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Commercial Conflict

By
Chris Honeyman

Updated April 2013

 

Definition:

Commercial conflict describes conflict which takes place between firms, including certain types of situations when a solo individual is in business. But it does not include every kind of conflict which takes place in a commercial setting; labor-management conflict, workplace, and employment conflict are often found in commercial environments, but have their own characteristics and resolution procedures.

Users:

Many people find themselves involved in commercial conflicts as interested parties or as bystanders with little control — as in a troubled merger of companies, when you happen to work for one of the companies involved. People who operate small businesses, work as managers of larger ones, or contract with any size of business have more direct roles in commercial conflict, and need to understand how these conflicts develop and how they are typically handled.

Description:

Because commercial firms are free (at least in theory) to contract or not contract with any particular other firm, commercial conflict is generally said to arise between firms which are already in some kind of contractual or working relationship. Business settings provide many opportunities for conflict to begin, particularly because commercial contracts often cannot contain all of the specifications which are implied or expected by the parties as conditions to the contract. Construction contracts, in which unexpected problems frequently arise during the construction, are common examples of this pattern. Also, conflict frequently arises because one party finds it difficult or uneconomical to comply with terms it had expected to be able to live with when the contract was agreed to, and tries to escape a requirement it now finds onerous. Because the parties are generally in a relationship which can be described in contractual terms, and because a great deal of business negotiation involves secrecy, commercial conflicts can often lead to one party seeking legal resolution after a relatively brief attempt to negotiate.

Therefore, it is common for parties to commercial conflicts to "file suit first, and talk later." This often results in less-than-creative resolution, even when negotiation or mediation is used at the last minute to avert trial, because the escalation of demands and accusations get in the way of attempts to think through both parties' best interests for the future. To get around this, some industries are developing elaborate systems that anticipate conflict as a normal part of a complicated relationship, and build in more productive ways of dealing with it when it arises. An example is the "partnering" approach now increasingly used in large construction projects.

Example:

A quite common example of commercial conflict occurs when a seller of some type of supplies or components used by a buyer sends a bad batch. If Buyer has changed any of the specifications recently, including the amount of time allowed to Seller to make and deliver the goods, Seller is likely to believe that the error is really Buyer's fault, or that the fault is shared. Buyer, meanwhile, may have no ready alternative to continuing to do business with Seller, if the supplies are in any way distinctive (including being notably cheaper than what other suppliers would charge). Often, the parties will frustrate each other with legal arguments, lessening the likelihood of future business dealings, only to settle the matter just short of trial — on a basis in which Seller pays Buyer a certain amount of money as compensation, without either party having really learned anything that will lessen the likelihood of future disputes.

Application:

Anyone who is in a contracting or compliance role in a commercial firm — which includes large numbers of people who hold multiple roles because they operate small businesses — needs to understand that commercial conflict is virtually inevitable in a dynamic economy. Doing good business depends on being able to make good distinctions between the few conflicts that really demand legal (or arbitration) procedures, and the many that demand clarification or adjustment of relatively minor terms in otherwise acceptable contracts.

Links to Related Articles:

Labor-Management Conflict

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