Avoiding contract disputes – How to manage your contracts

Once you have entered into a contract with another party, there are steps you can take during the life of the contract which will minimise your chances of getting into a dispute. These are as follows:

• Know the contract – some people take the view that a contract will never be referred to after it’s signed unless there is a problem. However, it’s probably better from a risk management perspective that the contract is a living, working document which clearly articulates the performance obligations of each party. The better the quality of the information contained in the contract, and the clearer the performance terms, the less likelihood there will be grounds for dispute between the parties. The parties to the contract should have a proper understanding of the terms of the contract and make reference to the contract in their decision-making process.
• Amendments – if it becomes obvious the contract no longer reflects the working arrangements between the parties, consider amending the contract or entering into a new one. Many disputes have arisen because the parties have abandoned the original terms of the agreement, but the new terms under which they’re operating are uncertain. If there are amendments that are verbally agreed to, make sure those amendments are reduced to writing, even if it’s just by email exchange. Any important discussions relating to the performance of the contract should also be confirmed in writing.
• Communication – make sure communication protocols under the contract are set up and followed. You should be very careful about what you write in emails and make sure there are protocols for everyone in the organisation to follow about what can be sent to the other party. Emails are generally the most dangerous area for the erosion of contractual rights.
• Keep channels open – where uncertainty arises, disputes often escalate if there is poor communication between the parties. This might mean there is an inability to talk between the parties, or that one of the parties feels the need to save face where unforeseen circumstances have arisen. This can result in the parties resorting to legal means of handling the dispute too quickly. Ensure the contract has a dispute resolution process built into it, aimed at avoiding disputes from escalating. It might be as simple as agreeing to a process of referral up within the organisation, so that the CEOs of each party bring fresh eyes to the dispute.
• Document management – make sure you maintain a good document management system. In that way, you will be able to easily and quickly review the position in relation to any issues under the contract before they get out of control. If a dispute arises, you will be able to respond more quickly and efficiently.
• Early warning signs – it’s important to watch for early warning signs that the contract is heading towards a dispute. This is common sense. Those early warning signs might be:

>  smaller milestones not being met

>  the other party stops communicating, or

>  the other party’s performance of certain obligations starts to slip.

More pressing warning signs might be that the payment of regular invoices becomes slow or non-existent. It’s generally a mistake to press on with the contract without resolving issues as they arise. It is therefore advisable for the business to engage in informal discussions about the performance of the contract on a regular basis and to encourage discussion about any problems that arise. The ability of an organisation to avoid disputes will, to a large extent, depend on the key people managing the contract.

• Avoid escalation – the longer a dispute remains unresolved, the greater the chance of it escalating. When it escalates, the following things typically happen:

>  The parties change from light tactics such as persuasion and compromise efforts, to heavy tactics such as threats.

>  The number of issues in the dispute increases.

>  The complaints about the other party become more general as the relationship deteriorates.

>  Other parties may get drawn into the dispute.

>  The goal changes from finding a compromise to winning at all costs.

Please contact us if you have any questions in relation to contract disputes. We can provide specialised legal advice in relation to contractual rights and obligations.