Dispute resolution mechanism

Alternatives to litigation through the judiciary system can be incorporated in contracts.


When negotiating a contract it is important to pay attention to the choice of dispute resolution mechanisms. Besides litigation through the judiciary system there are alternative dispute resolution mechanisms like negotiation, mediation, arbitration and withdrawal of either party from the contract. Water sector organizations should carefully consider the kinds of disputes which are likely to arise under the contracts they negotiate, and choose a dispute resolution mechanism (or combination of mechanisms), which is best suited to resolve those kinds of disputes.


To enforce a contract at reasonable costs and time in case of a dispute, it is important to choose the adequate dispute resolution mechanism when negotiating the contract.

Integrating a dispute resolution mechanism into the contract can help foster integrity between contract parties, as it serves as a disincentive to breach the contract. In case of a dispute between two contracting parties, the dispute resolution mechanism gives the possibility to resolve it in the most efficient manner. The judicial system may not be a feasible option in countries, with high levels of bureaucracy and/or corruption in public administration.


  • Are you aware of the legal situation regarding dispute resolution mechanisms in your country?


For choosing the most adequate mechanism, a variety of factors have to be taken into consideration: the possible nature of a dispute; the relationship between the two parties; the sensitivity of the issues involved; and the likely outcome and cost of.1

  • Negotiation: Negotiation means that the parties involved in a dispute compromise toward an agreed resolution of their dispute. By definition, it produces an acceptable result. If both parties do not agree, there is no resolution.
  • Mediation: Mediation is negotiation facilitated by an agreed neutral, normally a trained and experienced mediator.
  • Arbitration: In arbitration the parties agree to give a neutral the power, not to facilitate an agreed resolution of their dispute, but to impose a legally binding resolution on them, whether they agree with it or not. Arbitration is essentially “private litigation”. But in the hands of experienced counsel, it can have important advantages over litigation.
  • Litigation: Litigation is fundamentally the same kind of process as arbitration. A neutral has the power to impose a legally binding resolution on the parties. But instead of the parties agreeing on that neutral, they are appointed by the state, in the person of a judge.2
  • Withdrawal from contract: A paragraph that clearly specifies the options and conditions under which either partner can withdraw from the contract provides another option to resolve a dispute.

All the different types of Dispute Resolution Mechanisms have their advantages and disadvantages. Depending on the context the one or the other is more useful; however, the alternative types are usually less costly than litigation.

You might also consider getting ISO certification. The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies. The following ISO standard is applicable for this tool:

ISO 10003:2007 Quality management – Customer satisfaction – Guidelines for dispute resolution external to organizations ( This International Standard provides guidance for organizations to plan, design, develop, operate, maintain and improve effective and efficient external dispute resolution for product-related complaints.


UNDP, no year, Implementation – Managing Conflict, United Nations Development Programme (UNDP),, accessed 28.10.2015

Borden Ladner Gervais (BLG), 2012, Choosing a Dispute Resolution Mechanism, Dispute Resolution Newsletter

Delmon, V. R., no year, Dispute Resolution – Checklist and sample wording, World Bank,, accessed 02.12.2015


OECD; no year, Policy Framework for Investment User’s Toolkit. Contract enforcement and dispute resolution, Organisation for Economic Cooperation and Development (OECD),, accessed 02.12.2015


  1. UNDP, no year, Implementation – Managing Conflict, United Nations Development Programme (UNDP),, accessed 28.10.2015
  2. Borden Ladner Gervais (BLG), 2012, Choosing a Dispute Resolution Mechanism, Dispute Resolution Newsletter
Last updated 12 April 2019

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