What is the REAL cost of a Contract?

If you have ever signed a contract, I am sure that you have seen a section called Dispute Resolution. Like most people, I am sure that you quickly glossed over it and moved to the signature section. But what exactly does it mean?

When you are signing a contract, whichever it is, you have to provide a way to solve any dispute that arises in the contract for example if one party does not pay the other. A lot of contracts provide for dispute resolution through Arbitration, others through Mediation or Court Litigation.

What people don’t know is that each has a different cost. If a contract provides for Arbitration, what people don’t know is that simply appointing an arbitrator in a dispute will cost the Parties around 20,000 shillings and most arbitrators charge an hourly fee that can quickly run up into the hundreds of thousands in a few weeks.

Whenever I draft a small contract ( valued at below Kshs 50,000), I usually prefer to put in a Mediation process Clause instead because I know that it will save the client money in future. However for large contracts (valued at more than Kshs 1,000,000), I include Arbitration clauses because I know that Arbitration may be a swift means of resolving disputes.

I usually put the Court Process as a last option because I know court cases take very long to resolve and can cost the Client hundreds of thousands in legal and filing costs.

When was the last contract you signed? Did you read the Dispute Resolution section?

Published by masibolaw

I help ambitious entrepreneurs to overcome legal and regulatory obstacles while growing their businesses.

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