Out-sorcery: wizard wording
Disputes can cripple both parties to outsourcing contracts. Here are five ways to keep the relationship going:
Agree clear, comprehensive terms
The contract should be a road map for both sides to understand how the project will be delivered on time and on budget. Parties should be clear about their priorities, needs and expectations. Members of the project team at all levels should be involved to make sure the contract properly reflects their requirements.
Identify and understand the legal and technical risks
Specify, clearly and in detail, how things will work and who has responsibility for what. Address potential problem areas such as scope, delay, cost overruns and other pricing pressures. Ensure the supplier knows what the customer expects and the customer understands the intricacies of what the supplier is taking over. There may be philosophical and cultural differences to consider too. Make sure the board is kept informed of all risks inherent in the project.
Document all changes and issues arising
Before the contract is signed, check all contractual assumptions, requirements, clarifications or dependencies and their impact on the price or service. Uncertainty can lead to disputes and give under-performing suppliers an easy way out. Don’t give an inadvertent waiver by not addressing a default or not sticking to what the contract specifies. Follow the contractual mechanisms for making changes and reflect any compromises reached in documented variations.
Manage the contract actively and effectively – don’t let it gather dust on a shelf
Good communication can help solve many unforeseen problems. Involve someone who can apply some objectivity – perhaps even identify a trouble-shooter to help manage the contract. Conduct a full analysis of the background to a dispute as well as your rights under the contract before setting out your position to the other side. The evidence you find may not bear out some of the “folk memories” you have been told.
Anticipate and address disputes early before they get out of hand
Reserve your strict legal rights, whether for negotiation or litigation. Where differences arise, parties often get fixed in their position and leave it too late to open negotiations. This may make it more difficult to make concessions once negotiations begin. Identify your objectives and consider any escalation or dispute management provisions. Once a dispute has arisen, consider formal procedures for resolving it such as structured negotiation, mediation and ultimately arbitration or litigation.
This article first appeared in our Litigation Annual Review January 2006. To view this publication, please click here to open a new window.
