If it comes to a dispute

SME Website - 13/02/2009

If it comes to a dispute

In the current financial crisis, companies are taking a much closer look at the terms and conditions in their contracts to ensure that payments from customers are made on time and that all obligations are being met by both parties.
For the SME this means that they may be coming under increasing pressure from customers and larger suppliers in terms of performance of and payments under the contract.

As such the chances of a contract falling into dispute is potentially much higher.

Michael Porter, Associate Director of commercial and contract management consultancy Blake Newport offers SMEs some practical advice on dispute avoidance and if all else fails… resolution.

It is safe to say that controlling cash flow is likely to be at the top of any corporate agenda at the moment – an issue that is only being compounded by the increasing amount of companies suffering from late payments and contractual disputes.

It is very difficult for SMEs in any industry to deal with contractual disputes or late payments, as maintaining the client / supplier relationship tends to be the key to a strong business.

A dispute is not something that should be carelessly permitted to develop - it is far better, after all, to maintain communication and steer clear of disagreements than to plunge in feet first and with all guns blazing. But if the worst cannot be avoided, then remember that resolving disputes is a specialist subject that should be undertaken with much care and consideration, and with the following pointers in mind:

Firstly, make sure that both parties have identified the existence of a dispute. Clearly understanding what both parties believe the dispute is, can assist in its resolution where there has been a mis-understanding. Whilst you may believe you have a legitimate claim, until the other party actually disagrees, there is no dispute to resolve which makes resolution of the dispute impossible.

Check your contract, this should identify the process or processes of how to go about settling a dispute. Be warned – failure to have a contract in place could seriously limit your choice of dispute resolution procedure.

Remain open to negotiations and deal with disputes as soon as they arise - don’t allow the situation to reach a stalemate. If a solution can be found through negotiation it will be far cheaper and less time-consuming than allowing issues to develop into a full-blown, formal dispute . Always set yourself a strict timeframe for negotiations and stick to it.

Ask yourself – does the pursuit of an issue via formal dispute resolution make clear financial sense, irrespective of the strength of the claim? This may depend upon weighing up the value of the dispute against the risk of losing or the cost of winning - will you for example lose a customer or a valuable supplier? Early settlement of a dispute even where the outcome is not the ideal result is often the better option. Once a dispute is underway, costs can easily spiral and become much higher than the value of the issue(s) actually in dispute.

Seek third party advice before commencing a dispute. A third party can offer advantages such as clarity, neutrality and objectivity and may well propose a solution that you have overlooked or help to break a deadlock between two parties. Remember, if the dispute does not involve a point of law, establish whether there is a genuine need to pay for legal advice.

Whatever the process of dispute resolution, the best advice is to keep communication open and remain clear and focused on the end objective of maintaining relationships and contracts. In an ideal world however, dispute resolution should be avoided. Careful contract management and planning along with a clear understanding of both parties obligations under the contract from the outset are the key to ensuring that contracts run smoothly and disputes are avoided. Ultimately, this is always the best way to do business.

Written by Michael Porter, Associate Director of commercial and contract management consultancy Blake Newport.

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