Alternative Dispute Resolution, or ADR, has come to encompass a broad class of methods for resolving disputes outside of the courtroom -- the traditional arbiter of disputes. Aimed at saving time, money and the underlying relationship between the parties, ADR can be a valuable surrogate to filing suit. The most well known forms of ADR include negotiation, mediation and arbitration. It is important to note as well that, with the legal and public communities' acceptance of ADR, these extrajudicial "alternative" methods are also finding their way INTO the courtroom.
Arbitration, though similar to litigation in terms of structure and finality, allows the parties more flexibility than court-based proceedings, including permitting the parties to choose their own judge (or arbitrator, as the person is known), their own timetable and own procedural rules. With multilateral conventions opening the way for the use of arbitration and the enforcement of arbitral awards, the inclusion of this method of dispute resolution in international contracts is crucial to a successful representation.
Mediation is a method for extrajudicial dispute resolution which utilizes a neutral third party (the mediator) to help facilitate settlement or compromise. The structure or format for the mediation is largely left to the parties. If the parties agree to the mediator's recommendations, they may sign a settlement agreement to that effect, which can then be enforced as a contract. While mediation can benefit the parties (by keeping costs down, speeding up the resolution process and by permitting the parties to continue their relationship), its major drawback is the lack of finality. If one party disagrees with the mediator's decision, the mediation may simply fail.
Negotiations are the base method for dispute resolution; and are also the strategic, least invasive first step to dispute resolution. Here parties (or their counsel) agree to meet and attempt to work out differences without third party involvement.
When drafting contracts between parties, it's a good idea to include a requirement in the contact that the parties attempt to negotiate, in good faith, a solution to any problem that may arise during the course of performance of the contract.