Alternative Dispute Resolution



If legal action is the last resort in disputes with suppliers, alternative dispute resolution (ADR) may be seen as the next to the last resort. ADR is any means of settling disputes outside of the courtroom, including arbitration, meditation, early neutral evaluation, and conciliation. Packed court dockets, the rising cost of litigation, and time delays encourage the use of ADR. Some programs are voluntary; others are mandatory. All provide an opportunity an opportunity to reach negotiated settlements and maintain working professional relationships.

            Title 9 of the U.S. Code establishes federal law supporting arbitration based on Congress’ plenary power over interstate commerce. Where it applies, its terms prevail over state law. There are also numerous state ADR laws. Thirty-five jurisdictions have adopted the Uniform Arbitration Act as state law, and similar form in 14 other. Thus, the arbitration agreement and the arbiter’s decision may be enforceable under state and federal law. In 1970, the United States joined the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

            The Office of Dispute Resolution coordinates the use of ADR for the Department of Justice. The office is responsible for ADR policy, training, assistance to lawyers in case selection, and finding appropriate neutrals to serve as mediators, arbitrators, and neutral evaluators. It also coordinates the Interagency ADR Working Group, which promotes ADR in federal executive branch agencies.

            The two most common forms of ADR are arbitration and meditation.


Commercial Arbitration

Regardless of the type of contract, disputes will arise. While annoying, these disputes usually cost too much in time and money to go to court. Most are settled by buyers and sellers through negotiation. Arbitration clauses are included in contracts to avoid litigation when a negotiated agreement cannot be reached. An impartial arbitrator, or panel of arbitrators, listens to the evidence and renders a judgment. Both parties have agreed in advance to accept without appeal. This is less costly and time consuming than court action. Arbitration is a simplified version of a trial involving no discovery and simplified rules of evidence.

            To select an arbiter, both sides may agree on one, or each side may select one arbitrator and the two arbitrators elect the third to comprise a panel. Arbitration hearings usually last only a few hours and the opinions are not public record. Arbitration has long been used in labor, construction, and securities regulation, and its use is growing in other business disputes.

            Standard arbitration clauses exist that are valid, irrevocable, and enforceable under arbitration laws of certain states. For matters under the jurisdiction of the federal courts, there is Federal Arbitration Law. Even in states without such laws, it is possible to demand arbitration if provision is made in thee contract, and if there is a statue making “future disputes” the subject of binding arbitration agreements.

            Arbitration clauses in contract are a reasonable measure of protection against costly litigation. The following questions will help ensure that the clause is sound:


  1. 1.      Is the clause in the proper form under the appropriate arbitration laws? Unless properly drawn, it may not be legally valid, irrevocable, and enforceable.
  2. 2.      Does the clause fully express the will of the parties or is it ambiguous? I it is uncertain in its terms, the time and expense involved in determining the scope of the clause and the powers of the arbitrators under it may destroy its value or increase costs.
  3. 3.      Does the clause ensure the appointment of impartial arbitrators? If a person serving as arbitrator is an agent, advocate, relative, or representative of a party, or has a personal interest in the matter being arbitrated, the award rendered may be vacated by the court on the ground of evident corruption or partiality on the part of an arbitrator.
  4. 4.       Does the clause provide adequately, by reference to the rules of an association or otherwise, for a method of naming arbitrators, thus safeguarding against deadlocks or defaults in the proceedings? If not, the actual hearing of the dispute may be unduly delayed, and practical value of the arbitration defeated.




Meditation is a less formal alternative to litigation than arbitration. Mediators are individuals trained in negotiations. They bring opposing parties together and attempt to work out a settlement or agreement that both parties accept or reject. Mediation is used for wide range of case types.


Internal Escalation


A third form of alternate dispute resolution is internal escalation. It may be agreed by both buyer and seller that if a disputes arises, the first round of resolution will fall to the purchaser and sales representative. If they cannot resolve the matter, their supervisors will get together and so on, with the final round between the top executives of both organizations. Only if they fail to agree will other forms of dispute resolution be pursued