Dispute resolution procedures — the pre-agreed roadmap for the disagreement no one designed for.

Most M&A disputes are not lawsuits people wanted to file. They are disagreements that escalated because no one designed an off-ramp. A tiered DRP is the off-ramp — it forces parties through cheaper, faster, less destructive options before reaching the expensive ones.

§ 01 · The three flashpointsWhere deals actually break down.

Three areas generate the majority of post-closing disputes. Earnout agreements are the highest-litigation provision in M&A — disagreements over EBITDA or revenue calculations during the earnout period, or whether the buyer made operational changes (staff cuts, account reassignments, pricing changes) that unfairly reduced the seller's payout. Purchase Price Adjustments become contentious when the parties lack agreement on accounting methodologies — specifically how to treat accruals, bad debt, and line-item classification. Indemnification claims generate fights over whether a specific post-closing issue (undisclosed liability, E&O claim, tax deficiency) constitutes a breach of the seller's representations.

§ 02 · MediationThe collaborative approach.

A neutral third-party mediator facilitates negotiation between the parties. The mediator does not impose a decision — they act as a diplomat, helping both sides identify common ground and reach a voluntary compromise. Mediation is non-binding; either party can walk away.

Mediation is best for preserving relationships. If the seller is staying on as an employee or consultant post-sale — common in agency transactions with TSAs or earnouts — mediation keeps the working relationship intact. A courtroom battle poisons collaboration. The cost is significantly lower than arbitration or litigation: typically $5,000–$15,000 for a single session.

§ 03 · Binding ArbitrationThe private judgment.

A neutral arbitrator — often a retired judge or industry expert — hears evidence from both sides and issues a legally binding decision. The proceeding resembles a simplified, private court hearing. Both parties present evidence and arguments, but the proceeding is confidential, unlike public litigation. The arbitrator's decision is final and enforceable — there is generally no appeal.

Best for serious breaches where negotiation has failed and a definitive resolution is needed without the public exposure, procedural delays, and expense of a full lawsuit. The seller's advantage: arbitration is generally faster (months vs. years for litigation), confidential (the dispute stays private), and less expensive (limited discovery reduces legal costs).

§ 04 · Accounting ArbitrationThe specialist.

For disputes specifically involving numbers — working-capital true-ups, earnout calculations, or financial metric disagreements — a neutral CPA firm (the Independent Accountant) reviews the math and issues a binding determination.

The mechanism: the contract names or establishes criteria for selecting the Independent Accountant. They rule only on the specific disputed financial calculations, not on legal questions, contract interpretation, or intent. The key restriction is that the Independent Accountant's determination must typically fall within the range bounded by the buyer's calculation and the seller's calculation — they cannot award a number outside this range.

The benefit is speed. A financial dispute that might take 12–18 months in arbitration can be resolved in 60–90 days by an Independent Accountant.

§ 05 · The tiered DRPThe escalation ladder.

The most effective contracts use a tiered structure that forces parties through cheaper options before reaching the expensive ones.

Tier 1 — Direct Negotiation (the cooling off). A mandatory 30-day period where principals from both sides must meet to attempt resolution. Many disputes settle at this stage once emotions cool and the actual dollar amounts are examined objectively.

Tier 2 — Mediation. If direct negotiation fails, the parties must attempt non-binding mediation before escalating. This adds another off-ramp before expensive proceedings begin.

Tier 3 — Binding or Accounting Arbitration. Only if mediation fails does the dispute proceed to binding resolution. Financial disputes route to Accounting Arbitration; legal disputes route to Binding Arbitration.

The timeline matters. The objection notice typically runs 30 days from receipt of the calculation. Direct negotiation runs 15–30 days from the objection. Mediation runs 30–60 days from negotiation failure. Accounting arbitration resolves in 60–90 days; binding arbitration in 90–180 days. The whole ladder, end to end, is faster than the 12–24 months of a courtroom path.

§ 06 · Where to focus drafting attentionThe earnout clause.

Earnouts are the single most litigated provision in M&A. The DRP language attached to the earnout clause deserves more attention than the DRP language attached to anything else. Specify: which arbitration track applies (Accounting for calculation disputes, Binding for covenant/control disputes); whether audit rights run pre-arbitration; what reporting cadence the buyer owes the seller; what counts as a "trigger event" that starts the objection window. Vague earnout DRP language is how a 50%-probable earnout becomes a 20%-collectable earnout.

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