Unveiling the Root Causes of Arbitration Failures in Construction Contracts

Arbitration is often employed as the definitive form of Alternative Dispute Resolution (ADR) in construction disputes, largely due to the technical complexity of issues, procedural formalities, and considerations of enforceability. However, recent studies and industry trends have illuminated significant deficiencies in its practical application within the construction sector. This study aims to investigate the root causes of these shortcomings within the context of the Sri Lankan construction industry and to propose recommendations for enhancing current arbitration practices. A comprehensive literature review was conducted to scrutinize the inherent drawbacks of arbitration procedures in construction disputes. This was followed by a quantitative research methodology involving a questionnaire survey administered to thirty professionals with direct involvement in arbitration processes. This approach facilitated the accumulation of industry perceptions regarding overall user satisfaction, identification of the most significant drawbacks encountered by parties, and recommendations for improving construction arbitration procedures. The findings revealed overall satisfaction within the industry toward the arbitration process while also highlighting the presence of certain drawbacks. International arbitration was particularly criticized for high procedural costs and legal fees, whereas domestic arbitration was found inadequate due to procedural delays and administrative inefficiencies. This study identified nine root causes exerting significant influence on these drawbacks. Accordingly, this study brings forth several recommendations as means of improvement for these identified drawbacks, including the conduct of pre-hearing meetings, the incorporation of project-specific arbitration clauses, the involvement of construction industry experts as arbitrators and legal consultants, and the development of local arbitration institutions.