While smooth business relationships are ideal, disagreements over contracts are bound to occur. In fact, 31% of businesses have reported more contract disputes in the past year, according to a recent report from the Association of Corporate Council. However, going to court to resolve these issues can be both expensive and time-consuming, with some businesses spending anywhere from less than $50,000 to $100,000 on related litigation costs.
Thankfully, mediation and arbitration offer quicker and cheaper ways to settle contract disputes. Mediation encourages the involved parties to collaborate on a solution, while arbitration brings in a neutral third party to make a binding decision. Knowing the pros and cons of each method can help you determine what’s best for your situation.
Mediation brings the two parties together to negotiate a solution with the guidance of a neutral mediator, such as a retired lawyer, judge, or therapist, who helps maintain respectful and productive discussions. This process is usually quick, often wrapping up in a single day under ideal conditions. However, mediations aren’t legally binding unless the agreed-upon solution is later approved by a judge.
In arbitration, a third-party arbitrator resolves the dispute, making a decision that’s legally binding and cannot be appealed. Each party presents their argument and evidence, negotiating the standards of acceptable evidence in advance. This method is less formal and usually more cost-effective than litigation. Sometimes, contracts include an arbitration clause, requiring disputes to be resolved this way and barring court proceedings. It’s crucial to thoroughly read and understand contracts to avoid agreeing to terms that might later be less favorable.
When choosing between mediation and arbitration, consider mediation as your first option. It’s fast and cost-effective, allows open dialogue, and can help maintain business relationships if both parties cooperatively seek to resolve the issue. In contrast, arbitration suits cases where mutual agreement seems unlikely, requiring a neutral third party to decide. While it’s less personal, arbitration can effectively resolve disputes without going to court.
Mediation and arbitration both offer efficient alternatives to litigation for contract disputes. Mediation relies on the parties reaching an agreement together, while arbitration works for more complex conflicts needing a third party. Whatever you choose, these approaches are usually simpler, quicker, and more affordable than lengthy courtroom battles.
