UK: Issue 4: Managing Risks And Disputes

Digital Transformation And Outsourcing Contracts
Last Updated: 11 September 2019
Article by Sarah Ellington, Simon Kenyon and Silvia Farre

This is the fourth of a series of fortnightly articles in which we will give practical tips on how to avoid contractual issues arising out of digital transformation and outsourcing contracts. If you'd like to read the previous issues in the series, click here.

Our third issue, titled "Record-keeping matters", outlined the importance of maintaining clear records and provided a series of tips to assist with this process. This issue provides a number of tips to ensure that parties make the requisite risk assessments before deciding to enter a dispute, and highlights the potential for alternative avenues of resolving issues between them.

Tip 1: Underperformance - don't shy away from invoking contractual mechanisms

  • In long-term contracts, contractual mechanisms relating to underperformance are often designed to help the parties to get the contract back on track, rather than to take what might be considered more adversarial action.
  • It may seem counterintuitive to insist on strict contractual rights when you want to foster a relationship of cooperation. However, not insisting on your rights may result in you waiving them, meaning you may then be unable to take the necessary steps to protect your position and interests in the future.
  • Maintaining a consistent approach to insisting on your contractual rights will educate the other party as to your legal expectations and so hopefully lead to fewer, unhelpful surprises.

Tip 2: Document evidence - keep clear records

  • A written contemporaneous document will both aid memories and add weight to witness testimonies.
  • Make it a habit (not a chore!) to keep a paper trail, which can be internal. See Issue 3 - Record-keeping Matters! for practical tips on effective record-keeping.

Tip 3: Involve your in-house and external lawyers

  • It can often be difficult to assess the balance of risk and reward from initiating a dispute. Your lawyers can provide you with an objective and experienced evaluation of the benefits and risks, as well as suggesting practical alternative plans of action.
  • Engaging your lawyers at an earlier stage may enable a commercial resolution before a dispute becomes unavoidable, for example, by applying pressure on the other party to fulfil its contractual obligations.
  • They can also advise you on how to approach a specific issue, guiding you on how to correspond with the other side and making sure that communications will help, rather than frustrate, any actions you wish to take later on.
  • They can also assist in preparations for settlement meetings, enabling you to achieve a more favourable outcome, which can be recorded clearly and in writing. This should minimise the risks of further disagreements about the scope and meaning of any agreement reached.

Tip 4: Disputes - use the "without prejudice" rule to your advantage

  • Allowing a dispute to fester can just make positions more entrenched.
  • In working to reach a settlement, use the cover of "without prejudice" (which protects communications between parties to a dispute from being put before the court when those communications are genuinely aimed at settlement) settlement discussions to find out the real monetary value of an issue, rather than get caught up in theoretical arguments. It could be that the gap between the parties is smaller than everyone thinks!
  • It is frequently the case that those "without prejudice" discussions can run in parallel with the framing of each party's formal legal position so that each party knows the risks of not settling the dispute.
  • Consider using an informal mediation process using a third-party mediator who acts as an "honest broker" to facilitate a compromise/win-win solution.

Tip 5: Disputes: ask yourself - does it matter?

  • Entering into a dispute carries with it inherent risks, so it is important that the decision to do so is a considered one. Before making the decision, any business should ask itself:
    • What, specifically, do we need?
    • When do we need it by, and why?
    • Under which contractual provisions are we entitled to it?
    • What is the real consequence if we cannot get it - does it matter 'in the real world'?

Tip 6: Don't be afraid to commence proceedings

  • If attempts to reach a mutual understanding fail and you have determined that the issue is significant (See Top Tip 5 above), commencing a dispute can often be the most efficient and only effective solution.
  • With the benefit of informed legal advice, never be afraid to assert your rights and commence proceedings if needed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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