is to provide structure, facilitate communication, and support all parties throughout the mediation process. As mediation is well-suited to exploring flexible, creative solutions for complex projects, mediation provisions are a common feature of many construction contracts.
How Does Construction Mediation Work?
Initial Steps and Mediator Selection
Mediation may be initiated under a construction contract that includes a mediation provision or by agreement of the parties after a dispute arises, even if no contractual provision exists. The parties may agree on a mediator or use the mediator selection method specified in the mediation provision or applicable rules. Once appointed, the mediator or administering organization will schedule and coordinate the mediation session. Although formal evidence isn’t needed, parties may exchange documents or provide the mediator with any relevant information before the mediation session.
The Mediation Process
Mediation generally begins with an opening discussion in which both sides present their view of the dispute. The mediator then works with all parties to clarify the issues and better understand the concerns underlying the dispute. In the final stages, the mediator helps the parties negotiate a potential solution and identify areas of agreement.
Settlement or Next Steps
By the end of the mediation session(s), the parties may reach an agreement and sign a written settlement. If the parties do not fully resolve their dispute through mediation, one or more parties may decide to proceed with arbitration (if there is an arbitration agreement) or litigation. Even if the parties do not reach a full settlement in mediation, they often walk away with a better understanding of their dispute and a clearer sense of the next steps.
Arbitration vs Mediation: Key Differences for Construction Disputes
Mediation is viewed as a collaborative way to resolve disputes, and it can lead to faster resolution and help preserve relationships. Mediation also allows parties to retain control over the dispute’s outcome and offers an opportunity for parties to explore creative solutions. Construction mediation may be a suitable option if the parties believe they can reach a resolution through discussion and compromise.
Arbitration, in contrast, provides a more formal and final method of resolution. If one or more parties are unable or unwilling to reach a negotiated resolution and prefer to have a neutral third-party decide their dispute, arbitration may be the best option. If the dispute involves many stakeholders or requires in-depth document review or discovery, the efficient and flexible framework arbitration offers can be useful. With both ADR methods, parties can generally avoid the additional time and expense that comes with court litigation.
In practice, mediation and arbitration sometimes overlap and can work in tandem. Even if the arbitration process is already underway, the parties can typically voluntarily agree to initiate mediation at any point before the final award is issued. Some contract clauses also require the parties to attempt mediation before arbitration proceedings begin.
Choosing the Right Path for Your Construction Dispute
Arbitration and mediation can be useful tools for businesses involved in construction projects to resolve conflicts efficiently, helping them get back on track, limit project delays, and maintain ongoing relationships. When exploring dispute resolution options, parties should consider which process best supports their goals and the practical needs of the dispute and negotiate and incorporate an ADR provision into their construction contract.
The AAA can help parties navigate the dispute resolution process and find an approach that fits their situation. The AAA offers a reliable framework for handling construction disputes, with established rules, experienced neutrals, and streamlined discovery procedures that help parties work toward a fair and efficient resolution. With this support, parties can navigate disputes more effectively and move forward with greater certainty.
A Robust Panel of Qualified Neutrals
The AAA Construction Panel has more than 1,000 accomplished arbitrators and mediators, including construction attorneys, engineers, architects, and other construction industry professionals, as well as former federal and state judges. These professionals are prepared to handle disputes arising from major infrastructure projects, advanced manufacturing hubs, heavy industrial and energy facilities, and other significant construction and real estate development projects. If you’re interested in learning more about our panel and our specialized rules tailored to the construction industry, visit our dedicated construction ADR page: