Contracts only work when both parties agree to its terms and conditions. When one or more parties has an issue, a contract dispute can lead to a contentious court battle.

Let’s take a look at the most common contract disputes and to prevent potential issues.

The Most Common Issue: Breach of Contract

When one party fails to execute the terms of the contract, a breach of contract occurs. There are several types of breaches; however, they generally fall into two categories.

Material Breach: One party fails in such a manner that the contract’s terms cannot be fulfilled. In this case, the affected party has cause to sue for damages.

Immaterial Breach: A minor breach occurs when the bulk of the contract is met, but some aspect of the contract has not been met. Importantly, this breach can still result in a suit for damages.

Other breaches involve when the contract is not fulfilled on time, or when an aspect of the contract is not met according to the parameters laid out by the contract. Similarly, failing to fulfill the contract wholly is also a breach of contract.

In any case, breaches of contract open up one party to the potential for a lawsuit to award damages or the ultimate fulfillment of the contract. Mediation is often pursued before filing a lawsuit, and if that fails, binding arbitration is another method to avoid a lawsuit. These two methods can bring about resolution in a few ways.

The most common fixes are:

• Cancelling the contract and provide restitution.
• Requiring Specific Performance, which requires the party at fault to fulfill the contract instead of pay damages.
• Awarding damages.

Contract Disputes with the US Government

The Contract Disputes Act of 1978 intended to set up an impartial and clear process for contractors and government bodies to resolve contract disputes. In order to achieve this, the act requires both parties to work to reach resolution at the lowest court level possible.

The contracting officer’s final decision can be challenged in higher courts, including the Board of Contract Appeals and the U.S. Federal Claims Courts. The decisions of these institutions can also be appealed in the U.S. Federal Circuit Court of appeals and the U.S. Supreme Court. Every effort should be made to avoid this level of appeal.

Other Contract Issues

Breach of contract isn’t the only issue that can lead to legal intervention when it comes to contracts. Some other common issues include:

• The offer and acceptance of a contract.
• The definition of a term used in the contract.
• Drafting and review of a contract.
• Contract errors.
• Fraud or coercion with regard to acceptance, terms, completion, etc.

Resolving Contract Disputes

Customarily, contract disputes are resolved with legal or equitable action. With equitable action, the offending party works to resolve the issues of the contract. Legal action often results in damages. Here are the most common types of damages awarded in contract disputes:

• Compensatory damages: this amount is intended to return the injured party to its previous state prior to the contract or work initiated due to the contract.
• Punitive damages: this amount not only is intended to restore the intended party to its previous state, but also punishes the offending party by requiring compensation beyond this.
• Nominal damages: this award is insignificant in amount but intends to show fault was determined. Nominal damages are awarded when no financial loss has occurred to the injured party.
• Liquidated damages: Damages of this sort are built in to the contract.

How to Avoid Contract Issues

Expectation management is key to the smooth execution of a contract. When both parties aren’t on the same page, problems are bound to occur. These steps can drastically reduce your odds of legal action with regard to a contract: 

• Document everything. Make sure to a keep a detailed history of offers, terms, compensation, and other conditions of the contract.
• Make sure that both parties understand the expectations—this comes with identifying the goal of the contract clearly. Build in mechanisms to get the contract back on track if issues arise.
• Updates to contracts happen, but this requires that each term be carefully reviewed for continuity—especially if any important parties are introduced into the process.
• Define! Don’t assume both parties understand industry-specific terms or jargon—these will need to be defined.
• Consider hiring an attorney who specializes in contracts. This professional insight can spot issues that need to be fixed before signing.