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Contract Claims & Disputes

June 1, 2010

One of the discussion forums at the recent IACCM Europe, Middel East and Africa conference focused on contract claims and disputes. IACCM research has shown that the frequency of claims and disputes has increased by more than 30% in the last 3 years, so the topic rightly generated considerable interest.

The moderator, Richard Russell, initially focused on defining the difference between a claim and a dispute. He suggested that ‘claims relate to alleged non-performance and represent the assertion of a right’. Failure to resolve a claim may, of course, lead to a dispute.

During a lively discussion, delegates compared differing industry practices, observing that some have entrenched expectations of a claim / dispute procedure ‘as a form of economic restoration or rebalancing’. It was also noted that tough economic times lead to a greater inclination to use claim and dispute procedures.

 The discussion led to broad agreement that claims and disputes are primarily about issues of quality and several participants confirmed that their company’s analysis pointed to around 70% of claims being commercially (rather than technically) related. Their incidence is also higher in contracts related to solutions or services, when there si more potential for disagreement or confusion over precise specifications.

These observations tie back to the IACCM research on the most frequently negotiated terms. When identifying the most important terms (as opposed to those that today gain greatest focus), IACCM members highlight scope, change management and communications as the areas that will best safeguard successful results.

Virtuallly none of the companies represented in the discussion undertake regular tracking and analysis of claims and disputes. For those that do, the findings assist in improving procedures and practices and in steadily eliminating the sources of claims.  It was also apparent that relatively few companies undertake regular review of their contract review and escalation procedures, to see whether issues could be identified and resolved at an earlier stage.

Overall, the session demonstrated another area where the contracts and commercial community could be operating more proactively to bring value to the business. The combination of increased focus on the relevant terms and conditions and more thorough analysis of the reasons for claims and disputes would result in significant improvements in contract performance for both buyers and sellers.

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