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What Is an Ambiguous Contract?
A contract or document is considered to be ambiguous if it is reasonably subject to more than one interpretation. Sometimes, this can mean that it’s unclear as to what the parties intended overall. But usually, an ambiguous contract means that a specific term, word, phrase, or definition is vague or unclear.
If a contract is ambiguous, it can sometimes be resolved by the parties through further discussions. If not, it may be necessary to have the document reviewed in court to have the issues resolved. This wastes time and costs money.
It’s critical the terms of a contract or the description in technical or other requirements are specific and unable to be misinterpreted. What’s clear to one person may be meaningless jargon to another. Companies tend to create acronyms for everything they do - and only they truly understand what they mean.
Sometimes parties even create ambiguous contracts on purpose in order to create the opportunity later on to dispute issues and gain an advantage. However, more often than not this leads to disappointment and can end up souring a good relationship.
There are a number of things you can do to avoid ambiguous contracts and the resulting disputes.
Use consistent language and terminology throughout all your contracts. Using standardized templates will go a long way to ensuring this. Also having certain sections locked down will not only ensure consistency, but go a long way in order to uphold the organization’s governance and risk management policies (for example indemnity, IPR and insurance) as they are not able to be modified.
Good collaboration - both internal and external during negotiations /clarifications. Make sure that no question is left unanswered.
If you are using templates, update them based on your latest clarifications, negotiations and amendments as necessary to ensure that next time you create a new project/contract, you are working from the best possible starting point. Also update them regularly to reflect the latest statutory and other requirements.
iSpec manages all the above for you.