It’s Friday morning, and your major supplier of raw materials has told purchasing they are not shipping to you, due to $10,000 in unauthorized deductions taken on past invoices. Purchasing informed them that the deductions were made because the shipments were short of the required quantities.
But your supplier wants to be paid in full or they threaten to take you to court to recover the balance.
How will you settle this dispute? Will you end up in court with your supplier and see the relationship destroyed or will you settle the dispute in an expeditious manner and retain the relationship?
The choice is yours. Believe it or not, your next dispute can be resolved before it even happens. By including an ADR (Alternative Dispute Resolution) clause in your purchase orders and in your service or consulting agreements, you can determine how a future dispute will be handled.
The courts will enforce properly drafted ADR agreements and force the parties to either mediate or arbitrate their dispute. The ADR clause will permit you to put the dispute in front of a professional mediator or arbitrator instead of taking the dispute to court, which takes longer and is more expensive. These dispute resolution professionals are experienced lawyers, judges and other individuals trained in assisting parties in reaching an equitable settlement.
Let’s look at the ADR options which are available to you through the American Arbitration Association (AAA) or other private dispute resolution professionals.
When the parties to a dispute agree to use a mediator, they usually are at a point in the dispute where they are no longer communicating or they are stuck on one or more issues which they cannot resolve. They have reached an impasse.
The role of the mediator is to assist the parties to resolve the issues. Mediators do not impose a solution. They provide a neutral environment where the parties openly communicate their ideas on how the issue can be resolved.
Mediators are available through the American Arbitration Association or private mediation and law firms. Organizations like the AAA will provide you with a list of mediators who are skilled in bringing about consensus between disputing parties.
In many cases the parties to mediation will review the list and then alternately strike names until they are left with one name, which is the least objectionable to both parties. Both parties will sign off when an agreement is reached. Mediation is viewed as a win/win solution, where both parties achieve some portion of their desired goal.
This alternative to a courtroom is more formal than mediation and will definitely require the services of experienced counsel. This form of alternative dispute resolution has its roots in labor law and has been used extensively in settling disagreements regarding the interpretation of collective bargaining agreements.
In arbitration, testimony is taken and witnesses are subject to examination from the opposition’s attorney. Witnesses can also be subpoenaed to appear before the arbitrator. The rules of evidence are less formal than in a courtroom and evidence is accepted on a “what’s it worth” basis. These proceedings are not confidential and can be more costly than mediation, although less costly than courtroom litigation.
Since arbitration is more adversarial than mediation, the chances of retaining a relationship with the other party are greatly diminished. Arbitration is a “zero sum” game in which one party is going to walk away unhappy, while the other party receives the award they have requested.
Like mediation, arbitrations are held in a neutral location and the arbitrator is selected by the parties from a list supplied by the AAA or some other service provider.
Mediation and arbitration are less expensive that a lawsuit and can resolve the dispute in a more timely manner.
Mediation and arbitration are confidential, while lawsuits and the decision are a matter of public record.
The trend in business is to add ADR to all contracts in order to handle any dispute in a cost effective manner. If you review your health plan, your lease on the company car or even your car insurance policy, you will see that they have included an ADR clause.
It’s time you updated your service and employment contracts and your purchase orders. An experienced attorney can assist you in proactively making these changes and reducing your exposure to expensive lawsuits and an interruption in your production cycle.