What is the purpose of a dispute resolution clause in a contract?

The purpose of a dispute resolution clause in a contract is to outline how disputes under the contract will be resolved. This clause is critical as it establishes the processes and methods parties will utilize to address any disagreements that may arise. These processes may include negotiation, mediation, arbitration, or litigation, and specifying them in advance helps both parties understand their options and creates a framework for resolving conflicts efficiently and effectively.

Including such a clause can prevent misunderstandings and provide clarity, ultimately saving time and resources if a disagreement occurs. Having predefined procedures also establishes expectations for both parties on how to handle disputes, encouraging a more amicable resolution process.