An escalation procedure commits people on both sides of a contract dispute to meet and attempt to resolve it without costly arbitration or litigation.
Here is how this procedure might work, using a service agreement as an example:
- First, the project managers must meet on the issue. (If you failed to name project managers on both sides with equal authority, you did not get the original agreement right.) The chances are that the project managers would meet quickly on a major issue anyway, but the escalation procedure has time limits that force two very busy people to address the issue quickly and personally.
- Project managers usually have a good perspective on what has happened to date.
- They also should have a firm understanding of any technical and/or business issues.
- If the project managers cannot resolve the issue the appropriate vice presidents from each firm become involved. Note that this is not an optimal outcome for the project managers, so they will be highly motivated to resolve the issue before this point. The procedure again requires very busy people to find time to meet, and sets a time limit on their deliberations.
- The vice presidents should have a firm understanding of the importance of the project in question.
- They probably have the required authority to make changes that will alleviate the problem without further review.
- Finally, if the other initiatives have failed, the CEOs of the companies have to meet.
- This puts tremendous pressure on the project managers an vice presidents to resolve the issue themselves. Otherwise, the CEO is forced to take a meeting he or she would rather avoid.
- The CEOs are able to make the tough decisions that may be required to fix the damage.
- CEOs like to get deals done, and they will be motivated to find common ground in order to avoid appearing as though they failed
If the escalation procedure is unsuccessful, the normal litigation process begins.
Obviously this procedure in not a panacea. However, sometimes the escalation procedures work, avoiding costly litigation. A small company should consider this as a useful tool for placement in its major agreements.