How Can a Contract Help to Avoid Business Disputes?

Contractual disputes can be very stressful and damage customer relationships. However, there are key protections you can put in place in your customer contract to prevent business disputes from arising. This article will explore some key clauses you can set out in a contract to help avoid business disputes. 

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Why Contracts Are Important 

A business contract is a key legal document for your business. Businesses often draft contracts to help protect them when things go wrong. 

You should draft your contracts carefully and tailor them to cover your specific products and services. Likewise, it is critical to regularly update them as your business changes. If you do not use a bespoke written contract, you are exposing your business to high risk.

Additionally, you should work with an experienced commercial lawyer to draft a contract which is tailored to your business. An experienced lawyer will help you understand what could go wrong and include contractual provisions to mitigate against those risks.

How Contracts Can Help Avoid Disputes

The following are three key ways a contract can help prevent disputes.

To Make Party’s Obligations Clear and Avoid Mismatched Expectations

Ambiguities in business relationships often lead to problems and disagreements. In particular, mismatched customer expectations are a common cause of disputes. However, a contract can document the contractual obligations of each party very clearly. 

If there is anything particularly bespoke or niche that your customer requests, ensure you lay it out in your contract. That way, you are comfortable with your obligations and what you need to deliver to keep the customer happy. 

Your contract should set out specific provisions around:

• when does the contract start, and when will it end; 
• what dates you will deliver the products or services; 
• what dates payments are due from the customer; 
• how much money extra work will cost the customer; 
• what documentation or support the customer needs to give you so you can fulfil your commitment;  
• what happens if unexpected events delay the delivery of your products or services and 
• in what circumstances the parties can terminate the contract.  

Clearly, documenting the relationship between the parties will mean there is less room for arguments and misunderstandings.

To Give You a Chance to Fix Problems

Naturally, things will go wrong from time to time. However, your contract can give you specific time periods to correct problems and fix certain breaches of your obligations. 

You can also include specific remedies to problem issues. Suppose you are delivering products to a customer and the products do not match the description you gave the customer. In that case, you can include a procedure to investigate the products and repair or replace them. By including remedies in a contract, you and the customer may be more likely to resolve problems and prevent them from escalating into formal disputes.

To Outline a Specific Procedure to Resolve Potential Disputes

A written contract can set out a clear way to resolve problems when they arise, for example, by laying out an informal dispute resolution procedure. This can be extremely useful so parties know what to do when a problem arises and do not ‘jump the gun’ by making a claim in court. 

For example, well-drafted contracts may specify that the parties should first discuss disputes informally (e.g. through discussion and negotiation). 

The parties may need to follow the procedures set out in the contract before they can take more formal legal action (such as litigation in the courts). Therefore, you can attempt to resolve customer problems quickly before they escalate. A dispute resolution clause can also help manage customer relationships effectively and save time and cost. 

Ultimately, a well-drafted contract can be extremely beneficial for both parties and minimise risk. There are various useful provisions that you can include in your contract to help prevent disputes from arising and constructively manage problems. 

Key Takeaways

A contract is a key document for every business and can help prevent disputes from arising. A well-drafted contract can minimise dispute risk in various ways. For example, a contract can set out clear obligations to avoid mismatched expectations. A contract can expressly include remedies for certain problem issues and a procedure to resolve customer problems. Businesses should invest in robust contracts to minimise risk and give them comfort when trading. 

If you need help taking steps to prevent your business from risk and drawing up commercial contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.