Contracts are generally written in a manner meant to deter breaches, minimize risk, and allocate responsibility in the event of a dispute. Unfortunately, even the most well written contracts often succumb to issues that result in lengthy contractual disputes. Sometimes these breaches are due to inadequate performance from one party, general misunderstandings, or differing interpretations of certain contract provisions. Of course, there are also many other reasons that a contract dispute may arise. Here are five tips to prevent that from happening:
Negotiate in Good Faith
One of the key principles of contract management is the duty to negotiate in good faith. Unfortunately, there are unscrupulous firms operating that will knowingly engage in deceitful practices for the sake of obtaining a good deal. If there is any sign or evidence of this during the negotiation phase, the other side should cut and run as quickly as feasible. For example, if one side makes outrageous demands, is completely inflexible, or is deliberately concealing material information, the arrangement is simply not worth pursuing. A good contract is one that is fair and equitable for all parties involved, as this sort of contract is far less likely to cause disputes down the road.
Prioritize Punctuality and Communication
Once a contract is signed and the management of that contract actually begins, it is imperative for both sides to act in good faith as well. Obviously, this will entail meeting deadlines in a punctual manner and making payments as scheduled. But, this also requires a healthy relationship that values communication in the event that there is a potential issue. In far too many instances, a party to a contract is too afraid to present a possible problem to the other side, and things inevitably begin to snowball, resulting in a larger issue that is harder to resolve. To avoid a potential dispute, parties should feel comfortable communicating and should work together to problem solve.
Focus on the Ends and not the Means
Contract disputes frequently arise because of one side’s attempt to micromanage every facet of the agreement. Granted, it is important to maintain oversight and to expect timely communication, but resentment and frustration will likely build if one side is calling all of the shots. These days, most companies value agile, outcome-oriented contracts rather than overly detailed and cumbersome contract agreements. It is less likely for there to be minor problems that devolve into a major dispute when the contracting relationship focuses on the endgame.
Automate as Appropriate
One of the fastest and easiest ways to prevent a contract dispute is by automating the contract management process. By using an online system to house and manage a contract portfolio, contract deadlines, key milestones, and progress can be measured and evaluated quickly and efficiently. Although utilizing technology (such as CLM software) presents its own set of challenges, human errors are far more likely to cause a contract dispute.
Incorporate Reasonable Recourse
Regardless of one party’s efforts to avoid a dispute, there is always a rather significant possibility that something will go wrong at some point. This is particularly true with complex contracts, international agreements, and long-lasting contracting relationships. As a result, a contract should contain clauses addressing recourse in the event of a dispute. In addition to hopefully deterring certain actions by spelling out the consequences, this contract language can actually help guide the parties, or perhaps an arbitrator or judge, in figuring out how the dispute should be addressed.
The Master Checklist for Contract Review & Management
Tips and best practices for a successful contract management process.