Difference Between Negotiation and Arbitration

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    Negotiation vs Arbitration

    Arbitration and negotiation are two forms of processes involved in dispute resolutions between two parties. These two forms of dispute resolutions are part of the appropriate dispute resolution (also known as ADR) measures used as alternatives to court action or litigation. Backlog cases in courts and a very long court process gave rise to these forms of dispute resolutions. There are also two additional processes – mediation and conciliation.

    The advantages of arbitration and negotiation are that they are less costly and time-consuming in comparison to court litigation. Furthermore, the process and documentation of the proceedings are private and confidential. Decisions made for both arbitration and negotiation are privy to concerned parties only.

    The formats and nature of arbitration and negotiation are different from each other. In arbitration, both parties appoint a third party arbitrator or arbitrators. The number of arbitrator/s is usually an odd number of one or three to deter tied decisions.

    Arbitrators are usually appointed by parties, existing arbitrators or an external party like a court.

    The job of the arbitrator is to hear both parties and decide on all terms of dispute. The decision is often promulgated in an ‘award’ – a document which gives and explains the decision. An award is as legally binding as a court verdict. Arbitration is under the state and federal law – which is why the award is as binding and legal. A decision or award is usually not appealed to a court.

    The costs of arbitrators are usually included in the award, unless both parties already negotiated the costs between themselves.

    On the other hand, negotiation, as its name implies, involves two parties and a facilitator. The facilitator allows both sides talk and negotiate their disputes. The facilitator records the whole process including the parties’ positions, their agreements and discussions.

    Negotiation results in a memorandum of agreement. The agreement spells out the dispute, the methods of resolving the said dispute and the conclusion of the dispute of parties.

    The parties involves usually spilt the costs for the negotiation.

    Unlike arbitration, the resolution in negotiation is not as legally binding.

    1. Both arbitration and negotiation are two forms of appropriate dispute resolutions (ADR) and alternative processes to court litigation. Both are private, speedy, less costly and ensure confidentiality. Other forms of ADR are conciliation and mediation.
    2. Negotiation and arbitration differ in function and the people who play a part in each process. In arbitration, an arbitrator is appointed by both parties while a facilitator oversees a negotiation.
    3. In arbitration, the arbitrator decides on the outcome of the dispute after hearing both sides. The resolution is called an award, which is final and legally binding. Meanwhile, a facilitator allows both parties talk to each other about the dispute and aids in making a settlement. The result of a negation is called a memorandum of agreement. This document is not as legally binding as an award.
    4. Both facilitators and arbitrators are usually third parties. The arbitrators solely and directly decide on the outcome of the dispute while the facilitators let both parties come into their own agreement. To sum up, a facilitator is a non-direct party in the process.
    5. The costs of arbitration can be decided by the arbitrator or by both disputing parties, depending on the situation. Meanwhile, the negotiator’s fee is usually split between the two parties.
    6. An award (in arbitration) cannot be appealed to a court. On the other hand, a court can question or overturn a memorandum of agreement that transpired as a result of negotiation.
    7. Arbitrators are usually lawyers or people associated with the law while facilitators may not have a law background.

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