Get the contract right to avoid disputes such as the e-Borders skirmish

Readers will remember the recent success of the home secretary in winning the right to challenge an award of £224 million compensation made against the Home Office in favour of Raytheon in respect of a cancelled contract.

The case serves as a useful illustration of what remedies might be available to suppliers where contracts are cancelled by government.

The contract was for the delivery of very substantial technology systems for the e-Borders programme and was terminated in July 2010. There were issues about the responsibility for the termination. Arbitration proceedings commenced and the panel of arbitrators made an award in favour of Raytheon. This was recently set aside by the High Court which ordered that a different arbitration panel deal with the matter.

What methods of redress can suppliers use if they encounter a similar dispute?

Contracts will usually provide for various methods of resolving disputes or differences. The most common are:

1. Court proceedings

2. Arbitration – where the outcome is decided by an individual or individuals outside the court system

3. Expert determination – where an "expert" decides the outcome. This is often chosen for technical aspects or matters

4. Alternative dispute resolution, such as mediation, where an independent person helps the parties to negotiate an agreed outcome

There are limited circumstances in which the awards of arbitrators and experts can be challenged. In the Raytheon case the Home Office's grounds for challenge put to the High Court was there was a "serious irregularity" in the arbitration, namely that the arbitrators did not deal with the issues put to it.

The case is a reminder that a key aspect to seeking any redress is what is in the contract at the outset and how performance is managed throughout. These will be the main ingredients for a claim either under the contract itself or for breach of contract.

Getting the contract right or as best one can and managing it, involves a very substantial investment in time and resource. It is also recognised that contractors are often dealing with standard terms that are subject to little or no negotiation.

If issues do arise during the course of a contract then it is important that they are addressed and documented at the time and prompt advice is taken so those involved can best conduct themselves and preserve or maximise any right for redress. For example in the Raytheon case there was a dispute as to the termination itself, which perhaps could have been avoided.

☛ Jeremy Lederman is a partner and leads the commercial litigation team at law firm Wedlake Bell

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