Arbitration provisions appear in many types of contracts and agreements. While these provisions can vary greatly (e.g., process for selecting an arbitrator, venue for the arbitration, evidentiary rules during the arbitration, whether the arbitration is binding, etc.), the common feature is that the parties to a contract are required to submit any dispute to an arbitrator rather than pursue litigation. Arbitration can have a number of benefits to the parties, for example:

• The parties can specify a particular arbitrator in advance, or agree upon a process for selecting an arbitrator;
• The partis can agree that any documents or evidence produced during the arbitration, and the arbitration decision itself, will remain confidential;
• The parties can agree in advance to rules regarding discovery, evidence, and procedure;
• The arbitration process can sometimes be faster than litigation;
• A binding arbitration provision can help the parties avoid a costly (and lengthy) appeals process; and
• For a large company that enters into numerous substantially similar contracts, a mandatory arbitration provision can reduce the risk of class-action law suits.

Companies should expect to pay for these benefits. Arbitration can be extremely expensive, even more expensive than traditional litigation if the disputed matter is not complex. Moreover, the benefits of arbitration may be lessened depending upon where the parties are located. For instance, Delaware has a sophisticated and streamlined court system for handling corporate disputes. If convenient, entities may fare better litigating in a Delaware court rather than arbitrating.

Arbitration provisions are commonplace, and often appear in contracts without second thought. However, companies should consider the benefits and drawbacks of arbitration and discuss available options with their counsel.