How Your Contracts Help Manage Service Delivery Disputes

Service delivery disputes pose a significant risk to revenue, customer relationships, and operational efficiency. As companies scale, these disputes tend to become more frequent, in our experience. And more frequent still when service expectations are not clearly defined, performance metrics are ambiguous, or external factors disrupt operations.  

Well-drafted contracts serve as the first line of defense, mitigating risks and providing structured pathways to resolution. In this post, we’re going to discuss the role of contracts in managing service delivery disputes, and how you can draft more effective contracts that will function as a business document – as well as a legal one.  

The Role of Contracts in Managing Service Disputes 

Well-drafted Service Level Agreements can help in the following key ways: 

Defining Clear Service Levels and Expectations 

Service Level Agreements (SLAs) can set measurable performance criteria, helping both parties understand deliverables, response times, and remedies for non-compliance. In SaaS, this may include uptime guarantees and support response times, while in other industries, like MedTech, it could cover regulatory compliance and equipment upgrade commitments. 

Innovation in Payment Terms 

Disputes often arise over delayed payments or contested invoices relating to service delivery disputes. So, contracts should specify payment schedules, acceptable delays, and circumstances wherein payments can be withheld without terminating the contract. 

We’ve found that offering innovative payment terms can incentivize both parties. For instance, performance-based pricing models, commonly used in enterprise SaaS, can help align incentives by tying compensation to key outcomes. This creates win-win situations for both parties.  

Similarly, you can outline terms for discounts where performance standards are not met. Any period of downtime could come with an automatic 20% reduction on the next bill. These terms can be used to build confidence as you build the relationship with your customers.  

Outlining Dispute Resolution Mechanisms 

The relatively recent outage caused by CrowdStrike’s faulty update that grounded planes and halted business operations is a high-profile example of service delivery issues leading to litigation. The ensuing lawsuits showcase the importance of indemnification clauses, as well as dispute resolution mechanisms.   

Avoiding litigation should be a priority, given the costs and time involved. Contracts should establish dispute resolution pathways, such as mandatory mediation, arbitration clauses, or escalation procedures that engage executive teams before external legal intervention. These should be explicit, since you don’t want your customers to wonder what to do if they have a complaint or are unsure whether your service delivery standards have been met. Many SaaS agreements incorporate tiered dispute resolution mechanisms that promote dialogue before formal legal proceedings. 

Defining Termination and Exit Strategies 

Termination clauses should ensure that both parties understand their rights and obligations to end a contract, including as it relates to service delivery standards. A strong exit strategy outlines transition support and covers data migration (critical in SaaS) and the return or disposal of business assets, including confidential information and any personal information. 

Additionally, termination clauses should account for force majeure scenarios, clarifying the steps each party must take if external disruptions—such as natural disasters or regulatory changes—make continued service impractical, illegal, or significantly impact costs. This ensures that parties have predefined contingency plans, reducing uncertainty in times of crisis. 

Five Action Steps for Business Leaders 

Audit Existing Contracts – Review existing agreements for clarity in service expectations, dispute resolution, and termination clauses. 

Enhance SLAs – Ensure that SLAs are specific, measurable, and aligned with business objectives to reduce ambiguity. 

Strengthen Payment Terms – Revisit payment structures and late payment penalties to mitigate cash flow risks. 

Incorporate Tiered Dispute Resolution – Establish clear escalation procedures before disputes reach litigation. 

Plan for Worst-Case Scenarios – Regularly stress-test force majeure and business continuity clauses against real-world disruptions. 

 If you want to improve your business contracts, reach out. Our corporate attorneys would love to help.  

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