Dispute Resolution and Arbitration
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If it is not possible for the client and contractor to settle whatever dispute is holding up the project, the usual next step is arbitration. This process generally involves a neutral party who reviews the facts of the dispute, judges the situation, and rules in favor of the client or contractor. If the client wins, his/her money is generally refunded; if the contractor does, the client may be required to pay funds, or escrow funds may be released, contrary to the client’s desires.
Most sites fall into one of three categories when it comes to arbitration: they provide arbitration services themselves; they outsource arbitration to a third party; or there is no support provided for arbitration at all. The first solution is the best, assuming the site does it in a competent way, but few sites implement their own arbitration mechanism—it is complex and expensive to operate. Third-party arbitration can be effective, but introduces problems such as cost, complexity and scheduling delays. If no arbitration is supported at all, the client and contractor may end up having to take the matter to the courts, or one party or the other may just give up and lose either money or time invested in the project.
Where arbitration is supported, there are a number of implementation details that are important. One is the matter of when arbitration is allowed; that is, what do the parties have to do to prove they have exhausted other options before the site will proceed to arbitration. Another key issue is who pays for the service, and under what conditions; one site might just split the cost between the client and contractor, while another could go with a “loser pays” system to provide a disincentive for frivolous arbitration requests. Finally, there may be other particulars, such as what happens to escrowed money during the arbitration, how and if appeals are handled, and so forth.
One issue indirectly related to dispute resolution is how sites handle chargebacks. If a client makes a payment for a transaction by credit card that he or she feels was fraudulent or not carried out properly, that individual can under some circumstances request that the funds spent on the card be credited back to them. Sometimes a client can even do this when the work was done properly!
Since most sites use indirect payments, this means the freelancing site is charged back the amount spent, and then the question becomes: what happens next? The freelancing site doesn’t want to have to eat the money, so they will often come after the contractor to recoup the money. But if that can be done to funds in escrow, is the company undermining its own escrow system? Some sites are even worse, allowing chargebacks on payments already transferred into a freelancer’s account.
Needless to say, this is an important policy concern. It is very easy for a company to claim that they care about safe payment, but few are willing to stand by this assertion when the rubber hits the road. I’ve had the experience of having funds yanked back from my account after a chargeback, and it is extremely rage-inducing—especially when the site advertises how “safe” it is to work using their service.
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Last Site Update: October 21, 2011
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