Arbitration can slash legal costs.

• Author: Brown, Curtis D.
• Position: Managing litigation

Litigation is incredibly expensive, and even victories can come at a high cost. That's why many organizations are writing arbitration agreements into their contracts with customers, employees, suppliers, distributors and service providers. Arbitration lets organizations resolve disputes quickly, often in a few weeks or months. Shortening the process can greatly reduce the cost.

Taking a dispute to arbitration is like going to court, with all of the usual legal protections. Parties to a dispute may appear at hearings, present evidence or call and question each other's witnesses. The hearings may take place in person, by phone, by mail--even by videoconference or over the Internet. To ensure that arbitrators handle cases and interpret the law correctly, all arbitration awards are reviewed by courts in a process called "confirmation."

To ensure that disputes go into arbitration instead of to court, it is critical to write arbitration agreements into your contracts. Once a dispute starts, the other party is much less likely to agree to arbitration, especially if the dispute is acrimonious.

It is also critical to draft an arbitration agreement that is fair and will stand up to judicial scrutiny. If an arbitration agreement is unfair, the courts will throw it out. With that in mind, here are 10 tips toward drafting better agreements:

1. Keep It Friendly: If you want to maintain the relationship, pursue the least abrasive approach. In your contract language, you may want to include a dispute resolution process that starts with an agreement to negotiate in good faith for a period of time, followed by mediation, followed by binding arbitration if the parties cannot resolve the dispute. To avoid delays, be sure to specify a time frame for each procedure.

2. Specify What's Covered: If you want the arbitration agreement to govern all disputes arising between the contracting parties, state that clearly in the contract.

3. Invoke the Federal Arbitration Act: Different states have different laws governing arbitration. If you want to draft an agreement that can be used in several states, invoke the Federal Arbitration Act. It ensures that the arbitration agreement will be enforced uniformly in different state courts.

4. Avoid Unnecessary Travel: Courts reject agreements that force the weaker party to needlessly travel a long distance. So, specify a location that is...