Contract Disputes – How do I avoid them?
All businesses are based around contracts and the electrotechnology and broader construction industry is no different. From employment contracts, to purchase order terms and conditions, subcontractor agreements and service agreements, to name a few.
With almost every aspect of the business being governed by a contractual relationship, sometimes, something is bound to go wrong, resulting in a contractual dispute. This is why managing the factors that could lead to a dispute, is crucial to your business, minimising the risk of a dispute arising.
Below are just 5 of the questions you should ask yourself before signing a contract.
1. Is the contract complete?
“This Agreement constitutes the entire agreement between the parties and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to this subject matter.”
That is an ‘entire agreement’ clause and can be found in almost every contract. It seeks to limit the terms and conditions of a contract only to what is written in the agreement. It expressly seeks to exclude any prior agreement, any verbal agreement and any representations made from one party to another.
Before you sign a contract, read through it thoroughly to ensure that everything you and the other party agreed to, when negotiating the contract, is contained within the Agreement.
2. Can I terminate the contract earlier?
“Either part to this Agreement may terminate the services reserving all other remedies and rights in whole or in part under the following circumstances…”
Early termination becomes important where it becomes clear that one party will not be able to comply with the terms of the contract. Early termination clauses allow for you to avoid a lengthy and costly process to terminate a contract.
The clause may contain a notice period that needs to be given and the specific conditions under which the early termination can occur, for example, if one party:
- has failed to pay the other;
- has failed to supply the products or service, or
- is facing economic difficulty, such as insolvency.
3. What does the insurance cover?
If your contract requires insurance, it should set out clearly who has responsibility for arranging the relevant insurance and who is to be covered by the policies. You should familiarise yourself with the insurance policies:
- Does it contain an indemnity?
- Does it contain any exclusions?
- What are the obligations around maintaining the insurance?
Insurance clauses differ from one contract to another, as different contractual arrangements require different types of protections and coverage. You must read these clauses and ensure it is specific to your contract to avoid disputes around damages, where the insurance may not cover it.
You need to work closely with your insurance broker, to ensure your business has the appropriate cover for the contract under consideration.
4. Does it contain a Dispute Resolution clause?
“If a dispute arises out of or relates to this Agreement, or the breach, termination, validity or subject matter thereof….the parties to the Agreement and the dispute expressly agree to endeavour to settle the dispute in accordance with this dispute resolution clause…”
Despite both your attempts to avoid a dispute, there is always a possibility that something may go wrong. As such your contract should contain a dispute resolution clause. This clause sets out the steps that you and the other party to a contract agree to follow if a disagreement occurs during the term of a contract. This is important, as it allows you to retain control of the dispute and allows for commercial flexibility where you can have private negotiations. Otherwise, the dispute would go straight to litigation which can be a rigid, expensive and lengthy process.
With such a clause you need to consider if there are any time limits, whether it excludes access to courts and whether it binds the parties to an outcome.
5. Has my contract been reviewed by a lawyer?
Contracts can be complex and lengthy and you may not have the time, capacity or capability to review a contract thoroughly. Signing off on a contract without understanding the clauses or the risks involved can result in costly litigation , imposes a huge impost on your time and impacts on cash flow.
Having your contract legally reviewed can avoid such problems.
At Constructive Legal Solutions, we provide focused legal analysis, addressing any specific concerns you have as well as doing a holistic review of the contract and presenting recommendations on any clauses of concern.
We recommend getting in touch with us at the earliest possible stage to give you time to digest our contract review and to allow time for you to negotiate terms and conditions with the other party and follow up with your insurer (if applicable).
You can get in touch with us via firstname.lastname@example.org or 1300 972 092.