Negotiation and Contract Management (LSCM2081) Dep.

t of LSCM

CHAPTER SIX
CONTRACT MANAGEMENT
Learning Objectives
After successful completion of this chapter, students would be able to:
 Define contract and contract management
 Know the importance contract management
 Discuss with elements of contract administration
 Describe ways of administering consulting contracts
 Discuss with how to Manage Contractor Performance
 Explain about claim management
 Understand different dispute resolution mechanisms and how to manage arbitration

Introduction
Contract: The word contract can be defined in short as an agreement between the parties
enforceable under the law. A contract is a legally binding agreement between the parties identified
in the agreement to fulfill all the terms and conditions outlined in the agreement. A prerequisite
requirement for the enforcement of a contract, amongst other things, is the condition that all the
parties to the contract accept the terms of the claimed contract. One who is in charge of the project
is known as the Employer. One who agrees to execute or perform is known as the Contractor.

Types of Contract

Service contract:- could be an agreement to provide agreed kind of services to the customer.
Service delivery management ensures that the service is being delivered as agreed, to the required
level of performance and quality. In civil engineering a routine maintenance contract for sweeping
cleaning of Roads, Flyovers, security at site etc. are relative examples of the service contractor

Sales Contract:- is a contract between a company (the Seller) and a Customer that you are
promising to sell products and/or services. The customer in return is obligated to pay for the
product/services bought.

Purchasing Contract:- is a contract between your company (the Buyer) and a Supplier who is
promising to sell you products and/or services.

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Partnership Agreement:- may be a contract, which formally establishes the terms of a partnership
between two legal entities such that they regard each other as „partners‟ in a commercial
arrangement.

Lease Agreement:- is generally an agreement related to rights to enjoy property for certain period
as per the terms and conditions of the agreement. A standard consideration is the agreed Lease rent.
Typical example will be renting a flat, Advertisement permits etc.

What Is Contract Management?

Contract management “is the process of systematically and efficiently managing contract creation,
execution and analysis for maximizing operational and financial performance and minimizing risk”.
Most of the time contract management refers to post-award activities but Successful contract
management, is most effective if upstream or pre-award activities are properly carried out.

The central aim of contract management is to obtain the product as agreed in the contract and
achieve value for money. Contract management may also involve aiming for continuous
improvement in performance over the life of the contract. A key point is that the foundations for
contract management are laid before contract award, in the procurement process other type of
contract. The terms and conditions of the contract should include specifications, bill of quantities,
contractor bonus, liquidated damages, time period, means to measure items executed, price
adjustment procedures, variation/change control procedures, foreclosure, termination, and all the
other formal mechanisms that enable a contract to be implemented.

Increasingly, many organizations are departing from traditional methods of contract management
and moving towards building constructive relationships with contractors. The following factors are
essential for good contract management:

 Good preparation of bid document: A detailed estimate, project report of the work helps
create a clear output-based specification. Proper eligibility criterion effective evaluation
procedures and selection will ensure that the contract is awarded to the right person.
 The right contract form: The contract is the foundation for the project implementation. It
should include aspects such as obligations of the parties, the quality assurance of items
required, and defect liability period, as well as procedures for variations and dispute
resolution. E.g. Lump sum contract, Item rate contract etc.

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Good contract management is proactive; it should aim to anticipate and respond to project needs. If
contracts are not well managed from the employer side, any or all of the following may happen:

 The contractor is likely to neglect the quality, resulting in substandard product that is not
durable and structurally unsafe
 Decisions are not taken at the right time – or not taken at all
 That leads to delays in payment, approvals - leading to claims
 Time and cost overrun

There are several reasons why organizations fail to manage contracts successfully. Some possible
reasons include:

 Poorly drafted contracts,

 Inadequate resources assigned to contract management,
 Project team and the contractor team lacking skills or experience (or both),
 Inexperienced people being put in place, also leading to ego clashes,
 Contents, responsibilities and obligations of the contract are not well appreciated,
 Inadequate delegation of authority and /or responsibility,
 Resulting in financial decisions not being taken in time, and
 Failure to monitor and manage retained responsibilities due to external interference and
pressures from stakeholders.

Importance of contract management

Organizations in both the public and private sectors are facing increasing pressure to reduce costs
and improve financial and operational performance.

New regulatory requirements, globalization, increases in contract volumes and complexity have
resulted in an increasing recognition of the importance and benefits of effective contract
management.

The growing recognition of the need to automate and improve contractual processes and satisfy
increasing compliance and analytical needs has also led to an increase in the adoption of more
formal and structured contract management procedures and an increase in the availability of
software applications designed to address these needs.

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Managing long term contracts

For long-term strategic contracts, the emphasis on building proper records will be much greater.
The costs involved in changing contractor are likely to be high and, in any case, contractual
realities, and legal implications may make it very difficult and costly. It is in the organization’s own
interests to make the contract implementation successful. The three key factors for success are:
Mutual trust, proper understanding of roles and openness and excellent timely communications, and
a joint positive approach to managing the project.

 Communication

The key to successful contract execution is clear and adequate communication between employer
and contractor at all times. The timely sharing of plans and communication of designs about future
item executions can help ensure the parties develop confidence in the construction programs. This
should be a two-way process. An important point is that the arrangement should be that these levels
of communication are preserved even when problems arise.

 Professional Consultants

Where contract management expertise is not available in-house, it may be appropriate to appoint
professional consultants, or even appoint a professional contract manager. Such arrangements
should be clearly defined in the construction contract to ensure that ownership of the arrangement
as a whole continues to rest with the employer organization. The key contract management issues
that are anticipated can be addressed in the contract conditions and specifications; they will also
have a bearing on the subsequent procurement strategy of the employer organization.

Contract Administration

Contract administration starts with developing clear, concise performance based statements of
work. The statement of work should be the roadmap for contract administration. Therefore,
planning for contract administration occurs prior to issuance of the solicitation. The goal of contract
administration is to ensure the contract is satisfactorily performed and the responsibilities of both
parties are properly discharged. Effective contract administration minimizes or eliminates problems
and potential claims and disputes.

The three key factors for success in contract administration are trust, communication, and
recognition of mutual aims. Management structures for the contract need to be designed to facilitate

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effective implementation; staff involved at all levels must show their commitment to it. Information
flows and proper communication should be stipulated at the beginning of a contract, and maintained
throughout contract period. There should be set procedures for raising issues and resolving disputes,
so that they are dealt with as early as possible and at the appropriate level in the organization.

Contract administration, the formal governance of the contract, includes such tasks as contract
maintenance and change control, charges and cost monitoring, variation order process and payment
procedures, management reporting, and so on.

The primary tasks of contract administration are to: Verify contractor performance for purposes of
payment, Identify material breach of contract by assessing the difference between contract,
performance and material nonperformance, Determine if corrective action is necessary and take
such action if required, Develop completion plan for exit requirements for acceptance, final
payment, and contract closure.

Contract administration will require appropriate resourcing. It may be that the responsibility falls on
the contract manager. Otherwise the responsibility is shared across a contract management team. It
is important that all members of the team deal promptly with contract administration tasks, during
the various stages of implementation. Some typical procedures that combine to make up contract
administration are as follows:

 Contract document maintenance and variation/change control

 Cost monitoring
 Variation ordering procedures
 Payment procedures
 Funding procedures
 Resource management and planning
 Management reporting

Elements of Contract Administration

The contract must clearly stipulate provisions to enable required changes and pricing mechanism
within agreed parameters, without needing to change the contract documentation or conditions.
Procedures should be established to keep the contract documentation up to date and to ensure that
all documents relating to the contract are consistent. For a large or complex contract, some form of
change control procedure is needed. Applying document management principles involves:

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 Identifying all relevant documentation (including contract clauses and schedules, procedures
manuals etc.)
 Change control, variation procedures, and ensuring no changes are made without
appropriate authorization from the competent authorities.
 Recording the status of every document (current/historic, draft/final)
 Ensuring consistency across various documents.

It may be noted that the specification and management of change control is an important area of
contract administration as it leads to increase in cost and time of completion.

1. Supervision

The supervision of the project needs to be handled by an experienced team of persons or experts of
relevant fields. For infrastructure contracts, there is a practice to invite bids from consultants with
relevant experience. The bid document for the consultancy services typically comprise Terms of
Reference (TOR), standard conditions of consultancy contract, period of completion, payment
schedule etc.

2. Contract Monitoring

The exact monitoring requirements and methodology will depend on the nature of the contract and
the project to be completed. There are some standard practices that can apply. These include:

 Monitoring the contractor’s performance against the specific targets and milestones laid
down in the contract i.e. a particular milestone being reached in stipulated time
 Inspection of completed work or random sample checks
 The contractor providing information and reports on his own performance
 Regular review meetings held between the Employer and contractor
 Recording complaints received from client, specific systems may need to be set up where a
good complaints or customer satisfaction procedure like ISO 9000 can be prescribed.

3. Quality Assurance System-(QAS)

In standard contracts, the Contractor is expected to institute a quality assurance system to

demonstrate compliance with the requirements of the Contract. The system should be in accordance
with the details stated in the Contract. The Engineer shall be entitled to audit any aspect of the
system.

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Details of all procedures and compliance documents shall be submitted to the Engineer for
information before each design and execution stage is commenced. When any document of a
technical nature is issued to the Engineer, evidence of the prior approval by the Contractor himself
should be apparent on the document itself. Compliance with the quality assurance system shall not
relieve the Contractor of any of his duties, obligations or responsibilities under the Contract.

4. Construction Program (CP)

Construction program in simple words is the activity chart of the contractor as to how he intends to
complete the project within the prescribed time schedule. The contractor has to submit the CP
immediately on commencement of the contract.

Generally, monthly progress reports are to be prepared by the Contractor and submitted to the
employer in multiple copies. The first report shall cover the period up to the end of the first calendar
month following the Commencement date. Reports shall be submitted monthly thereafter, each
within 7 days after the last day of the period to which it relates. Reporting should continue until the
Contractor has completed all work. Each report should typically include:

a) Charts and detailed descriptions of progress, including each stage of design (if any),
Contractor’s Documents, procurement, manufacture, delivery to Site, construction, erection
and testing; and including these stages for work by each nominated Subcontractor
b) Photographs showing the status of manufacture and of progress on the Site
c) For the manufacture of each main item of Plant and Materials, the name of the
manufacturer, manufacture location, percentage progress, and the actual or expected dates
of: (i) commencement of manufacture,(ii) Contractor’s inspections,(iii) tests, and (iv)
shipment and arrival at the Site;
d) Details described in contract
e) copies of quality assurance documents, test results and certificates of Materials
f) list of notices given under contract [Employer’s Claims] and notices given under contract
[Contractor’s Claims]
g) safety statistics, including details of any hazardous incidents and activities relating to
environmental aspects and public relations; and
h) Comparisons of actual and planned progress, with details of any events or circumstances
which may jeopardize the completion in accordance with the Contract, and the measures
being adopted to overcome delays.
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5. Effective Control

Effective control ensures that both parties to fulfill their contractual obligations. The contract
manager must record, co-ordinate and communicate what is and has happened with the contract.
This information can then be used for forward planning and any future contracts likely to be
undertaken. A skill that is required for effective control is the ability to identify problems that
require corrective action. The types of problems that might occur are:

 Unsatisfactory performance
 Misunderstanding the requirement
 Inadequate channels of communication
 Changes to the contract, brought about by unexpected requirements

6. Extension of Time (EOT)

Every contract provides for the extension of the time for completion of the project for reasons
beyond the control of the contractor. For example it may be noted that in civil infrastructure
contracts the land required for execution of the project is generally to be provided by the Employer.
Similarly, there are various utility services in the city, like, electric poles, water supply lines etc.
These are required to be shifted with the help of the Employer. The delays on this count are
generally beyond the capacity of the contractor.

Administering consulting contracts

Consulting Services is the practice of studying and advising parties (agencies) in a manner not
involving the traditional employee/employer relationship. To “study” means to consider some
aspect of the agency in detail. To “advise” means to provide a recommendation or identify options
with respect to some course of action. Generally, a true “consultant” delivers information or
provides assistance that enables the agency to take some course of action. When a contract involves
a mix of deliverables, it is considered a consulting contract only when consulting services, as
defined above, are the primary objective of the contract.

A key factor in successful contract administration is communication. It is essential for contract

administrators to understand the provisions of the contract, have the ability to communicate contract
obligations to all parties involved, and maintain control over the contract performance. Contract
managers must have sufficient knowledge of contracting principles as it relates to their

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responsibilities in administering the contract. (It is the contractor’s responsibility to perform and
meet the requirements of the contract. To do so, contractors sometimes need technical direction and
approval from agency personnel. Agency personnel must provide this technical direction and
approval in a timely and effective manner. All guidance provided to a contractor must be within the
scope of the contract. There should be contractors’ consultant that provides additional advice
regarding the principles and other related issues.

Filing Records and Audit

Records for inventory can be used to identify record series and locations which can sampled. More
sophisticated, electronic inventories may themselves facilitate in built checking of records data
held.

To be effective for use in this way, it is essential that the inventory itself remains reliable.
Organizations’ will need to regularly check the quality of their source data as well as for day to day
identification and retrieval of desired records.

It is recommended that audits of both the quality of the records inventory and the consistency of
applying destruction review processes are carried out annually. With respect to inventory quality,
the audit should verify that the inventory is accurate and that all required information is captured.
As part of this evaluation, the audit should also ensure that all records scheduled for destruction are
identified or “tagged” on the inventory and that destruction dates are consistent with the disposal
schedules laid down in the Code of Practice.

Planning and preparing an audit

There is no best approach to auditing compliance with records management and organizations that
will need to determine the most effective and appropriate approach for their particular organization.
To be effective, however, all audits, no matter how large or small, should be planned, executed and
reported on in as structured way as possible. This will ensure that:

 Responsibility for the audit is clearly defined.

 The scope and methodology of the audit is clear and the timing appropriate
 Resources required for the audit are available and at an appropriate level.
 Disruption to services is minimized
 Outcomes are identified and communicated and improvements made.

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Changes to the contract requirements

A successful arrangement requires a mutual commitment to meeting evolving business

requirements and adapting to changing circumstances. Reasons for change during contracts can
come from a change of sources, both internal and external. Whatever the reasons, it is important to
realize the implications of change for the contract and all parties involved. There could be
implications or concerns in areas such as continuing value for money, and the possibility of moving
beyond the original scope of the requirement. Change is easier to deal with when preparations are
made. Not every possibility can be foreseen and planned for, but it is desirable that the contract
includes some flexibility as well as the necessary procedures for handling changes. A properly
managed change can be a good opportunity to alter or improve the project, prompted by:

 Significant revisions to the corporate strategy/business objectives of either party.

 Developments, changes in technology
 Public demand
 Change in the requirements of the Employer
 Changes in local legislations or development plans etc. and Financial or other restraints

The importance of understanding the implications of change from the perspective of both parties
cannot be overemphasized. Change to a contractual arrangement affects the scope, and thus the
viability of the contract, for either or both parties.

Managing Contractor Performance

Performance management must be undertaken throughout the life of the contract and for all
contracts, whether they are straightforward or complex. Along with performance indicators and
standards, arrangements for monitoring and assessment should have been set out and agreed in the
contract and contract management plan, along with action that would result from
underperformance.

Clear links should have been established in the contract between payments for performance and the
effect of non-compliance or underperformance on those payments, and the intent to invoke
penalties contained in the contract if necessary.

Performance management involves:

 performance monitoring—collecting data on performance;

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 performance assessment—deciding whether performance meets the entity’s needs; and

 Taking appropriate action—such as understanding and extending features of good
performance, correcting areas of underperformance, or amending the contract requirements
to meet changing needs.

The performance monitoring and assessment arrangements should also have been reviewed at the
contract start-up stage and any necessary plans, tools or systems developed. Systematic monitoring
under pins performance assessment and they do not occur in isolation from one another. In practice,
performance will be assessed and feedback and reports provided throughout the monitoring process.

o Monitoring

Monitoring focuses on collecting and analyzing information to provide assurance to the acquiring
entity that progress is being made in line with agreed timeframes and towards providing the contract
deliverables. As discussed in Part Two of this Guide, monitoring can be undertaken directly by the
acquiring entity or through a third party arrangement.

o Performance assessment

Performance assessment is undertaken on the basis of information collected during the monitoring
process. It is important that during this process feedback is provided in relation to performance, and
that any performance problems are addressed promptly.

The basis for performance assessment, that is, indicators with related targets and standards, should
have been set out in the contract. Where performance information is difficult to establish at the
contract development stage, it may require further development over the life of the contract. The
contract provisions should have been framed to allow this. Developing the indicators further during
contract management can draw on the actual results achieved, research and feedback from
stakeholders.

o Good Practice Tip: Accessing technical advice

In managing the contract, if technical advice is likely to be required, consider pre-arranging access
to this advice through a retainer or other similar arrangement. This can speed up access to advice
when needed, and provide some continuity of understanding of the context in which the advice is
required.

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Reports provided to senior management and other stakeholders should be a balanced account of
performance achieved and any identified shortcomings. If there are identified shortcomings, the
proposed action and a timeframe to address them should be included in reports to senior
management.

Underperformance

In many cases contracts are completed without problems, but contract managers need to be prepared
to address any problems promptly as they arise in accordance with agreed procedures.

Many contract management problems can be avoided by managing the relationship well.
Underperformance can be minimized by having a performance regime that allows prompt and
ongoing feedback, particularly in relation to critical timeframes or deliverables. The contract
manager needs to be aware of any signs of potential underperformance and be able to address them,
to the extent possible, before they become serious. Addressing underperformance in this way can
avoid the problem worsening and/or the contractor being confronted by a problem that the acquiring
entity has known about for a period of time. Providing the contractor with early warning may make
it easier to address the issues at low cost and with minimal disruption.

Depending on the seriousness of the underperformance, the action taken may need to be more
formal and could include:

 withholding payments until performance returns to a satisfactory level;

 involving senior management from both parties in formal discussions or written
communications;
 developing strategies to address the problem and formally documenting them, and tracking
whether they are working in practice; and
 Implementing other formal mechanisms included in the contract.

Performance and Scheduling Management

Monitoring the performance of the contractor is a key function of proper contract administration.
The purpose is to ensure that the contractor is performing all duties in accordance with the contract
and for the agency to be aware of and address any developing problems or issues.

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The Performance Schedule guide is the ratio of total original authorized duration versus total final
project duration. This helps to enhance ability to accurately forecast schedule that helps to perform
every activities timely in accordance with the schedule which may result:

 Customer Satisfaction

Customer satisfaction means that customer expectations are met. This requires a combination of
conformance to requirements (the project must produce what it said it would produce) and fitness
for use (the product or service produced must satisfy real needs). The Customer Satisfaction Index
is an index comprising hard measures of customer buying/use behavior and soft measures of
customer opinions or feelings. Index is weighted based on how important each value is in
determining customer overall customer satisfaction and buying/use behavior.

 To manage cycle Time

There are two types of cycle time project cycle and process cycle. The project life cycle defines the
beginning and the end of a project. Cycle time is the time it takes to complete the project life-cycle.
Cycle time measures are based on standard performance. That is, cycle times for similar types of
projects can be benchmarked to determine a Standard Project Life-Cycle Time. Measuring cycle
times can also mean measuring the length of time to complete any of the processes that comprise
the project life-cycle. The shorter the cycle times, the faster the investment is returned to the
organization. The shorter the combined cycle time of all projects, the more projects the organization
can complete.

 Requirements Performance

Meeting requirements is one of the key success factors for project management. To measure this
factor you need to develop measures of fit, which means the solution completely satisfies the
requirement. A requirements performance index can measure the degree to which project results
meet requirements. Types of requirements that might be measured include functional requirements
(something the product must do or an action it must take), non-functional requirements (a quality
the product must have, such as usability, performance, etc.). Fit criteria are usually derived
sometime after the requirement description is first written.

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 Alignment to Strategic Business Goals

Most project management metrics benchmark the efficiency of project management—doing

projects right.

You also need a metric to determine whether or not you’re working on the right projects according
to the schedule. Measuring the alignment of projects to strategic business goals is such a metric. It’s
determined through a survey of an appropriate mix of project management professionals, business
unit managers, and executives.

The principles below are the foundation for performance and scheduling management. Every
employee should incorporate many, if not all, of the principles into their daily work. The principles
are intended as guidelines during the performance management process and are defined as:

1. Service Excellence: Supports an environment of service excellence, continually improving

internal/external customer satisfaction through identification of needs and point of contact
problem resolution.
2. Quality Improvement and Safety: Assists in creating and maintaining high quality processes
using initiative and data as a foundation of the work. Ensures practices and procedures are
conducted within regulatory guidelines and in the safest method possible.
3. People: Supports policies, systems and processes that create equal opportunities for all staff
members. Fosters an environment where employees have the resources, assistance and
support needed to achieve the highest personal and professional level.
4. Financial Responsibility: Uses resources and time effectively and efficiently, creating and
maintaining a sense of organizational stewardship.
5. Growth: Supports the achievement of the organizations’ strategic plan, mission and goals,
contributing to its positive reputation and image both within the University community and
in the general community.
6. System: Measures and continually improves processes, procedures, programs and services
that enhance the ability to manage work flow across all systems, fostering teamwork,
collaboration and integration wherever possible.

Claims Management

Written agreement between two or more parties that creates in each party an obligation to do or
refrain from doing something and a remedy for such party’s failure to fulfill the obligation. As used

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in this Policy Statement, references to “contracts” include, but are not limited to, agreements, terms
and conditions, amendments, letters of agreement, letters of intent, statements of intent, memoranda
of understanding, leases, inter-local agreements, interagency agreements and any other contract-
related documents.

The contract should provide for the procedure for raising claims by the contractor. The main
provisions for the claims can be-

 Notice of Claims
 Contractor to give notice to Engineer for claims
 Contractor to keep records of claims
 Payment of Claims
 Maintaining Audit Trail

Effective management of customer or supplier claims can have a significant positive impact on the
financial situation of the business. Therefore, it is considered as Cost Improvement Best Practice.

Claim Management is where one contracting party makes a “claim” against the other party due to
non-fulfillment of the obligations of an agreement (existing or implied) or where the basis of the
agreement changes beyond what was thought to have been agreed. A brief example of each:

 Non-fulfillment of Obligations

If the obligation that was stated on their contract (agreement) may not be full filled by one party due
to different reasons. As a result of this the party who faces un-fulfillment of others obligation may
claim to concerned body. For example: An airline contracts to purchase fuel for the next 12 months.
However, the economy goes into recession and the airline only takes 80 percent of the agreed
amount. In this case the fuel supplier may make a claim against its customer, the airline for a
reduction in a volume rebate, which both companies had agreed.

 Basis of Agreement Changes

An automotive supplier contracts with its customer, a passenger car manufacturer, to produce a new
type of LRD headlight. The design comes from the customer, but the supplier has to tool up its
plant and hire additional employees to produce the lights.

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However, due to a change in the vehicle safety regulations, these new lights are no longer
permitted. The customer decides to switch to Xenon lights instead. The supplier must in this case
impair the equipment already bought, and lay-off staff until the retooling of the plant is completed.
In this case the supplier would have a solid claim against the customer, who probably should have
known that regulatory changes were in the pipeline.

Managing arbitration

Arbitration means a binding procedure in which the dispute is submitted to one or more arbitrators
who make a final decision on the dispute. It is a dispute resolution mechanism that provides diverse
users worldwide with a neutral forum, a uniform system of enforcement and the procedural
flexibility that allows parties to tailor-make a procedure to suit their needs in each case. With a joint
commitment to efficient management by parties, outside counsel and arbitral tribunals, it can
achieve a time- and cost effective resolution of a dispute. Without that commitment, the opposite
can be true: the very flexibility of arbitration can lead to increased time and cost.

Effective management of arbitration

Rules permit flexibility and do not specify precisely how arbitration is to be conducted. For
example, there is nothing in the Rules of Arbitration about the number of rounds of briefs,
document production, and the examination of witnesses, oral argument, post-hearing memoranda or
bifurcation.

Case management considerations

As a general matter, party representatives should consider the following when managing arbitration:

Early case assessment: Much time and cost can be saved by not litigating matters with low chances
of success, or that are not worth the cost/time/distraction to its personnel. This should be analyzed
before arbitration has begun; however, case assessment should also continue during the arbitration.

Maintaining realistic schedules: Setting up of a realistic schedule for the entire arbitration as early
as possible and sticking to that schedule, unless there are serious reasons for not doing so, are
essential to controlled and predictable proceedings. Parties will be able more accurately to foresee
the date of the award and make appropriate financial plans. The arbitral tribunal also has an
important role in establishing and maintaining a realistic schedule.

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Establishing a tailor-made and cost-effective procedure

Using this guide party representative along with outside counsel can determine optimum procedures
from the party’s perspective. The question then is how to implement those procedures. First, one
party may consult with the other party with a view to reaching agreement on the applicable
procedures. Any such agreement must be applied pursuant to the rules of arbitration. If the parties
cannot agree on one or more of the procedures, each can present its position to the arbitral tribunal
prior to or during the case management conference. The arbitral tribunal will decide after hearing
the parties.

Awareness settlement procedures: Settlement procedures such as mediation, neutral evaluation

and direct settlement discussions can occur at any time before or during arbitration. As an
arbitration progresses, views on the case and parties’ needs may change, affecting the desirability
and nature of a potential settlement. New facts may come to light, a partial award may be rendered,
management changes may occur, and new perspectives in relations between the parties may
emerge.

Dispute resolution

Dispute resolution mechanisms can be divided into the ‘decisional’ and the ‘facilitative’. Decisional
mechanisms, also termed ‘dispute settlement’ mechanisms, involve a neutral third party imposing a
solution or decision upon the disputants. Facilitative mechanisms are also termed ‘dispute
resolution’ mechanisms and, if they involve a neutral third party, his or her function is to help the
disputants reach a mutually acceptable solution.

Disagreements and misunderstanding are key characteristics of human relationships whether the
relationship is a domestic, national or international one. The potential for disputes is even higher
where the parties are from different cultural, economic and political backgrounds with different
legal systems. Since disputes are such a critical part of human relationships, many countries have
mechanisms to resolve them in a manner, which maintains the cohesion, economic and political
stability of the state.

Alternative Forms of Dispute Resolution

The shortcomings in the adjudicatory system of resolving disputes led to the emergence of other
methods of dispute resolution now popularly referred to as ADR (alternative dispute resolution).

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The value of ADR over and above the common adjudicatory system is that any of the techniques
can be implemented very early in the dispute thereby giving the parties an opportunity to air their
views and to involve decision makers within their respective organizations long before the subject
of dispute eats deep into the fabric of the relationship and cause irreparable damage.

 Negotiation

This is a voluntary and informal process by which the parties to a dispute reach a mutually
acceptable agreement. As the name implies the parties seek out the best options for each other
which culminates in an agreement. At their option, the process may be private. In this process, they
may or may not use counsels and there is no limit to the argument, evidence and interests, which
may be canvassed.

 Early Neutral Evaluation/Fact Finding

This is an informal process whereby a neutral third party is selected by the disputants to investigate
the issue in dispute and submit a report or come to give evidence at another forum like a court or
arbitration. The outcome of a neutral fact finding is not binding but the result is admissible for use
in a trial or other forum. The method is particularly useful in resolving complex scientific,
technical, sociological, business or economic issue. Using a neutral fact finder eliminates the
strategic posturing which characterizes the litigation or even arbitration process.

 African Customary System of Dispute Resolution

Customary law is generally known to be the accepted norm of usage in any community. A
community may accept certain customs as binding on them. In Africa, such customary laws may be
accepted by members of particular ethnic groups and may be regarded as ethnic customary law.
Customary law is unwritten and one it’s most commendable characteristics is its flexibility, apart
from the fact that it is the accepted norm of usage.

Resolution of disputes was a major function under the indigenous system of governance. The role
was taken up by the elders or the chief and was meant to maintain social cohesion. In its operation,
African dispute resolution was very much like arbitration in that resolution of disputes was not
adversarial.

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 Arbitration

Arbitration is one of the various methods of dispute resolution but undoubtedly the most popular. It
is defined in the Halsbury’s Laws of England as “the reference of a dispute or difference between
not less than two parties for determination, after hearing both sides in a judicial manner, by a person
or persons other than a court of competent jurisdiction.

Arbitration is a voluntary method of ADR, which is applied to both domestic and international
contracts and is founded on the present or future agreement of the parties to submit any dispute
between them to arbitration. By the above definitions it is clear that parties to a contract can choose
to resolve any dispute which arises between them without reference to the regular courts. The
reasons for sidelining the regular court for arbitration have been outlined above.

Characteristics of alternative dispute resolution (ADR)

When determining the appropriate means for resolving an IP or technology dispute, the parties
should consider the following characteristics of ADR, particularly mediation and arbitration.

 A single neutral procedure: Many IP or technology disputes involve parties from different
countries and relate to rights that are protected in several jurisdictions. In such cases, court
litigation may well involve a multitude of procedures in different countries. Through ADR,
the parties can agree to resolve their dispute under a single law (for arbitration) and in a
single forum, thereby avoiding the expense and complexity of multi-jurisdictional litigation.
 Party autonomy: Because of its private nature, arbitration offers parties the opportunity to
exercise greater control over the way their dispute is resolved. Depending on their needs,
they can select streamlined or more extensive procedures, and choose the applicable law,
place and language of the proceedings.
 Neutrality: Mediation and arbitration can be neutral to the law, language and institutional
culture of the parties and thus avoid any home court advantage that one of the parties may
enjoy in the context of court litigation, where familiarity with the applicable law and local
processes can offer significant strategic advantages.
o Expertise: The parties can select mediators and arbitrators who have special
expertise in the legal, technical or business area relevant to the resolution of their
dispute.

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o Confidentiality: The parties can keep the proceedings and any results confidential.
This allows the focus to be kept on the merits of the dispute, and may be of special
importance where - as is often the case in IP or technology disputes - commercial
reputations and trade secrets are at stake.
o Finality of arbitral awards and party autonomy to settle: Unlike court decisions,
which can generally be contested through one or more rounds of litigation, arbitral
awards are not normally subject to appeal. In mediation, the parties have the
autonomy to settle their dispute. And
o Enforceability of arbitral awards

THE END OF THE CHAPTER ALSO

THE COURSE!!!

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