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7 ways to resolve IT outsourcing disputes before they happen

Stephanie Overby | Sept. 29, 2014
Follow these steps when negotiating your IT services contract to reduce the impact of disagreements — and potential litigation — on your business.

"It builds the right relationship in that the customer becomes the best cheerleader for the provider," Masur says. "Also, the provider is always incented to keep the customer satisfied." But while important to have, these tools should be handled with care, says Masur. "If you use them punitively, they can have significant impact on the relationship."

Put it all in writing. An outsourcing relationship is fluid; situations change. Consent, waiver, concession--whatever verbal agreement arises, put it down on paper and do it in real time. "Contemporaneous records are the best record of what was agreed to," says Masur. In addition, designate one place where all such documentation is stored. In the typical outsourcing relationship, such information is scattered among hundreds of employees and thousands of emails, making dispute resolution more costly and complicated than necessary.

Collect -- and redeem -- IOUs. An outsourcing deal isn't done when the ink is dry; negotiations are ongoing. Concessions are bound to occur, but such cooperation needs to be a two-way street. "Think of the outsourcing relationship as ongoing barter," Masur recommends. "There are things the customer needs or wants that aren't built into the contract, and things the supplier wants or needs." Masur suggests creating nonbinding IOUs when granting concessions. When you have a need, cash one in.

Maintain clear delegation of authority. Consider putting one person in charge of any changes to the contract while giving them the ability to delegate that responsibility if necessary. Employees can, deliberately or not, agree to changes in the relationship without a clear understanding of the contract. In addition, by creating an authority figure, neither the outsourcing customer nor provider can "shop" for the responses they want, says Masur.

Include an accelerated dispute resolution clause. When an outsourcing customer decides to acquire a company, for example, it's no time for a knock-down-drag-out fight over whether the outsourcing provider is obligated to participate in integration and support or how much that will cost the customer.

It's important to contractually require the provider to proceed with new projects, services, and other requests as requested, says Masur. Define an accelerated, informal process for moving ahead in such situations. The contract should stipulate that if customer and provider do not agree on a new scope of work and cost within a specified period of time, the customer begins paying a defined percentage of the disputed amount and, once resolved, pays up based on the outcome.

There's a danger that the customer may pay more than it wants, but it's the best way to share risk, says Masur. "It's not fair to require the provider to work for an indefinite period of time without resolving the issues and having clarity," says Masur. An accelerated dispute resolution clause reduces impact on the customer while minimizing the impact on the provider and the relationship.

 

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