Arbitration is a means of settling disputes without involving the court system by using a third party arbitrator to award a judgment. Many individuals and companies utilize arbitration as an alternative to lengthy court battles. The cost of arbitration depends on several factors usually relating to the arbitrator and the proceedings. These expenses include the number of arbitrators, the fees and salary of each arbitrator, administrative costs, and sometimes a contractual clause called "fee shifting."
The first factor that affects the cost of arbitration is the number of arbitrators present during the proceedings. One arbitrator is common in disputes and this person shoulders the responsibility of listening to both sides of the argument and making an award. An arbitration tribunal is a setup involving two or more arbitrators who equally responsible for making the decision. The size of the arbitration pool contributes to the cost because each arbitrator must be paid, and expenses mount up with each additional decision-maker involved in the process.
The arbitration fee is another factor contributing to the cost of arbitration. This is usually a flat fee charged by the arbitrator or the firm the arbitrator works for. This fee varies widely and does not include the payment for the arbitrator's services.
The actual pay of the arbitrator is another expense during the process. The cost of arbitration is heavily dependent upon what this individual arbitrator charges for services. These services are either billed hourly, by the day, week, month, or as a flat rate reflecting all the necessary time and effort that is associated with the proceedings. The cost can vary depending upon the arbitrator's experience and the complexity of the case.
Administrative fees are another factor altering the overall cost of arbitration. Any costs associated with space rental to hold the arbitration, paperwork that must be filed, and other miscellaneous expenses are factored into this calculation. Generally, the longer an arbitration lasts, the higher the bill because of the additional resources used.
Fee shifting can drastically change the expense of an arbitration for both parties. Fee shifting is a contractual agreement prior to the start of arbitration that states that the party determined to be the winner of the proceedings does not have to pay any arbitration costs and the loser pays the entire bill. The prevailing party in arbitration is determined by the arbitrator's final ruling. In other cases, the parties involved in an arbitration often agree beforehand to split the costs evenly.