If you run a business, use contractors, or have signed a contract for a product or a service, you may have run into contractual issues at some point. I know I certainly have, particularly when it comes to defining the scope of works for client projects.

I once took on a client project without clearly specifying the scope of work in the contract. At first, everything seemed clear, but as the project went on, the client started asking for changes and new ideas that I thought were outside of what we had agreed upon.

Since the contract didn’t specify how many changes could be made or how much work had to be done, I felt like I had to do what the client wanted to make them happy. This meant I committed more hours than planned, which took more of my own budget and resources. 

Looking back, I saw that this could have been avoided if the contract had clearly stated the scope of work, including the number of pages and number of revisions. This would have made things clear for everyone involved. 

Understanding the types of conflicts you may encounter can help you anticipate issues that might come up. In this article, I’ll discuss my top five contract disputes.

  1. Breach of Contract Disputes

A breach of contract dispute commonly occurs when a supplier fails to deliver items as agreed upon in the contract or when a service provider does not complete the agreed upon services within the stipulated time limit. This can happen in a variety of ways and has a substantial impact on the parties concerned, potentially leading to legal implications.

Non-performance, or the failure to deliver a service, is one example of this. The breach occurs when a party fails to perform any term of the contract without a legitimate legal reason. This could relate to not completing a task, failing to deliver goods or services, not paying on time, or not following any agreed-upon terms.

Another example is late performance, which occurs when a contractor completes a project months after the agreed-upon deadline, resulting in a breach of the contract’s original deadline.

It’s important to understand the details of what a breach of contract means so that you can better protect your own interests and safeguard your legal rights.

  1. Scope of Work Disputes

Another common contract dispute is a disagreement over terms, which might be related to the scope of the task or ambiguity over the terms and deliverables.

It’s always best to have a legally sound contract in place to prevent any potential issues. 

Ambiguity and disputes over terminology are two scope of work dispute examples. 

For example, let’s take the word “quick”. This is where a contract says a job has to be finished quickly. What does “quickly” mean? The ambiguity over this term leads to different ideas about what a timely completion means, so in this case, the ambiguous term “quick” could lead to a contract dispute. To avoid this, you’d need to set clear terms and dates that both sides agreed to.

An undefined scope in a contract is one in which the terms, duties, and expectations are not explicitly stated or described. This might cause serious problems, such as misunderstandings, disagreements, and possibly legal challenges.

Consider a small business owner who hires a freelance website designer. A disagreement arises over the number of website revisions allowed. This issue stems from the contract’s undefined scope. The contract might state “website revisions” but fails to specify the exact number.

If the client expects 20 or 30 different revisions or entirely new concepts, but the freelance designer is only prepared to do one or two rounds of revisions, this discrepancy will lead to a dispute. 

Without clear terms, both parties have different expectations, resulting in conflict and dissatisfaction.

  1. Payment Disputes

Money is often a major source of conflict in contracts. One of the most common payment disputes is non-payment. What happens if a client refuses to pay for services rendered, claiming dissatisfaction with the work quality? If the payment terms are not clearly outlined in the contract, this can lead to a dispute. Payment terms need to be explicitly mentioned, including when payment is due, refund policies, and more.

Another common issue is underpayment. 

For example, what happens if a client pays less than the invoice amount? Suppose a client thinks they should only pay 50%, disputing the agreed rates or hours worked. This scenario is another frequent cause of disputes. Clear payment terms in the contract can help prevent such conflicts by ensuring both parties have a mutual understanding of the financial expectations.

The remedy would be to have a contract in place that defines the exact payment amounts, either progressively or as a whole one-time payment, and remedies should there be a payment disagreement.

  1. Intellectual Property Disputes

Another common area of dispute in contracts relates to intellectual property (IP). Questions often arise about who owns what, who created what, and who owns the output at the end of the project. 

For instance, if two companies collaborate on a project, disputes may occur over the ownership of the resulting intellectual property. 

Clearly outlining intellectual property rights in the contract is essential. Specifying ownership, usage rights, and the distribution of IP in the contract can help prevent conflicts and ensure that all parties understand their rights and obligations regarding the created work.

You want to make sure you own the IP that third parties created for you.

  1. Independent Contractor Disputes

Independent contractor disputes typically arise from misunderstandings or ambiguities in the contract regarding payment, scope of work, intellectual property rights, or contract termination. It may be easy to simply go out and hire someone to work on a task for you, however, there are legal risks that come from being too casual about this.

An independent contractor’s agreement should clearly differentiate between an independent contractor and an employee, and include fundamental information about the parties, a clear description of services, payment methods, and a dispute resolution process for resolution. 

Verbal agreements may be legally binding, but it’s recommended to have written agreements. The agreement should also specify the contractor’s role, ABN numbers, and the process for payment, including informal discussions, formal negotiation, and alternative dispute resolution.

It’s important for your business and your contractor to sign a legally binding contract. The contract should also include the right legal clauses to protect the business.

Key Take Aways

Contract disputes are common in business, but clearly defining scope and key terms can prevent misunderstandings and conflicts. My own experiences have shown me the importance of clearly defining the scope of work and other key terms in contracts.

I’ve discussed 5 common contract disputes, and the common thread between them all is that the underlying solution remains the same. Clear, detailed contracts that set precise expectations and obligations.

By putting solid contracts in place, you can better protect your business interests and maintain positive working relationships.

You can find out more about contract law here.