Contract Disputes: Everything You Need to Know
A contract is only valid when both parties are willing to accept its terms and conditions but if one or both disagree, a contract dispute occurs.3 min read
Updated November 9, 2020:
Contract disputes occur when one or both parties to an agreement disagree about the terms and conditions. A contract is only valid when both parties fully understand the agreement and are willing to accept its terms. If the agreement is not mutual, it may be challenged in court.
Breach of Contract
Contract disputes usually occur when a party breaches the contract, which means they do not do what they have promised to do in the agreement. Types of contract breaches include:
- A material breach, in which one party does not perform his or her duty and, as a result, the contract is irreparable. The party affected by this breach can sue the party who has breached the contract for damages.
- A minor breach, also called an immaterial breach, in which the core of the contract is not changed. Both parties still must fulfill the contract when a minor breach occurs, but the party who has not breached the agreement can still sue the other party for damages.
A breach may occur not only when the terms of the contract are not performed at all, but also when they are not done in accordance with the specifications indicated and/or when they are not completed on time.
In the case of a contract breach, one or both parties may sue for damages and/or to have the terms of the contract legally enforced. Ideally, disputes can be resolved in mediation before a lawsuit is filed. Binding arbitration is another form of alternative dispute resolution.
Common remedies for contract breach include:
- Cancellation and restitution
- Specific performance
Damages are the most common breach of contract remedy and may include:
- Compensatory damages designed to restore the injured party to the position he or she was in prior to the breach.
- Punitive damages beyond full compensation for wrongful acts.
- Nominal damages when a breach has occurred without measurable financial loss.
- Liquidated damages, which are those specifically indicated in a provision of the contract.
Specific performance is when the court orders the party who has breached the contract to fulfill its terms, which is typically ordered if damages are insufficient. The damaged party can also sue for restitution after canceling the contract.
Contract Disputes Act of 1978
Standard processes for resolving government contract disputes were established by the Contract Disputes Act of 1978. This Act was designed to provide a fair, transparent process for definitive resolution. Both the contractor and the government bureau in question should negotiate in good faith and strive to settle the dispute at the lowest possible level. This is the contracting officer, who issues a final decision that can be challenged in either the Board of Contract Appeals or U.S. Federal Claims Court. These decisions may, in turn, be appealed in either the U.S. Federal Circuit Court of Appeals, the intermediate appellate authority, and the U.S. Supreme Court.
Common Types of Contract Disputes
Contracts are only valid when they include an accepted offer and some form of payment (consideration) for the products or services received. Disputes may include but are not limited to those associated with:
- Offer and acceptance
- The definition of a technical term used
- Contract drafting and review
- Errors in the contract
- Coercion or fraud
- Breach of contract
Remedies for Contract Disputes
Contract disputes are typically resolved by either equitable or legal remedies. The latter is usually in the form of financial damages awarded to the plaintiff for his or her loss. With equitable remedies, the parties take action to correct the dispute.
Avoiding Contract Disputes
When both parties are clear on the terms of a contract, disputes are less likely to occur. Take the following steps when entering a contract to prevent future disagreements:
- Document all contract negotiations in writing throughout the process, including offer history, quantities, prices, and all other terms and conditions.
- Be clear on the contract goal and be able to clearly state points of negotiation.
- Double-check terms and conditions each time a contract update is made and take special care when working with a new negotiator or changed product specs.
- Clarify the definitions of industry terms, legal words, and other jargon to prevent misunderstanding.
- Work with an experienced contract attorney who can assist with the negotiation process.
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