A Bump in Disputes For Outsourcing Contracts?

Filed in archive Outsourcing News on July 28, 2008

Photo courtesy of iStockphoto, christine balderas

In a recent ComputerWeekly.com article, the London-based law firm of Pinsent Masons suggested that the current credit crunch will lead to a an increase in the number of re-negotiations, reductions-in-scope, terminations and disputed within IT outsourcing contracts. Cynically, I could say that this article was a way for Pinsent to drum up business (lawyers suggesting lawsuits and re-negotiations always seems to me to be a bit suspect), but in-house, I have seen this approach before.

It usually begins by a CIO or other IT executive intentionally short-paying the supplier. This is usually based on a general belief that the services are "not up-to-snuff." Then, the business teams and lawyers (usually in-house, and often with nearly no knowledge of the contract, its workings or outsourcing in general) look through the contract for things that can be used to justify short-payment. Then, the "come-to-Jesus" meeting with the CIO, where there are a lot of disappointed faces, some kicking and screaming, and if the supplier is lucky, some documentation.

Of course, customers should understand their outsourcing contracts. This is a given - and also something that is rarely done by customers. Waiting for a downturn to parse through it to mine for breaches, however, seems disingenuous at best.

It is my hope that some outsourcing suppliers say "no" to this practice and stand their ground. After all, these contracts are rarely managed well on the customer side, and there is often a paper trail of "good job" emails that can contravene any claim that the services were always poor. In fact, a few disputes would likely be resolved heavily in the supplier's favor (even in arbitration). Should this occur a few times and word get out (even if only to the legal community), this questionable customer practice may, finally, come to an end.