How a 'tiered dispute resolution' provision works in contracts

In a previous post we outlined some of the things that go into making a contract "good." One of the things we mentioned in that post is having a clause that requires alternative remedies be attempted when an issue arises. In this post we will expound upon that.

As is the case with many things, clauses of this nature can vary. One is a "tiered dispute resolution" provision. There are multiple reasons why this approach could be beneficial. Including providing the parties involved in the contract an opportunity to:

  • Consider and discuss what they will do should a dispute arise and then craft a plan together regarding how issues should be resolved.
  • Be educated by their legal representation on the options available and the benefits and detriments of each.
  • Have some control over both the process and the outcome.

But just what is a tiered dispute resolution clause?

In short, it is a roadmap for resolving an issue. The first thing it requires is that the businesses that entered into the contract make a good faith effort to work together to reach a resolution. Second, should that step not succeed, that they agree to use a process such as Collaborative Law or Mediation to try to resolve it. These processes are referred to as "interest-based." On occasions when an "interest-based" process is not successful, arbitration or the court system are agreed to.

Companies that include this type of clause in contracts could find that the potentially crippling dispute is resolved in a timely manner for much less than if litigation or arbitration were the only methods pursued. In many cases this will be best for all parties involved.