Building a service levels or KPI clause

Most disputed terms WCC ranking: 

20

Most important terms WCC ranking: 

Not ranked

Most negotiated terms WCC ranking: 

30

What is the purpose of a payment clause?

Dispute resolution clauses provide how a disputes under the Agreement must be resolved.

These clauses come in different shapes and sizes and it is up to the Parties to decide which processes to follow when it comes to disputes.

As a first step, the Parties need to decide if a court process will be followed or an alternative process (for example mediation followed by binding arbitration).

Why will an alternative process be considered?

One of the reasons the Parties may want to consider an alternative process is with the aim to keep the Parties out of court. More specific reasons include:

  • When a Court process is followed, confidentiality surrounding the dispute may be of concern. Parties, therefore, opt for arbitration proceedings with stricter rules surrounding confidentiality.
  • Generally, arbitral awards are considered more enforceable and a large number of Countries have, for example, adopted the New York Arbitration Convention.
  • The Parties may agree on specific rules for appointing experts/arbitrators. If disputes may be of a technical nature, having an expert with relevant experience in the industry may be beneficial. 
  • Arbitration/expert determination may provide for a speedier process.

Building blocks of a dispute resolution clause

Point of departure

The above diagram illustrates an extensive dispute resolution process. There is, however, no need to make use of all the different dispute resolution mechanisms. Even if the Agreement does not stipulate anything about alternative dispute resolution, it is still fine, and disputes will be resolved according to the usual court process.

Good faith negotiations

The purpose of good faith negotiations are to get the Parties taking to each other to see if they can settle a dispute without further processes. There is no obligation to settle a dispute during good faith negotiations; however, the Parties need to at least give an honest try as a good faith negotiation clause usually provides the parties must attempt to negotiate in good faith.

Escalations

For larger contracts for which contract managers are assigned, the Parties often want to make provision for various levels of escalations before a dispute goes to the next step of the dispute resolution process.

For example:

Level 1: Escalation to the Steering Committee

Level 2: Escalation to the Dispute Board

Level 3: Escalation to Senior Execs

TIP!

Do not put all the warranties together under a single section. You often want to provide different remedies for different warranties, and you may also want to provide different liability caps for breaches of different warranties.

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