Bad punctuation invalidates supply chain agreement

15 October 2009

Link to a story

Link to a story

By Paul Hemlin

24 September 2009

Paul Carter Hemlin looks at how writing clear dispute escalation paths into a contract can help you to avoid lengthy and expensive litigation further down the line.

When creating a contract no-one likes to think about something going wrong, but what if it does?

The chance of resolving any dispute is significantly increased if purchasers draft in a process for dealing with issues.

As I have written in SM before (That's the way to do it, 5 March), when two parties fall out they will be unable to agree that Christmas falls on the 25 December, let alone agree on how they should resolve a dispute. Suggestions to move forward will be treated with suspicion by the opposing party, assuming some kind of hidden advantage or agenda for choosing one resolution process or another.

However, if the contract already deals with this eventuality and they adhere to the process - which they are bound to do - they will be part way to resolving the issue without needing to call the lawyers and commence expensive formal dispute resolution such as arbitration or litigation.

'Dispute escalation paths' within contracts provide each management level the opportunity to resolve an issue in a pre-determined timescale before it moves up the organisation. Nobody wants to give their boss a problem, therefore you would think there is every incentive on individuals to resolve the matter at their level.

However, in reality this doesn't always happen. Most disputes will be over money, time or quality, which are all emotive topics. Human nature will result in people becoming entrenched in their opinions, unable to even contemplate the position of their trading partner, who can quickly become "the other side".

If you do not include such provisions in your contracts, it is likely that, if you took your dispute directly to the courts, they would instruct you to attempt to resolve the matter yourselves or through alternative dispute resolution, before they were willing to hear the dispute.


Successful escalation paths ensure issues quickly climb to the next tier of management in the event of an impasse. A simple example of how this works is when the contract says the parties shall meet monthly to discuss progress and any issues. If either party thinks there could be a dispute, it shall notify the other party's project manager immediately. Both project managers shall meet to discuss any such issue within five days and have five days to resolve it. If the two parties cannot agree, they shall produce a joint report stating areas of disagreement.

Then the senior project managers review the report, meeting within three days and have three days to resolve. If they cannot agree, they prepare a joint presentation for the directors. If the directors cannot resolve in three days the parties shall mediate within 14 days. If mediation does not work, the parties pursue the contract's dispute resolution process.

Finally, a word of caution; do not put too many layers into your escalation path and keep the timescales short but realistic. If a party has no intention of resolving the matter you don't want the process to cause unnecessary delays in obtaining restitution.

 

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