This clause sets out a step-by-step process for handling disagreements before either party takes legal action or ends the contract. Typically it requires you to notify the other party in writing, then meet with managers, then directors, before involving lawyers. It matters because it can save thousands in legal fees and preserve a working relationship—courts in both the UK and US actually favour parties who try to resolve disputes this way first. Without a clear escalation procedure, small problems can explode into expensive lawsuits. The legal principle is called "good faith negotiation," which many contracts require.
Negotiate for reasonable timescales at each step (e.g., 10 days to respond at each level, not 2 days). Make sure the procedure is genuinely achievable—if your company only has 3 employees, a five-level escalation is pointless. Push back if the clause requires you to keep paying money or performing the contract while disputes are being resolved; add language that lets you suspend non-critical obligations during escalation. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause sets out a step-by-step process for handling disagreements before either party takes legal action or ends the contract.
Why should I care about this clause?
Typically it requires you to notify the other party in writing, then meet with managers, then directors, before involving lawyers.
What are my options?
It matters because it can save thousands in legal fees and preserve a working relationship—courts in both the UK and US actually favour parties who try to resolve disputes this way first.
How does this affect small businesses?
Without a clear escalation procedure, small problems can explode into expensive lawsuits.