Enterprise Technology and Outsourcing Agreements Never get Litigated, or Do They?

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Conventional wisdom among technology and outsourcing practitioners is that neither side would willingly litigate an enterprise technology or outsourcing agreement. Each party has too much to lose from the public airing of a failing relationship. If that is true, why are we seeing more media stories of disputes around large-scale technology failures such as the litigation around the outsourcing of the Indiana welfare system. Within the legal profession, is the focus shifting from deal making to dispute resolution?

The market for large technology and outsourcing services is changing in five important ways:

1) Companies are becoming ever more dependent on more advanced and integrated technologies. Implementing them is inherently more complex and therefore risky.

2) Most major companies have already entered into a number of major enterprise technology relationships and/or outsourced.

3) Companies have come to accept that enterprise technology and outsourcing relationships are imperfect and that some percentage of these relationships inevitably fail.

4) Suppliers understand this shift in customer perception.

5) Nobody has good money to throw after bad.

The result of these changes is that fear of litigation and the associated stigma is waning. In some cases, a party might need to show that it is not willing to be “walked all over” by the other side. At the same time, as the economy tightens, both suppliers and customers need to find ways to stem losses on projects that are bleeding. With less inhibition to sue, and more incentive, formal disputes are on the rise.

For parties already suffering a troubled relationship, this is not news. For those about to enter new or updated relationships, it is time to revisit some of the assumptions underpinning established contracting terms and negotiating positions. This is particularly true for deals that involve international delivery components, where the complexity of litigation and other enforcement action is higher. It seems that in the post-economic meltdown world, one must plan for the real risk of litigation if a core technology or outsourcing relationship becomes troubled.

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