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Manufacturing Contracts: Considerations for Dispute Resolution Clauses
Monday, June 13, 2022

Over the years, I have written a lot about manufacturing disputes and how to resolve them short of litigation. The first step often is looking at what the parties have agreed to in any applicable contracts about how to notify, assess, and potentially resolve disputes.

As a general matter, dispute resolution clauses are often more detailed in long-term agreements than in a company’s standard terms and conditions. Most manufacturers have “choice of law” provisions in their contracts (i.e., what law will apply to any dispute). Sometimes manufacturers have “forum selection clauses” in their contracts (i.e., where will any lawsuit be litigated). As I have noted previously, there is a difference between these two clauses and you need both in your contracts. Don’t fall into the trap of having one but not another.

Some manufacturing contracts have mandatory arbitration provisions. I could spend pages talking about the pros and cons of arbitration. Yes, it often has the benefit of confidentiality, but no, it often is not faster or cheaper than traditional litigation. Ultimately, whether to include an arbitration provision is a case-by-case determination.

One area that I have been thinking about more lately is the value of requiring pre-litigation discussion amongst the business leaders. Often, contracts will say that if there is a dispute, once one side notifies the other there will be several required discussions to try to resolve the dispute short of any formal legal proceeding. The objective of these meetings makes sense: let the business leaders talk before the lawyers get involved.

The problem is that, most times, once a manufacturer notifies the other formally of a dispute under a contract, the dispute has gone beyond one that can be easily rectified via a phone call. Therefore, I am not convinced these types of requirements are really helpful. In my experience, they often delay dispute resolution because of the various hurdles just to schedule business to business meetings and then executive level meetings and then mediation. I am not saying that there are not circumstances where such provisions are helpful. All I am saying is that you may want to think about whether they actually make sense in the specific contract you are negotiating. These types of provisions should not be viewed as boilerplate to always be included.

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