How Construction Disputes Are Resolved in Illinois: Negotiation, Mediation, Arbitration, and Litigation

Construction disputes in Illinois rarely come out of nowhere. They build. A subcontractor submits a pay application and does not hear back. A change order gets approved verbally but never makes it into writing. An owner notices defective work and withholds payment. A general contractor falls behind schedule and the finger-pointing starts.

By the time the parties realize they have a real problem, the project may be stalled, payments may be frozen, and relationships may be beyond repair. At that point, the question becomes: how do we resolve this?

Illinois construction disputes generally follow one of four paths - direct negotiation, mediation, arbitration, or litigation. Each has a different purpose, and the right choice depends on the nature of the dispute, the relationship between the parties, and what your contract says.

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Check Your Contract First

Before doing anything else, read your contract. Most construction contracts include a dispute resolution clause that specifies how disagreements must be handled. Some require mediation before either party can file a lawsuit. Others mandate binding arbitration, meaning you have agreed to stay out of court entirely. Some include step clauses that require negotiation first, then mediation, then arbitration or litigation if the earlier steps fail.

If your contract includes a mandatory dispute resolution provision, you generally have to follow it. Under the Illinois Uniform Arbitration Act (710 ILCS 5), written arbitration agreements are valid, irrevocable, and enforceable. Filing a lawsuit when your contract requires arbitration can result in your case being dismissed - and you will have wasted time and money getting there. So the first step in any construction dispute is understanding what you have already agreed to.

Standard industry contracts, including AIA and ConsensusDocs forms, typically include mandatory dispute resolution provisions. If you signed one of these forms, you may already be bound to a specific process whether you realized it at the time or not.

If your contract does not address dispute resolution, or if there is no written contract at all, you have more flexibility to choose the path that makes the most sense for your situation.

Direct Negotiation

Most construction disputes start - and many end - with a direct conversation between the parties. A phone call, a meeting on the jobsite, or a letter from an attorney outlining the issue and proposing a resolution.

When negotiation is the right choice: Both parties have a working relationship worth preserving. The dispute involves a specific issue like a payment shortfall or a change order disagreement. The amounts involved do not justify the cost of a formal process. Many payment disputes, scheduling disagreements, and scope clarifications are resolved through direct negotiation without ever escalating further.

The risk with negotiation is that it only works when both sides are willing to engage. If one party stops responding, delays indefinitely, or negotiates in bad faith, you can spend weeks or months going back and forth with nothing to show for it - all while your deadlines for filing a lien or initiating a formal claim continue to run.

Mediation

Mediation brings in a neutral third party - the mediator - to help the parties reach a voluntary agreement. The mediator does not decide the case. They facilitate the conversation, help identify common ground, and push both sides toward a resolution.

When mediation is the right choice: The parties are willing to settle but cannot get there on their own. Emotions are running high and a neutral voice helps. The dispute involves multiple issues and the parties need help prioritizing what matters most. Both sides want to preserve the relationship - construction is a relationship business, and parties who will work together on future projects often prefer mediation over more adversarial options.

Mediation is confidential, less formal than arbitration or litigation, and gives the parties control over the outcome. The limitation is that it is non-binding. If one side will not agree to a resolution, you leave without a decision and have to pursue another path. But in practice, mediation resolves a high percentage of the disputes that make it to the table. Organizations like the American Arbitration Association (AAA) maintain rosters of construction mediators with industry-specific experience.

For more on how mediation works in the construction context, visit our Construction Mediation page.

Arbitration

Arbitration is more formal than mediation and produces a binding result. The parties present their case to an arbitrator (or a panel of arbitrators), who hears evidence, reviews documents, and issues a decision called an award. That award is enforceable in court, and in most cases, it is final - there is very limited ability to appeal.

When arbitration is the right choice: The dispute involves technical construction issues that benefit from an arbitrator with industry experience. The parties want a faster resolution than court litigation typically provides. Confidentiality matters - arbitration proceedings are private, unlike court cases which become part of the public record. Or the contract mandates it, as many standard industry forms do.

The tradeoff is that arbitration limits your options. Discovery is more restricted than in court, meaning you may have less ability to compel the other side to produce documents or sit for depositions. And because the right to appeal is extremely narrow under Illinois law, you are largely bound by the arbitrator's decision even if you disagree with it.

For more on how arbitration works in construction disputes, visit our Construction Arbitration page.

Litigation

Litigation means filing a lawsuit and having the dispute resolved through the court system. It is the most formal option, the most expensive, and typically the slowest. But sometimes it is the right one - or the only one available.

When litigation is the right choice: The dispute involves significant money and you need the full discovery process to build your case. You need to file an emergency motion - for example, to stop work, compel access to a site, or prevent the dissipation of funds. The other side is not participating in good faith in alternative dispute resolution. Or no contract clause requires mediation or arbitration.

Court litigation also offers something the other options do not: a right to appeal. If a judge or jury gets it wrong, you have a meaningful path to challenge the decision. In arbitration, that path is essentially closed.

The downside is time. Construction litigation in Cook County and surrounding courts can take a year or more to reach trial, and complex cases can take longer. The costs add up - filing fees, discovery, depositions, expert witnesses, and attorney time. For smaller disputes, the cost of litigation can approach or exceed the amount in controversy.

The Role of Mechanics Liens in Dispute Resolution

A mechanics lien is not a dispute resolution method - it is leverage. When a contractor, subcontractor, or supplier is not getting paid, filing a mechanics lien puts a claim on the property itself. That claim has to be resolved before the property can be sold or refinanced, which gives the unpaid party significant bargaining power.

In practice, filing a lien often accelerates resolution. Property owners who might otherwise drag their feet on a payment dispute tend to engage more seriously when there is a lien on their property. Many payment disputes that seemed headed toward litigation settle shortly after a lien is recorded.

But lien rights have strict deadlines, and they do not pause while you are negotiating or waiting for a mediation date. If you are in a payment dispute on a construction project, make sure you are tracking your lien deadlines even if you expect the matter to resolve informally. For more on mechanics lien deadlines and requirements, see our guides on what counts as the last date of work and lien waivers in Illinois.

Document Everything from Day One

Regardless of which resolution path you end up on, your outcome depends heavily on your records. Daily logs, photographs, emails, text messages, change orders, pay applications, inspection reports, punch lists - all of it matters.

The party with better documentation almost always has an advantage, whether the dispute is resolved through a five-minute phone call or a five-day trial. If you are in the construction industry, make documentation a habit on every project - not just the ones that go sideways.

Do Not Let Deadlines Pass While You Are Talking

This is the most common and most costly mistake in construction disputes. The parties are negotiating. Progress feels like it is being made. Nobody wants to escalate. And while everyone is being reasonable, the 90-day notice deadline passes, or the four-month lien recording window closes, or the statute of limitations expires.

Dispute resolution takes time. Your legal deadlines do not care. Protect your rights first, then negotiate from a position of strength.

For more on construction dispute resolution, visit our Construction Disputes practice area page. If your dispute involves defective work, see our guide on what to do when you discover defective construction work in Illinois.