The construction industry in Sri Lanka covers a complex and comprehensive field of activities involving many operative skills and conditions, which vary considerably from one project to another. The dispute might arise at any point during the construction process. Generally, there is a low standard of contract formation and of contract administration in the construction industry, which lead frequently to unnecessary problems and disputes. The contract parties usually enter into a dispute as a result of differing expectations or misinterpretations of the contract documents.

Arbitration is a voluntary procedure available as an alternative resolution to litigation but not enforceable as the means of settling disputes except where the parties have entered into an arbitration agreement. In such cases the right of either party to have disputes resolved by arbitration will no doubt be beneficial to the country in the context of construction law and the foreign investment. Construction claims tend to be of the most technical nature-intensive and multifaceted than most other commercial disputes. Hence construction industry needs a fast and cost effective means for dispute resolution. The desirable features of arbitration is fast, inexpensive, fair, simple, flexibility, confidentiality, minimum delay. The main feature of arbitration is that it is consensual in nature and private in character. Sri Lanka Arbitration Act No 11 of 1995 stated various concepts or arbitration principles and UNCITRAL Model Law.