A business contract, as a formalisation of agreed terms, is always designed to minimise risk. The avoidance of potential dispute is a large part of that risk management process, along with the allocation of responsibility and obligation. The reason for this is simple. Business is about making money, and contract disputes slow that financial success down. In some cases, contract disputes can be so catastrophic that the business in question can never financially recover. This is, of course, the worst-case scenario, but is nonetheless a driving force behind all risk management measures taken in the preparation of a contract.
The prevention of contract disputes is a complex task and requires meticulous planning. Every contract is as unique as the business-to-business relationship and agreement it seeks to formalise, but there are basic preventative considerations that apply to the process in general. These steps must be taken from a foundation of solid understanding of what it is that the parties are trying to avoid, however.
What causes a contract dispute?
Before you can take steps to prevent a contract dispute, you must first understand how they can arise in the first place. It is not simply the case that a ‘breach of contract’ triggers a dispute. We must first determine what constitutes a breach, and what kind of dispute can result from it. In Contract Management, there are four broadly accepted types of contract breach, which each indicate the severity of the breach in question:
- Minor – As the label suggests, this type of breach is relatively small in nature, and does not impact the fundamental terms and conditions of the agreement. The parties involved all remain obligated to uphold their stipulated duties.
- Material – When one of the contracted parties has breached a fundamental term of the agreement, then the other party may be released with the option to pursue all legal actions open to them.
- Fundamental – The breach of contract violates the core of the agreement and any party involved may terminate the contract and pursue legal action.
- Anticipatory – This type of breach occurs when one party announces in advance that they intend not to meet their obligation within the agreement.
When a contract dispute arises, it can include the accurate identification of which type of breach has occurred. This is an important part of the process because it can determine the steps that follow, including the option to pursue legal action. This outline of the type of breaches that are possible can help develop understanding of the issues that can occur, causing contract disputes of varying severity. They can include:
- Inadequate performance - There can be several reasons for contracting parties failing to meet their contractual obligations. Internal business issues can cause delays or friction, as can problems with supply lines. Particularly relevant in the light of the Coronavirus pandemic are unforeseen circumstances, or extraordinary events that can prevent parties fulfilling the terms and conditions that were previously agreed. In these cases, it can be the omission of clauses such as Force Majeure that causes the dispute to arise.
- Differences in interpretation - When terms and conditions are not sufficiently explained, or are steeped in any degree of ambiguity, then misunderstandings can occur. Depending on the nature of the contract, these misunderstandings, in which each party is confident in their own interpretation of the terms and conditions, can continue unchecked for a significant portion of the contract period. In these circumstances, the parties may arrive at a critical point in the contract lifecycle and be in entirely different positions, depending upon their own interpretation of the contract language.
- Confidentiality issues - Keeping details of contract terms and conditions commercially in confidence is a crucial part of the creation of business-to-business relationships – particularly in the modern age of cyber security and data protection. Commercial contracts can include significant intellectual property, and any breach of such confidentiality can have potentially catastrophic results for one or all parties involved – commercially, and in terms of reputation.
The Contract Management Software solution
Contract Management Software is designed with risk management in mind, which means that features to help avoid contract disputes are built right in.
- Customised reporting - The ability to fully customise reports, from an oversight to a granular level, means that you can stay ahead of the curve on contract performance by generating reports that deliver actionable, accurate data about current contracts. This allows for open and comprehensive communication between parties, in an effort to avoid conflict. In the event of a compliance issue, customised reporting allows you to identify affected documentation immediately, and in time for remedial action.
- Standardisation - The most effective way to avoid instances of erroneous interpretations of terms and conditions is to standardise contractual language. With its centralised Contract Repository, Contract Management Software allows for the creation of a standardised library of templates and clauses. This means you can work to agree language ahead of time which staff then adopt for all future contract negotiations.
- Permission-based access - The security of contracts is vital, and can lead to costly disputes, so a cloud-based platform with secure permission-based access provides the necessary level of security and accountability. Only authorised personnel can access documentation from internet-connected locations, on web-enabled devices. This feature ensures that an audit trail is created, logging the activity of each user for later examination as evidence.
- Automated workflows - To avoid delays and missed deadlines, the automated workflow feature ensures that documentation arrives with the right person at the right time, with notifications and alerts to communicate required tasks across the team. This allows you to keep ahead of milestones and points for review, as well as providing an opportunity to identify delays and bottlenecks in the workflow that may give rise to dispute. It also ensures accountability through transparency.
The very best Contract Management Software systems, such as Symfact, are built around features that enable your business to prevent contract disputes as a fundamental part of the contract creation and Contract Management process. Call Symfact today to arrange your free demonstration.