How to avoid and resolve contract disputes with suppliers

How to avoid and resolve contract disputes with suppliers

While good supplier relationships are critical when it comes to rebates and B2B deals, they can sometimes break down and when this happens it can trigger contract disputes. These usually arise due to the failure of one or more parties to comply with their contractual obligations. This can then lead to payment delays or even worse the supplier may refuse to pay at all. This has been heightened even more by the Covid-19 pandemic.

It is in all parties' interests to resolve contract disputes quickly and efficiently without the need for legal assistance. Before communicating your concerns with your supplier and taking action, read these helpful tips for avoiding contract disputes.

Understand your suppliers’ key objectives

Try an enter contract negotiations with a clear idea of what you are seeking to achieve but understand that your priorities are not going to be the same as your trading partner. Understanding each other’s business plans should be apparent, but nonetheless this is sometimes disregarded when the focus of a contract negotiation is on reducing the price of a particular category or range. The key is to be transparent with your trading partner about business objectives and share rebate data that can help create those win-win deals for both parties and hopefully avoid any contract disputes in the future.

Foster a strong supplier relationship

Achieving and maintaining a strong working relationship with your trading partner is going to be a contributor to the contract’s success. Although this can be hard work, especially when there’s a power imbalance between the parties. Make sure all parties can focus on building a long-term plan, whereby they outline their proposal in detail and make sure that they communicate with each department regularly. Plus, by engaging with your suppliers in a cooperative and reasonable manner – this will go a long way toward avoiding or resolving contract disputes. 

Keep records of communication

Any written correspondence between you and your trading partner should be retained, including emails. If there is a contract dispute, then the correspondence will be used to support what the intentions of both parties were. It may also be useful to keep a note of dates and times of any telephone calls as well.

Make payment obligations clear

Document clearly within the contract when payments are due and the penalties for late payment. Consider that services may need to be suspended, or the trading agreement may need to be terminated due to non-payment. Try to agree with your supplier a procedure for disputing payments and partially paying undisputed amounts if a contract dispute was to arise.

Negotiate a fair contract for your deals

One of the key principles of contracting is the duty to do it in a fair manner. Unfortunately, this doesn’t always happen with some parties making outrageous demands, being completely inflexible, or deliberately concealing information. If this is the case, then it may not be worth pursuing a contract with this trading partner as it could lead to contract disputes.

When procurement do successfully negotiate a fair contract, this means your organization have reached a mutually beneficial set of terms and conditions outlining your business deal. However, what may sound like a standard agreement can produce contract disputes further down the line when wants and needs become misaligned. A fair contract needs to protect your business if your supplier fails to meet their obligations.

At a minimum, to avoid contract disputes your agreement should include clauses relating to:

  • pricing;
  • volume;
  • payment;
  • exclusivity;
  • duration;
  • product quality, recalls and unusable products;
  • the dispute resolution process

Make sure deals are completely clear and visible to all suppliers

So often deals are created and then negotiated in a rather ad hoc fashion, with information distributed in spreadsheets, emails, documents or not even recorded at all. Distributors and suppliers tend to record trading agreements in different systems, and track progress independently. Heightening the risk of contract disputes.

When it’s time to make a rebate claim, companies often find that the supplier has a different understanding of the deal structure and therefore disputes the claim. Other times they may find that they had not signed off the deal correctly or the person who did sign it off wasn’t authorised to do so or has since left the business.

By recording every detail of the deal in a collaborative system like Enable you can ensure everyone is aligned. With Enable there is workflow to control the sign off process and a clear audit trail. There are no separate documents needed, and everyone involved sees just one version of the truth. Therefore, avoiding contract disputes with suppliers which arise due different understandings or representations of the same deal.

How can Enable’s collaboration platform resolve contract disputes?

By both parties having access to our collaboration platform you can ensure you keep a full audit trail of correspondence and contractual documentation including contract deadlines, key milestones and the people involved, which is important should any contract disputes arise. Our trading program PDF, gives a tidier, clearer look to your agreements – further reducing the chance of any contract disputes with your trading partners. Everything is clearly visible and human errors are reduced.

We find that when both parties collaborate on their trading agreements, they both have the same understanding of the deal, they reduce the risk of contract disputes, and they’re more likely to maintain a strong relationship.

Elizabeth Lavelle

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