H.B. 26-1236: Colorado’s Latest Unsuccessful Attempt to Undermine Arbitration

On June 2, 2026, Governor Jared Polis vetoed H.B. 26-1236, Arbitration Reform, bringing an end to the Colorado General Assembly’s latest attempt to impose additional restrictions on arbitration.  Although the bill was not directed specifically at construction defect litigation, its proposed changes to the Colorado Uniform Arbitration Act would have affected arbitration proceedings generally, including those involving builders, developers, contractors, and homeowners.

For those of us who have followed Colorado construction defect litigation over the past two decades, the legislation had a familiar feel.  Arbitration has long been a contentious issue in construction defect disputes, with plaintiffs’ attorneys frequently seeking to avoid contractual arbitration requirements in favor of jury trials.  H.B. 26-1236 represented another effort that, whatever its stated objectives, threatened to make arbitration more complicated, expensive, and difficult to administer.

The governor’s veto recognized precisely those concerns.

Arbitration and Construction Defect Litigation: A Familiar Battleground

The battle over arbitration in Colorado construction-defect litigation is nothing new.

In Vallagio at Inverness Residential Condominium Association v. Metropolitan Homes, the Colorado Supreme Court considered whether a homeowners association could amend its declaration to eliminate a mandatory arbitration provision without obtaining the developer-declarant’s consent, as required by the declaration.

The association had attempted to remove the arbitration requirement before filing a construction defect lawsuit in district court.  The developer sought to compel arbitration, arguing that the amendment was ineffective because the association had not obtained the required consent.

In 2017, the Colorado Supreme Court upheld the declarant-consent provision, concluding that it was consistent with the Colorado Common Interest Ownership Act (“CCIOA”).  The Court also held that claims under the Colorado Consumer Protection Act could be resolved through arbitration.

The decision was significant for the construction industry because it confirmed the enforceability of the particular arbitration protections at issue and rejected an effort to remove those protections after a dispute arose.

The controversy did not end there.  During the 2018 legislative session, H.B. 18-1261 and H.B. 18-1262 proposed additional changes affecting arbitration in construction defect disputes.  Neither bill became law.

As I discussed in my 2019 article, Why Builders Should Reconsider Arbitration Clauses in Construction Contracts, these legislative efforts illustrated the continuing uncertainty surrounding arbitration provisions and the importance of considering alternative dispute resolution mechanisms.

H.B. 26-1236 was broader than those earlier construction defect proposals.  It was not limited to builders, homeowners associations, or construction contracts.  Nevertheless, it continued the broader debate over the availability and administration of arbitration in Colorado.

What H.B. 26-1236 Would Have Changed

H.B. 26-1236 proposed several amendments to Colorado’s arbitration framework.

Among other things, the bill would have prohibited certain arbitration agreements requiring employees or consumers to pay fees substantially exceeding the cost of filing a claim in court, subject to federal preemption.  It would have repealed Colorado’s statutory prohibition against exemplary damages in arbitration proceedings and imposed additional liability for failing to comply with an arbitration award within 120 days.

Perhaps most significantly, the bill would have prohibited an individual from serving as an arbitrator if the individual maintained a rule, policy, or procedure, or demonstrated a pattern of conduct, that discriminated against certain parties, types of parties, or attorneys. It also targeted practices that applied different procedures based on the number of similar claims or prevented parties or attorneys from asserting rights or bringing claims in arbitration.

On its face, prohibiting discrimination and ensuring arbitrator neutrality are unobjectionable objectives.  No party should be required to submit a dispute to a biased decision maker.  The problem was not the stated objective.  It was the breadth and uncertainty of the proposed restrictions.

A Solution in Search of a Problem?

Colorado law already provides substantial protections against arbitrator bias.

Under the Colorado Uniform Arbitration Act, C.R.S. § 13-22-201, et seq., arbitrators must disclose known facts that a reasonable person would consider likely to affect their impartiality, including certain financial interests and relationships with parties or counsel.  Those disclosure obligations continue throughout the arbitration proceeding.

Courts also retain authority to vacate arbitration awards in circumstances involving evident partiality, corruption, or specified forms of arbitrator misconduct.

In addition, organizations such as the American Arbitration Association and JAMS maintain ethical standards and procedures addressing arbitrator independence, disclosures, and challenges to appointments.

To be sure, these existing protections primarily address individual impartiality and misconduct.  They do not necessarily resolve every concern involving institutional arbitration policies or procedures that may disadvantage categories of claimants.  There is a legitimate distinction between an arbitrator who is personally biased and an arbitration process that operates unfairly.

But H.B. 26-1236 did not clearly explain how its broader restrictions would operate.

What constitutes a discriminatory “pattern of conduct?”  How many prior proceedings would establish such a pattern?  Over what period would an arbitrator’s conduct be evaluated?  Would an otherwise neutral arbitrator be disqualified because of an administrative policy adopted by the arbitration organization, rather than the arbitrator personally?

The bill also raised questions about whether ordinary case management decisions could be characterized as discriminatory because they affected certain claimants or attorneys differently.

These are not merely academic concerns.  Arbitration is intended to provide an alternative to litigation, often with streamlined procedures, more flexible scheduling, and reduced expense.  A statutory framework that encourages preliminary disputes over arbitrator qualifications, prior decisions, institutional policies, or statistical patterns could undermine those advantages.

Rather than proceeding to the merits, parties could find themselves litigating whether the arbitrator is eligible to hear the case in the first place.

Governor Polis Recognized the Problem

In his June 2, 2026 veto letter, Governor Polis acknowledged the value of arbitration as an efficient dispute resolution mechanism while recognizing that arbitration, like litigation, is imperfect and can be subject to abuse.

Importantly, he did not reject efforts to improve transparency or fairness in arbitration.  Instead, he questioned whether H.B. 26-1236 would accomplish those objectives without creating additional problems.

The Governor specifically identified the vagueness of the proposed restrictions on discriminatory conduct as a concern, explaining that those provisions could create uncertainty and prolong disputes involving employers, businesses, employees, and consumers.

He also expressed concern that imposing additional damages for failure to comply with an arbitration award within 120 days could discourage arbitration or result in excessive awards, particularly given the existing statutory mechanisms for confirming and enforcing awards.

His overarching concern was straightforward: making arbitration harder to use could push more disputes into court, increasing costs, delays, and uncertainty for everyone involved.

That concern applies equally to construction defect litigation, where disputes frequently involve numerous parties, extensive expert testimony, complicated technical issues, and substantial defense costs.

Arbitration Is Not Always the Answer

None of this means that arbitration is necessarily the best forum for every construction defect dispute.

In my experience defending builders, developers, contractors, and design professionals, arbitration has often produced more favorable results for construction industry defendants than jury trials.  That experience helps explain why builders have historically favored arbitration provisions and why plaintiffs’ attorneys have frequently challenged their enforceability.

But arbitration has significant disadvantages.

One of the most consequential is the extremely limited ability to appeal an adverse arbitration award. An arbitrator can misunderstand the evidence, misapply the law, or reach a result that a party considers fundamentally wrong, yet the grounds for judicial review remain exceptionally narrow.

Arbitration can also be expensive, particularly in complex multiparty construction defect disputes involving substantial arbitrator fees, extensive discovery, expert witnesses, and lengthy evidentiary hearings.  In some circumstances, arbitration may offer little or no cost advantage over litigation.

For these reasons, I have previously encouraged builders to reconsider whether mandatory arbitration should always be their default dispute resolution mechanism.  Depending on the circumstances, a bench trial may offer an attractive alternative, combining a judicial decision maker with the opportunity for appellate review.

Builders should also consider appropriate contractual alternatives if an arbitration provision is ultimately determined to be unenforceable and should seek consistency between the dispute resolution provisions in their purchase agreements and subcontracts.  Otherwise, they risk having related disputes proceed in different forums, potentially duplicating costs and producing inconsistent results.

The point is not that arbitration is inherently superior to litigation.  It is that arbitration remains a potentially valuable option, and efforts to regulate it should not unnecessarily undermine its utility.

The Latest Attempt, But Probably Not the Last

H.B. 26-1236 did not expressly prohibit arbitration agreements or single out construction defect claims.  Nevertheless, its proposed restrictions could have made arbitration more cumbersome and less attractive across a broad range of disputes.

Viewed against Colorado’s history of litigation and legislative efforts concerning arbitration, the bill represented another potential obstacle to the effective use of a dispute-resolution mechanism that has played an important role in construction defect cases.

Governor Polis’s veto prevented those particular restrictions from becoming law.  It did not, however, end the debate.  Indeed, his veto letter expressly invited legislators to revisit arbitration reform in future years.

For Colorado builders, developers, and contractors, the lesson is not to embrace arbitration unconditionally. It is to remain attentive to legislative developments affecting dispute resolution rights, evaluate arbitration provisions carefully, and consider alternatives that best serve their interests.

Arbitration is not a panacea.  Neither is litigation.  The goal should be to preserve workable options for resolving disputes fairly and efficiently, not to make one of those options so burdensome that its practical advantages disappear.