Sometimes during the contract lifecycle – as in everyday life itself – disputes arise. These contract disputes have the potential to damage business relationships, harm reputations, and cause stress. To avoid these negative effects along with financial losses due to legal fees, operational disruptions, unauthorised disclosures and delayed project timelines, you ought to consider these five ways to avoid and manage contract disputes.
What are contract disputes?
Contract disputes arise when one or more parties to a legally binding contract believe that the other has not adequately fulfilled their contract obligations. These disputes occur when parties are not clear on or in agreement about a contract’s terms and conditions. Contract disputes have a variety of potential negative consequences, including strained business relationships, costly fees and project disruptions.
Thankfully, contract disputes can be avoided or healthily managed with the right strategy. Let’s discuss some of those strategies in more detail.
1. Contract standardisation and clarity
Contract disputes are less likely to arise when contract language is clear and concise. With straightforward and detailed clauses that consider the needs of both parties and clearly outline obligations, expectations and non-negotiables, there is less room for ambiguity and dis-satisfaction on either side.
We recommend retaining a library of standardised templates and clauses. Also recommended is a tool that allows you to merge the templates with your preferred clauses and contract metadata. For an even more standardised process, you can leverage the auto-redlining of contracts to replace introduced clauses with your preferred ones automatically. And you can also use generative AI to generate standard clauses and analyse contract sentiment to minimise discrepancies. This strategy should keep your contracts standardised and unambiguous to avoid contract disputes.
2. Clear visibility into contract terms
All parties involved in contract disputes need to readily access and reference the exact language of the contract to decrease misinterpretations and ambiguity.
Make sure you can access contracts, clauses, and metadata quickly as to not overlook any details. We recommend storing all contract documents and data on a searchable contract repository. Such a database can be used during disputes to search for contract documents, metadata, associated files, and clauses down to the key term, phrase, or even word level. Search history, saved searches, and ‘Did you mean…?’ functionality make the process even easier and more organised during the time-sensitive experience of contract disputes.
3. Comprehensive audit trails
You need a clear and verifiable record of all interactions and actions taken related to a contract during contract disputes. This record can be used as strong evidence to support your perspective and resolve the dispute fairly – promoting accountability and transparency for involved parties.
We recommend using a tool that tracks all changes made to a contract during negotiation – including who made edits and when – with numbered versions of the contract to go back to for reference. This way, you can see a clear progression path for the contract and maybe see where things went awry.
4. Healthy collaboration
Healthy collaboration is paramount during contract disputes because it allows the parties to understand each other’s points of view and work together toward a mutually beneficial outcome. Sound communication can reduce the need for costly legal situations and potentially help preserve the business union and de-escalate the conflict. Streamlined collaboration can lead to faster resolutions and the preservation of the contract.
We recommend leveraging a centralised document collaboration gateway for collaborating back-and-forth on a contract. The tool should include clause ownership to prevent unauthorised changes, in-system chatting functionality, comment tracking, and detailed approval workflows to dissolve contract disputes as fast as possible.
5. Reminders
It’s important to be organised during contract disputes to help ensure that all involved parties are aware of key deadlines, important obligations in a contract, and potential next steps. Reminders allow you to experience proactive management of disputes or evasion of them altogether. In fact, you can reduce instances of missed obligations and other oversights that cause contract disputes.
We recommend that you set up automated alerts and reminders in a contract management software system related to obligation details, key dates, contract compliance and other potential contract dispute triggers. These automated alerts can allow for proactive management of potential issues before they occur or before they escalate. Intelligent contract workflows also allow for configured task escalation in the event that a resource is not completing a task in a timely manner – further increasing accountability in evasion of disputes.
Key takeaway
The steps mentioned above are instrumental in helping to avoid or easily manage contract disputes. But why does it matter? Why go through this song and dance of an alternative dispute resolution? Well, if you don’t follow these steps toward a simple contract dispute resolution, you could:
- be in breach of contract if you as a party fails to fulfil obligations
- have parties disagree and have your counterparty file a lawsuit
- enter into a court of law
- escalate the issue to the board of contract appeals
- encounter some other situation in which you have to wait for a final decision
- have the contract changed so much it completely eliminates your intended purpose for the drafted contract.
Thankfully, you can experience all the aforementioned strategies and features for contract disputes and almost countless others with Contract Insight® contract management software.
If you want to learn how to get started with a contract management system for better contract management and avoid disputes, book a free demo with a Contract Insight® expert from Four today.
Contact John O’Brien, CEO at Four Business Solutions – global business consultants and software integrators specialising in business process improvement.
