Arbitration May Cost More Than Litigation: Study

How do arbitration costs compare to litigation costs? One corporation crunched the numbers and got back some interesting data.

Arbitration takes more time and money, according to one study by a corporation looking at whether its arbitration program was cheaper than litigation. But how important are those results to a solo attorney or small firm's decision about arbitration versus litigation?

All information is useful if you know how to interpret it. While these findings may not reflect your situation, there are lessons you can learn from them.

The first conclusion drawn from the study is that arbitration on average was more expensive than litigation, according to Inside Counsel. But upon close inspection, the information doesn't truly reflect the cost of either process.

Instead, the study looked at the cost of hiring outside counsel in both arbitration and litigation. For the company surveyed, arbitration on average cost more in outside counsel fees.

That's an interesting conclusion for a company, but for a small firm outside counsel costs usually aren't a factor. There are other numbers to consider.

Costs and fees associated with arbitration and litigation can add up, and it's a good idea to take some time to review which process is most cost-effective.

That's useful information not only for you, but also for your clients. When you advise them about which process will likely cost less, you should have data to back it up.

The other conclusion made about the study is that cases in arbitration take longer to conclude than cases in litigation, at least on average. While the study was based on a small sample of a single company's cases, the findings are interesting and could be relevant to any legal practice.

Time is money, and time spent trying to wrap up a drawn-out case could be more effectively used by getting or working on new cases. Just like you should analyze the costs of different legal processes, analyzing the length of time it takes to resolve a case is also a factor.

Of course, just because one company found that arbitration takes longer doesn't mean your arbitration cases will be the same.

The conclusions may or may not apply to your situation, but the idea of evaluating different strategies is important. By conducting a cost-benefit analysis, the next time you tell clients that a given resolution process is cheaper or faster, you'll know that's true for your practice.

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