Identifying, preventing and resolving contract disputes
The Insight
Contract disputes arise from misunderstandings or misinterpretations of project contract documents or terms. Rarely do any two people see things the same – their experience influences their perspective. In the world of project contracts, different opinions can quickly escalate to formal disputes.
Typical triggers for disputes include:
Financial imperatives
Interpretation of the contract documentation
Latent or unanticipated circumstances
Unrealised expectations, primarily around time and cost
Variation requests
Conflict impacts both parties of a contract and often, both parties have alternating proposals for the solution. While there are many ways to resolve conflict, it’s important to come to a resolution that is cost effective and has a succinct and timely action.
The Impact
Disputes are costly, but with early and effective communication they are preventable.
As the project manager, it’s important to understand your contractual documents, each party’s time and cost expectations, and to have a fair and reasonable approach to the situation. There is no room for secrecy and subversive behaviour.
Good relationships are the cornerstone to any contract and must be secured and maintained throughout the life of the project and beyond.
Disputes can be resolved (and ideally avoided) by establishing:
Open discussion as early as possible
Clear and unambiguous documentation, specifications, drawings and correspondence
Regular and effective communication (do not rely on emails as they can be misconstrued)
Proactive and cooperative relationships
Unresolved issues can sour a project. It is important to work together to resolve disagreements as early as possible. There is often more clarity and access to “paper trails” at the early stages of events. More importantly, if a matter is resolved as soon as possible, there is less opportunity for negative feelings to fester.
Resolution that considers all points of view will achieve a win-win outcome for all parties and the project.
Finally, the principles of cooperative contracting apply:
All parties are informed
Early warning is given on any matter or disagreement
Communication is regular
There are no surprises
These principles are incumbent on all parties in ensuring the success of the project, and generally when followed, should dilute disputes.
Speak early and speak often!