Why Should You Agree to a Dispute Resolution Process With Your Customers? 

When negotiating commercial agreements with your customers, there are various risk issues to consider for both contracting parties. One of these risk issues is what happens if there is a dispute between the parties. Agreeing to a dispute resolution process with your customer can protect your business in various ways. This article will explore why your business should have an agreed dispute resolution process with your customers.

Why Is It Important to Have a Customer Contract?

As a trading business supplying products or services, you should always enter into a contract with your customer. A contract is a commercial agreement that records the terms under which parties will do business.

A customer contract is also a vital legal document to protect your business when things go wrong. Trading without a legally binding agreement means exposing your business to high risk and many possible problems later down the line.

Where you are negotiating a bespoke contract with your customer (and not trading on your standard terms), various points will be explored. You are likely to discuss and negotiate various different commercial and legal terms in your contract with your customers.

One of the key terms you should consider including in your contract is a dispute resolution procedure, setting out how you will resolve any disputes that arise. Including an effective dispute resolution process will help protect your business from risk, as explored below.

When Should You Agree on a Process for Resolving Disputes With Your Customer?

Whilst having the best intentions, sometimes challenges and problems arise during a contractual relationship. Therefore, you should agree to a process for resolving disputes as part of your commercial negotiations.

You should document your process by including a robust dispute resolution clause in your contract which explains what the parties must do if a dispute arises.

You will need to carefully consider which dispute resolution process is appropriate for your contract. Depending on the type of project and risks involved, you should discuss with your customer and determine which dispute resolution options will be best for your project.

Commercial parties often fail to consider these issues at the start of their relationship. However, it is vital to consider the advantages and disadvantages of different ways to resolve disputes and which methods would be most effective in the context. For example, you should consider whether mediation would be a valuable option to help you and your customer to resolve disputes.

If you need support negotiating a dispute resolution process, you can work with an experienced commercial lawyer to guide you.

Why Should You Agree on a Process for Dispute Resolution With Your Customer?

Some of the key benefits of agreeing on a dispute resolution process are as follows:

1. Greater Certainty Over How Disputes Are Handled  

Disputes can be highly stressful and uncertain. However, agreeing on a dispute resolution process will give you and your customer certainty, as the parties will know what to expect if things go wrong.

Having control over the dispute resolution process will give you comfort during your commercial relationship. You will know you have a clear procedure to follow when issues arise and a method to help resolve them. For example, you could agree upon the time periods for resolving disputes, how unresolved disputes escalate and which methods of dispute resolution should be used.

You can also specify which particular individuals at your business will be involved in resolving disputes. By allocating clear responsibilities and who will manage disputes, you may be more able to resolve them quickly.

In addition, you can agree that any disputes must be confidential – this could help avoid negative publicity about your business.

2. Potential to Save Time and Costs

Court action is stressful and time-consuming. Usually, taking a dispute to court should be the last resort.

You and your customer can agree to avoid this by including alternative dispute resolution (‘ADR’) methods in your contract as part of your dispute resolution process.

ADR is where parties resolve disputes without going to court. Common examples of popular ADR methods include:

• negotiation, where you and your customer will negotiate to resolve the dispute; and

• mediation, where an independent, professional mediator will help you and your customer reach an agreement to resolve your dispute.

In your contract, you can agree on a procedure setting out that the parties should use informal and less expensive ADR methods (such as mediation or negotiation) to resolve disputes. You can also set out that litigation in the courts should only be the very last resort if all other methods fail.

You may save significant time and money by resolving disputes through ADR rather than litigation in court. Therefore, agreeing upon these procedures in your contract could be very helpful.

3. Ability to Overcome Disputes and Avoid Damaging Relationships

By agreeing on a dispute resolution procedure, you are more likely to be able to take control of and resolve disputes faster.

For example, your contractual dispute resolution process can encourage a fast and straightforward resolution by requiring the customer to raise problems with you at an early stage.

As such, you will have a chance to repair commercial relationships and, in the best case, carry on with business as usual. Where you have not agreed on a process for dispute resolution, your customer may be more acrimonious and begin court proceedings against your business immediately.

Generally, following ADR methods is more likely to save business relationships. In contrast, litigation is adversarial. You are more likely to lose business if your customer takes you to court.

As such, well-drafted commercial agreements often include a comprehensive dispute resolution method that encourages the parties to resolve disputes through ADR. Ultimately, your commercial goal will be to do business and retain customer relationships. Agreeing on a dispute resolution could help you overcome the problems you face and achieve this.

In summary, the agreement of a dispute resolution process should be an important part of your customer negotiations and could benefit both parties in various ways.

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Key Takeaways

Although it may seem counterintuitive to agree on resolving disputes before a contract begins, this is vital. You and your customer should understand the risks of what could go wrong during your commercial project and agree on a procedure to resolve disputes in your contract. Doing so will give you and your customer certainty, could help save time and money, and even save commercial relationships.

If you need help drafting a dispute resolution procedure clause in your contracts, contact our experienced contract lawyers 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.