By Mia Levi

Alternative Dispute Resolution (“ADR”) can be a cost-saving alternative to litigation, but did you know that your contractual provisions designed to take advantage of ADR could likely be stronger? This article will provide succinct practical tips for drafting powerful ADR clauses for your agreements.

Parties can count on faster speed to resolution (and therefore lower costs) when using ADR to resolve their disputes. Quickly reaching a decision is often critical so that business planning can continue and long-term projects can proceed uninterrupted. For example, the average duration for a “full-length” commercial arbitration case from commencement to award is 14.5 months, according to statistics from CPR Dispute Resolution, the ADR provider arm of the International Institute for Conflict Prevention and Resolution (“CPR”). In comparison, the current median time from filing to trial in a civil case in U.S. district courts is 33.7 months^[1]—without taking into consideration the additional time the trial, rendering a decision, and the possibility of a lengthy appeal may add to the process. Arbitration facilitates resolution on a faster track, with fewer steps in the process and shorter deadlines. Moreover, most institutions provide an option for expedited arbitration proceedings, such as the CPR Fast Track Arbitration Rules, which contemplate a 90- to 180-day proceeding.

Speed and savings are not the only benefits of ADR. Party control of the process is one of the tenets of ADR, allowing the parties to craft their own process to fit their needs. For example, parties may select knowledgeable neutrals with subject-matter expertise, rather than judges or juries who may not have any experience in the topic area. By using ADR, parties are also afforded greater confidentiality and privacy for sensitive matters, such as proprietary business information, trade secrets, and other intellectual property. ADR offers the possibility of selecting a venue that is neutral to the parties and logistically convenient to both sides. Arbitration offers the certainty of resolution, as awards are generally final and binding (though parties may elect to add an appellate review). Finally, parties will find greater logistical flexibility in ADR processes, which allow them to proceed on their own schedules, rather than a court’s calendar, and provide the option to conduct hearings virtually.

So what can parties do to avail themselves of these benefits? The key is drafting a strong ADR clause in their B2B contract. Arbitration agreements cannot be approached with a “one-size-fits-all” mentality; rather, parties should consider the actors involved and their particular circumstances, so that they can tailor arbitration agreements to best fit their needs.

Necessary Elements in an Arbitration Clause

Every good ADR clause starts with the necessary elements, after which the parties can include additional, optional elements as they see fit. An effective arbitration clause must do the following:

1. Clearly and broadly define the disputes subject to arbitration.
2. Commit the parties to arbitration.
3. Choose an arbitral institution and its rules, or ad hoc arbitration rules (and, in the latter case, an appointing authority).
4. Choose the seat of arbitration (in a country that has ratified the New York Convention).
5. Choose the language of the arbitration.

A narrow arbitration clause might only include the above necessary elements. For example, it might read:

Any dispute arising out of or relating to this contract, including the breach, termination or validity thereof, shall be finally resolved by arbitration in accordance with [the CPR Rules for Administered Arbitration (the “Rules”)]. The seat of the arbitration shall be [New York, New York]. The language of the arbitration shall be [English]. There shall be [one or three] arbitrators, [selected in accordance with the Rules].

First, the parties will want to define the disputes subject to arbitration. This is generally achieved with the broad statement “arising out of or relating to this contract” and then a statement committing those types of disputes to arbitration (“shall be finally resolved by arbitration”). However, the parties may also wish to include some carve-outs (such as IP issues, for example) that they wish to have adjudicated in court instead.

Next, parties should decide whether to choose an arbitral institution and its rules or select ad hoc arbitration. Notably, there can be drawbacks to ad hoc proceedings when parties reach a stalemate in the agreed-upon process (for example, if there are issues with arbitrator appointment or payment of fees, or a challenge to an appointed arbitrator), and there is no support or oversight by a neutral outside institution to monitor the arbitrator’s billing, assist in scheduling, or review the award before it is rendered. A solution might be to select non-administered rules that provide fallback provisions, assigning an institution to assist with any issues that might arise. For example, CPR’s Non-Administered Rules provide a safety net, providing a process in case the parties cannot agree during the non-administered proceeding but allowing them to proceed independently if there are no issues. When selecting an arbitral institution, parties should keep in mind differences between institutions on issues such as the costs of administrative fees, responsiveness of staff, etc., as well as differences in the institutional rules. Note that while most rules for domestic commercial arbitration are similar, they may differ on issues such as confidentiality; the default number of arbitrators appointed to a dispute and method of their appointment; procedural time limits; discovery; or triggers for procedures such as mediation or truncated “fast track” procedures.

Finally, the parties should consider the seat, language, and governing law for any disputes. The seat of the arbitration will be the place where the award is deemed to have been made. The governing law of an arbitration agreement is the law that will be applied to determine any dispute that may arise as to the validity, scope, or interpretation of the agreement to arbitrate. Although standard arbitration agreements do not specify the governing law of the arbitration agreement, it is good practice for the drafter to include a governing law provision in case problems arise. In the absence of a clause indicating the governing law of the arbitration, the law governing the seat of arbitration will apply. Parties contemplating international disputes may also wish to specify that English (or another language, if desired) shall be the language of the proceeding.

After including these necessary elements in an arbitration clause, parties wishing to avail themselves of the benefits of arbitration will need to consider whether to include additional components. Many of the additional elements discussed below are addressed by the arbitral rules specified in the ADR clause; however, parties should consider the types of disputes that may arise and whether they expect the rules’ default provisions to be sufficient, or whether they want to customize the process.

Neutral Selection

Parties should consider including additional information surrounding the appointment of the arbitrator. For example, the number of arbitrators may be specified in the ADR clause. Where disputes are likely to be high value and complex, a tribunal consisting of three arbitrators may be more appropriate. Since most arbitrations do not have an appeal process, a three-person tribunal is generally considered a safer option because it is seen as more “balanced” and neutral, in part because it allows for diversity in legal knowledge, culture, and experience among arbitrators, thereby reducing the risk of potential error or mistake. However, a three-person tribunal can be costly, and slower to reach a final resolution due to factors like coordinating schedules for hearings or deliberations. In fact, over the course of the arbitration, three arbitrators may cost almost five times as much as a sole arbitrator. Therefore, if the dispute is low-value and uncomplicated, a sole arbitrator may be a more cost-effective and efficient choice. Parties may specify a financial threshold amount or types of disputes that will have one or three arbitrators. Note that most arbitral institutions’ rules provide the default number of arbitrators: for example, the American Arbitration Association (“AAA”) and CPR have a $3 million threshold for three arbitrators (otherwise one is the default), while JAMS provides for a sole arbitrator by default.

Parties may also wish to specify the method of appointment or selection of the arbitrator(s), or specific qualifications or expertise of the arbitrator(s). However, it is prudent to not be too prescriptive in this area, as a complicated appointment process might greatly increase the time to appointment, and overly specific description of the neutral’s qualifications may unreasonably narrow the pool of available, competent, and qualified arbitrators. Parties should also consider adding a timing provision for arbitrator selection. By adding this provision to the arbitration agreement, parties not only have an expected timeline of when arbitrators will be chosen but also commit to a more efficient process. Yet parties should be careful not to set the time limits too short, so that the choice of neutral is not rushed or hasty.

Resolution Prior to Arbitration

Parties can insert a provision mandating or suggesting negotiation or mediation prior to initiating arbitration. These clauses are often referred to as “step clauses.” The use of mediation and/or negotiation can be helpful to parties, as it can potentially lead to an early settlement and allow the parties to save on costs. However, step clauses can also cause unnecessary delay, particularly if one side has no intention of settling. To mitigate potential drawbacks, drafters should include time limits on each “step.” Alternately, they can include concurrent processes where the mediation or negotiation proceeds in parallel with the arbitration process.

These step clauses may provide off-ramps that will allow the parties to save the time and costs they would need to devote to a full arbitration or litigation process. Negotiation between executives allows those in charge to have a frank discussion before the matter progresses. Furthermore, mediation can end in agreement 70–80 percent of the time.^[2] Mediation agreements have high rates of compliance and can preserve business relationships and goodwill.

The flexibility of these processes allows the people involved to find the best path to agreement. Even if there is no settlement reached, parties can narrow the issues or resolve certain interests, thereby shortening the arbitration.

Other Considerations

Arbitrability is a threshold inquiry, asking whether there is a valid agreement to arbitrate. Generally, questions of arbitrability are decided by the court, but parties to an arbitration agreement may agree to delegate questions of arbitrability to the arbitrator. Under CPR Administered Arbitration Rule 8.1 and AAA Commercial Rule R-7(a), the tribunal has the power to hear and determine challenges to its jurisdiction, including any objections with respect to the existence, validity, or scope of the arbitration agreement.

In order for the question of arbitrability to be delegated to the tribunal, there must be “clear and unmistakable” evidence indicating that the arbitrators must decide questions of arbitrability. Most courts have held that incorporating the institutional rules is sufficient. But for those parties that wish to be overly cautious, or in certain jurisdictions, it may be best to include a delegation clause, such as the following:

The arbitrator(s), and not the court, shall have primary responsibility to hear and determine challenges to the jurisdiction of the arbitrator(s).

Or:

The court, and not the arbitrator(s), shall have primary responsibility to hear and determine challenges to the jurisdiction of the arbitrator(s).

Another detail to consider is provisional relief. Most arbitral institutions’ rules expressly authorize arbitrators to issue interim measures to preserve the status quo or to protect the interests of the parties pending the outcome of the proceeding. Drafters can also address the need for provisional relief if they do not wish to rely upon the provisions in the governing institutional arbitration rules.

Parties may also wish to include the type of award to be issued by the arbitrator(s). Institutional rules may specify whether a reasoned or simple award is the default, and parties should be cognizant of which type of award is called for under the rules. Parties might wish to see a reasoned award, as the writing process is an opportunity for the tribunal to carefully consider the evidence, arguments, and law, and it enables the parties to better understand the award. Additionally, some jurisdictions may require a reasoned award for enforcement. However, parties may also wish to consider the time and cost of the award drafting, especially if three arbitrators are involved. Notably, a more detailed award does not entail a higher possibility of challenge in court, as there is a very high threshold for overturning awards in court whether simple or detailed.

Most users of arbitration find the finality of an arbitration award to be an appealing aspect of ADR. But some parties may be concerned about the possibility of an aberrant award and would like to be able to appeal such an award. Many arbitral institutions, including CPR, AAA, and JAMS, have promulgated appellate procedures that allow parties to seek a modified or vacated award in specified circumstances. If parties wish to include an appellate process, this should be agreed to in the arbitration clause. Once the award is issued, parties will be unlikely to agree to an appeal, and it may even be too late, as most appellate processes have requirements, such as a transcript of the hearings, that may not have been fulfilled.

While a simple ADR clause might seem like the easy route, especially if it is the last part of the contract to be negotiated, parties should carefully consider the elements in their ADR clause in order to be able to utilize the benefits of arbitration to the fullest. Many ADR institutions have model clauses or interactive tools for drafting these clauses, which can help guide parties through the process.^[3] It is important to consider the types of disputes that might arise, the parties’ relationships, and other factors that are important to the parties when finalizing the ADR clause. Reviewing the above considerations will allow drafters to create a stronger ADR clause for their clients.

This article is related to a CLE program that took place during the ABA Business Law Section’s 2025 Spring Meeting. To learn more about this topic, listen to a recording of the program, free for members.

1. Data compiled for cases going to trial in 2024. See Table T-3—U.S. District Courts–Trials Statistical Tables for the Federal Judiciary (December 31, 2024), Admin Off. of the U.S. Cts. (last visited Sep. 10, 2024). ↑

2. This is a commonly cited statistic in the industry, and the number varies depending on the study conducted but generally remains in that range. See, e.g., Jeanne M. Brett, Zoe I. Barsness & Stephen B. Goldberg, The Effectiveness of Mediation: An Independent Analysis of Cases Handled by Four Major Service Providers, 12 Negot. J. 259 (1996). ↑

3. See, for example, CPR’s Model Clauses. ↑