The Power of a Dispute Resolution Clause
Contract disputes don't always end up in court. But even if they don't, they are more expensive and take longer to resolve than they should.
Unfortunately, most contract disputes end up costing more in legal fees than the amounts at stake. If resolving a dispute costs more than the dispute is worth, is it worth pursuing?
Sometimes it is: some disputes are over a very large dollar value or involve bet-the-company issues, so they are important to see through regardless of cost. But that's rare. For the vast majority of contract disputes, the cost of litigation far outweighs the benefit, regardless of who ends up winning.
So what is a business to do?
One of the most effective strategies to avoid expensive disputes is having effective contracts.
What makes a contract effective? Not to be snarky, but an effective contract is one that works. It clearly defines the scope and each party’s rights and obligations. When a dispute happens, the parties will look to the contract to see who was supposed to do what, when and how.
It’s interesting to note that dispute resolution clauses are rarely included in contracts. And that is a big mistake. Though no one enters into a contract expecting a dispute, when a dispute happens, it is good to have a roadmap for how to resolve it in a fair way. And that’s what a dispute resolution provision provides.
There's no single standard way to set it up, but one thing is for sure: agreeing on a dispute resolution provision while everyone is getting along is a lot easier!