Risk policy is weak

17 October 2007
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18 October 2007 | Paul Snell

Increased use of risk management has failed to improve the way buyers and suppliers handle commercial disputes.

According to a study conducted by UK law firm Nabarro, which surveyed 100 lawyers and risk managers, only 12 per cent of risk management policies have detailed information on how to resolve conflict, and a further 27 per cent cover the topic "superficially".

The firm's Controlling Conflict report said even when risk management was in place, it was handled poorly: "It has been less effective than anticipated. Nearly two-thirds of organisations have no training programmes on dispute avoidance."

Jonathan Warne, partner at Nabarro, told SM: "When risk management policies were in place the implementation was not as robust as it might have been. People were not trained to handle the policy."

Commercial disputes cost UK businesses £33 billion a year. Those arising between firms and their suppliers are the third most frequent type of dispute, behind customers and employees.

Common causes of disagreement include poorly written or non-existent contracts. "If management is serious about reducing disputes then one of its first steps must be to set out clear contractual procedures," the report said.

"One thing the contractor needs to look at is getting the documentation in line," adds Warne. "Many people try to rush through the negotiations and the legal documentation is not concluded."

Resolving conflicts without resorting to legal proceedings is also becoming more popular. "Courts only focus on the legal or financial remedies," said David Liddle, managing director at mediators Total Conflict Management. "A resolution through mediation is far more likely to be sustainable."


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