No one likes to anticipate an outsourcing relationship going bad, but a certain number of them inevitably will. Ideally, the two parties are able to work through disagreements without resorting to legal remedies, but having a mechanism for resolving disputes short of litigation is critical \u2014 particularly when working with foreign IT services providers. That\u2019s why incorporating an effective arbitration clause into international outsourcing contracts is critical.\n\n\n[ Related: IT Outsourcing: How to Resolve Minor Disputes with Your Provider ]\n\n\n\u201cBeing able to access the assets of a counter-party to satisfy a judgment or arbitration award is a critical factor in deciding what type of dispute resolution mechanism to include in a contract,\u201d says Robert Kriss, partner in law firm Mayer Brown\u2019s Washington D.C. office. \u201cMost countries are not legally obligated to enforce a judgment issued by a U.S. court against assets located in their countries.\u00a0However, most countries\u2014including China, India and Mexico \u2014 are legally obligated to enforce arbitration awards (subject to limited exceptions).\u201d Those countries and nearly 150 others signed the New York Convention for the Enforcement of Foreign Arbitral Awards. So when working with companies with most of their assets in one of the countries that signed that international treaty, an arbitration clause is necessary for meaningful dispute resolution.\n\n\nArbitration vs. litigation\n\n\nUnlike litigation, arbitration also provides for neutrality--both in the place where the dispute is resolved and in the nationality of the decision maker, says Kriss, and arbitration proceedings are also more confidential than judicial proceedings.\u00a0 While the prospect of public judicial proceedings can sometimes deter IT providers or give the customer settlement leverage, arbitration is generally a faster and less expensive alternative.\n\n\n[ Related: Why CIOs can't wait to renegotiate their outsourcing contracts ]\n\n\nNot all arbitration clauses are created equal, however. Every international arbitration organization offers a standard clause IT service buyers can put into their contracts. \u00a0Such clauses typically state that all disputes arising under or in connection with the agreement\u00a0shall be resolved by arbitration under the rules of a specific international arbitration organization. \u201cWhile such a standard clause is enforceable, more is required to make the arbitration clause workable and to minimize disagreements at the time of arbitration,\u201d says B. Ted Howes, partner and leader of Mayer Brown\u2019s U.S. International Arbitration practice. \u201cAlso, because each contract is different, there are a number of optional provisions that parties should consider adding to an arbitration clause depending on the nature of the contract.\u201d\n\n\nLarge, complex outsourcing deals may justify more robust arbitration process, says Brad Peterson, partner and co-leader of Mayer Brown\u2019s Business & Technology Sourcing, while it might be more efficient to create a simpler arbitration approach with limited discovery for smaller contracts. \u201cA particularly technical sourcing effort might call for a requirement that the auditor be skilled in the technical specialty,\u201d Peterson adds.\n\n\nImprecise language of an arbitration clause in an offshore outsourcing contract can be not only insufficient, but also dangerous. Indeed, one word can make a difference. A classic example of a poorly worded arbitration clause is one that states that all disputes arising between the parties may be resolved by arbitration. \u201cBecause arbitrators are authorized to resolve party disputes solely by the terms of the contract, it is necessary that parties use the word \u2018shall\u2019 rather than the word \u2018may\u2019 in delegating authority to the arbitrators,\u201d\u00a0Howes says.\n\n\n\u201cIf the contract states that the disputes "may" be resolved by arbitration, it opens up the arbitration to jurisdictional challenges.\u201d Other poorly worried arbitration clauses fail to state where the arbitration will take place or fail to state the language of the arbitration. \u201cWhile these clauses are enforceable, they are subject to disputes that increase the length and expense of arbitration,\u201d says Howes.\n\n\nAt a minimum, Howes and his fellow attorneys at May Brown recommend that the following information be included in every international arbitration clause:\n\n\nA provision stating that "all disputes arising under or in connection with the agreement shall be resolved" by the rules of a particular international arbitration organization\nA clear location of arbitration\nThe number of arbitrators involved (typically one or three)\nThe language in which the arbitration process will occur\nAn agreement that any awards\u00a0issued by the arbitrators "may be enforced in any court of competent jurisdiction"\n\n\nA number of additional optional provisions should also be evaluated on a contract-by-contract basis, says Howes. Some customers include an expedited arbitration provision, for example. \u201cExpedited arbitration can be very effective in maintaining a good working relationship in outsourcing relationships where numerous disputes involving relatively small amounts of money may arise and\u2014if not quickly resolved\u2014accumulate and put stress on the relationship,\u201d Kriss says.\n\n\n\u201cThe contract can provide for a single arbitrator, an accelerated briefing schedule, no discovery, and resolution within a very short period of time (say, 30 days).\u201d\u00a0 Each party submits a resolution to the arbitrator, the arbitrator holds a two-hour hearing after reading each side\u2019s brief, and can only chooses the resolution offer he or she deems fairest. \u201cUnder this procedure, the parties have an incentive to submit reasonable resolution offers and may be able to settle their dispute quickly without needing a hearing,\u201d says Kriss.