Cost of courting IT disputes

WH Smith is suing its supplier for £4.5m. But litigation is a last resort for most users. Mike Simons reports

WH Smith is suing its supplier for £4.5m. But litigation is a last resort for most users. Mike Simons reports

Your new multi-million pound software system has gone horribly wrong. It won't scale to cover the whole job and keeps falling over.

Do you enter voluntary mediation with the supplier with no guarantee of success or do you bite the bullet and take the supplier to court in the full glare of the media?

WH Smith and its suppliers Siemens and Fujitsu-Siemens have ended up in court over the newspaper wholesaler's SAP implementation (Computer Weekly, 22 February) but the alternative options of arbitration or conciliation are not straightforward.

The stages of dispute resolution are well-established but discretely publicised.

When a dispute looms, the initial reaction should be informal efforts to resolve the conflict involving negotiation "without prejudice". If this fails, the next steps are mediation and then arbitration before litigation.

Mediation involves intervention by a third party to produce a negotiated settlement. According to the Computing Services & Software Suppliers Association (CSSA), it is the best way to bring about a mutually satisfactory result.

Organisations like the CSSA and Centre for Dispute Resolution have facilities for informal conflict resolution.

John Higgins, CSSA chief executive, said, "Mediation keeps the dispute as a management issue rather than turning it into a legal one, thus helping to prevent the breakdown of a relationship between supplier and user."

If this fails, formal mediation is the next option. This involves both parties agreeing a suitable mediator and appointing representatives to meet privately with the other side and the mediator.

The representatives must have the authority to settle the dispute. And since mediation is "without prejudice", offers or admissions made cannot be used in related litigation or arbitration.

But mediation is not a panacea. It depends on both parties having a genuine willingness to reach a commercial settlement of the dispute.

There is a growing trend for IT contracts to include compulsory mediation clauses, which forbid arbitration or litigation without trying to settle the dispute through mediation.

But Clive Seddon, IT partner at law firm Mason's and a mediator for the Centre of Dispute Resolution, warns that a voluntary mediation clause is preferable.

"Compulsory mediation clauses may seem attractive," he said. "But they can prove very costly in practice if the parties have no wish to resolve their differences immediately but are forced to go through the motions before being in a position to issue court process."

Steve Larner, of SRL Consultants, which provides independent expert witnesses in IT litigation, argues that mediation has its strengths. But he adds that it often fails to recognise the strengths of the competing claims, leading to "mid point" settlements.

Larner is trying to promote the Computer Industry Conciliation Service. This involves the preparation of a short independent technical review of each side's case. An independent conciliator, the only person to see both technical reviews, then advises the parties on the relative strengths of their case.

Ideally, the side with the weak case will make the first move to settle. "This should end up reflecting the strength of the cases," added Larner.

If these processes fail, the next step is usually arbitration. Arbitration is binding, enforceable and may only be overturned by a court order.

But users should not view arbitration as a cheap and speedy alternative to litigation. Both routes can be slow and expensive, according to legal experts.

They point out that arbitration and litigation require administrative and managerial resources which can be just as expensive. Seddon added, "Judges and courts come at the expense of the taxpayer."

The key advantage of arbitration over litigation is that it ensures complete confidentiality - an advantage for the company and the supplier.

The last resort is litigation and an appearance before the Technology Court. The CSSA warns, however, that litigation may be lengthy with costs sometimes exceeding compensation.

The cases are also often conducted in full view of the industry and media, potentially damaging the reputations of organisations.

The lesson seems to be that it is better to invest time and resources in getting the project right before contracts are signed, rather than in dispute resolution afterwards.

It is also preferable to build a partnership between the user and the supplier. This should include monitoring for the early detection of problems and regular discussions between the parties over possible areas of conflict.

Centre for Dispute Resolution:

Computing Services & Software Association:

[email protected]

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