How to avoid disputes in supplier contracts

Lawyer Mark Rhys-Jones explains the best practice for managing supplier agreements.

Lawyer Mark Rhys-Jones explains the best practice for managing supplier agreements

Contracts to supply and implement IT systems are notorious for leading to disputes between the parties involved. Yet these are also the contracts where the parties most need to avoid disputes, and to resolve those that arise quickly and effectively. By their very nature, contracts in the IT sector require the parties concerned to co-operate to ensure delivery of the system.

Unless the contract is managed effectively, problems can develop into large disputes that cause disruption and loss to both supplier and user organisation, usually at significant cost. The risk of disputes arising can be reduced by following a few simple steps.


Communicate

Many disputes arise simply because the parties fail to communicate. This lack of communication can create substantial problems in IT contracts where the user may have a limited understanding of the nature of what is being delivered.


Understand the contract

Anyone who has been party to an IT supply contract will know that they are lengthy, complex documents. Both sides to the agreement need to understand what the contract says.

It will help if there is a single project manager appointed from each side who has in-depth knowledge of the contract and will take control of administering the project. Additionally, the entire project team should be given a basic understanding of the main terms. The preparation of a contract summary can be useful for this purpose.

Follow the contract

Having understood the terms of the contract, ensure it is followed thoroughly. Most contracts will include a baseline change request procedure. Yet one of the more common disputes can be over variations in the project where the documented procedure has not been followed.


Keep a paper trail

Disputes often arise as a result of differing recollections or uncertainty over points that have been discussed. The recording of meetings or telephone conversations in writing can be invaluable in subsequently proving what was agreed.

A minute signed by both parties is clearly the best form of evidence, but notes written by one party at the time of the contact are better than nothing - particularly if these notes have been sent to the other party and the contents were not disputed.

In the same vein, if you receive written minutes of meetings or telephone conversations from the other side that you disagree with, this should be raised as soon as possible. Failure to dispute a point at this time might subsequently be construed by a judge as acceptance.


Take care creating documents

If it becomes clear that a dispute is looming, ensure that the organisation's project team is cautious about creating documents that might be disclosed to the other party or to a court in any litigation.

E-mails can be particularly troublesome as they are often treated as informal communications; writers might commit something to e-mail that they would not be prepared to put on paper.

But from a legal perspective there is no difference and both forms of communication can be disclosed as part of a litigation process. Additionally, as e-mails can be distributed easily to a wide audience, they might find their way into the other side's hands at an early stage.

The above guidelines should help to minimise the likelihood of problems developing into fullblown disputes. But if disputes do arise, the parties involved should look to manage them proactively and ensure they are resolved quickly and with minimum disruption to the project.

Mark Rhys-Jones is a partner at international law firm Eversheds

www.eversheds.com



Steps to help stave off disputes

Don't avoid communicating with the other party

Understand the contract and ensure that your project team is aware of your obligations

Follow the contract and agree on and document any variation to the original terms

Keep a record of all meetings and conversations that affect either side's obligations under the contract, no matter how informal these appear

Avoid creating harmful documents, even if these are for internal circulation only.

Read more on IT project management

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