IT Outsourcing: Don't sweat the small stuff

Every relationship has its ups and downs, and IT outsourcing partnerships are no different. Unfortunately, most IT services contracts aren't built to handle the day-to-day disagreements that will occur during the course of the deal. "They choose litigation or relatively complex forms of arbitration," says Robert Kriss, a partner at law firm Mayer Brown. "Both are slow and expensive for minor disputes."

Left unresolved, the small spats--whether over price, scope, performance, delays or requirements--mount. "These disputes don't tend to go away on their own," says Mayer Brown partner Brad Peterson. "Instead, they fester and hurt the relationship or grow until they are major disputes."

IT outsourcing customers shouldn't just assume they will be able to work through disagreements because they have a good relationship at the start. "If you have a successful approach between the people running the deal, put it in the contract," Kriss advises. "Contract-based and relationship-based methods both work, but what's in the contract survives changes in people and work better under stress."

Inserting some general rules for minor dispute resolution into the contract can help IT services buyers and suppliers keep the peace and avoid painful and costly conflicts.

Some minor dispute resolution mechanisms that Kriss and Peterson suggest negotiating into your outsourcing deal include:

• An agreement to keep a shared log of all disputes.

• A requirement that the parties exchange written statements on all disputes.

• A governance structure that names the people responsible for addressing the issues that lead to a disagreement.

• An allowance that either party can escalate a dispute to the other parties' management structure.

• An obligation to set up technical, management and executive committees that will meet regularly and work to resolve disputes.

• A small disputes arbitration clause that allows each party to present its position in ten pages and one hour, and requires an arbitrator to rule on the dispute within ten days with no appeals and the loser paying all fees.

If you have no mechanisms for minor dispute resolution built into your existing outsourcing contract, there are still options for dealing with disagreements and preventing long-term discord and discontent. But timing is everything. For example, a customer might agree to discuss withholdings on a disputed invoice if the supplier is willing to discuss a dispute over the scope of services.

"A contract that is weak on dispute resolution likely is weak for both parties," Peterson says. "So, if you want to force the other party to discuss a dispute, you can wait until the other party has something to discuss also."

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