Michelle Rodger: It’s indisputable that avoiding legal action could save you a fortune

AMERICA has a reputation as the most litigious country in the world, but we’re becoming increasingly better at it ourselves.

Statistics suggest that in happier times businesses are less likely to take legal action since building relationships is clearly more advantageous than falling out with clients or suppliers.

But during a recession, when cash flow is constrained, lots of businesses become more litigious, going after a speedy resolution just in case the company they are in dispute with goes out of business.

The cost of disputes to business is horrendous – millions of pounds in lost opportunities, time spent preparing evidence and organising witnesses. On top of this is the cost of representation, whether legal or official, the cost of damages payable if you lose, significant human costs in the form of stress and low workforce morale and ultimately the cost of damage to your reputation.

The most obvious examples of dispute lie in construction, perhaps the most litigious of all sectors. But the lessons to be learned from disputes about how to handle them successfully, and how to avoid them in the first place, can be applied across the business spectrum.

It’s about honesty, transparency and being upfront, respectful, righting wrongs, having loyalty, keeping commitments, admitting mistakes quickly and learning from them.

Yosof Ewing is managing partner of ConstructPRO UK and a qualified mediator and expert witness. He believes almost every dispute can be avoided, saving everybody’s time and money.

When you calculate the cost of establishing relationships in business over a period of time and balance it with the costs of a failed relationship – legal costs, finding new partners, establishing trust, increased supply costs and so on then it makes sense that you seek alternatives to allowing the relationships to fail, says Ewing.

Despite what appears to be common sense, the level of repeat disputes never ceases to amaze him, particularly in the building and construction industry.

Ewing says: “Our industry spends millions every year on PQQs [pre-qualification questionnaires] and building up relationships, but fails to employ the required level of due diligence at pre-contract stages to ensure that dispute is minimised, controlled or eradicated.

“This in turn wastes further millions in legal costs that are, in 99 per cent of cases, avoidable. I have yet to come across a dispute that couldn’t have been avoided.”

The solution comes down to two words: clarify expectations. If the parties to a contract do not fully understand what the other side expects from the get-go then sure as fate, a dispute will pop up and potentially destroy the relationship.

But there are some simple yet effective actions business owners can take to minimise the risk of falling into a contract dispute.

The first is to make sure you read the small print. All of it. And if there’s anything you don’t understand or disagree with, raise it before the contract is signed.

You should also ensure that your own terms and conditions of business cover everything you do accurately and fairly – not just for your own protection but for your clients and suppliers’ comfort as well.

Inaccurate costings are often the cause of dispute, so double-checking your figures at the outset and seeking agreement with all parties before you sign anything is crucial.

Credit control can spark conflict, so take action when payment is due rather than waiting until it is late.

Last but not least, it’s important not to be blinded by the numbers. It’s easy to look at the number of zeros on a large contract and jump right in. But Ewing warns that offers on the table may appear bigger than they actually are.