• Calling All C++ & AI Game...
• ELECTRICAL CABLING AND WIRING -...
• IT Service Desk Analyst -...
• SAS Analyst
• Project Manager

Avoiding (very) expensive tears before bedtime

Peter Davidson, Information Age

23/10/2007 23:54:34

Almost all ICT projects are bound by contracts to cover the delivery of goods, services or both - and judging by a recent survey by the Institute of Arbitrators and Mediators (IAMA), nearly half end in disputes over time, cost and/or performance.

IAMA conducted the survey in conjunction with the ACS and the Project Management Institute (PMI).

The survey asked 400 respondents how many contracts, with which they were involved, finished up with disagreements over whether what should have happened did in fact, when and what it cost.

It examined more than 1200 contracts, of which 46 per cent involved disputes.

"The survey is the result of the hard work and efforts of the IAMI, PMI and ACS. The survey gives insights into the nature, length and techniques used in dispute resolution - and the distinctive traits of the ICT industry.

"Its findings are no doubt valuable to encourage professional practice in the ICT Industry and to help in resolving disputes should they arise," according to ACS President Philip Argy.

The survey's findings, compiled by Anthony Green (IAMA) and Howard Elliott (ACS/IAMA), show that while disputation is rife in ICT, little effort is made during the framing of contracts to provide alternative dispute resolution (ADR) - even if either side knows what ADR is, let alone apply its techniques.

The result is litigation as a first and last resort, adding sometimes wildly disproportionate costs to a problem project that could have been resolved across a desk with the chance of a win-win for both parties - rather than confrontation across a Bar table and its cost.

The IAMA has long championed the development and application of ADR in its various forms, and the ACS offers members mediation courses to gain critical skills to avoid expensive angst among clients.

The PMI has a direct interest in good governance in managing projects, particularly in light of the failings which are the primary causes of disputes: Meeting agreed scope/specification (78%), agreeing on interpretation of the specs (60%), meeting agreed timelines (59%) and costs (46%).

"The need for best practice project management and governance processes in the ICT industry is evident, particularly given the innovation ICT projects can deliver. This study is likely to assist project teams in recognising what constitutes a higher risk criteria for where disputes may arise," says PMI chairman Todd Hutchinson.

The survey points out that a number of disputes over recent years involved more than $100m, and the higher the cost, the more likely some sort of formal resolution.

Litigation and arbitration was involved in about 30 per cent of instances examined, which showed most disputes fell between $50,000 and $500,000. Meditation was the second most favoured path to peaceful settlement.

IAMA President Laurie James says: "This survey demonstrates the need to develop and implement cost effective dispute resolution to ensure the Australian ICT industry achieves and maintains efficient delivery of its services.

"We have been assisting organisations and individuals in resolving disputes since 1975, saving industry millions of dollars, and governments considerable costs, as an alternative to tribunals and courts.

A number of key findings emerged from the survey: • Almost half of the 1200 contracts resulted in some sort of dispute. • The disputes ranged in value from $50,000 to $500,000 or more. • Where Alternative Dispute Resolutions (ADR) was used the dominant reasons for satisfaction included fairness of the result, process effectiveness, cost and speed. • The majority of respondents did not have formal dispute avoidance procedures in place. • The majority of the industry is not trained in dispute resolution techniques. • There was a strong level of interest in ADR training. • The high incidence of disputes and the limited approaches to resolving these disputes is of great concern.

Many of the disputes include government and government agencies as parties and result in both public and private sector initiatives exceeding original budgets, in some cases by tens of millions of dollars.

Disputes are a common occurrence and accepted part in all forms of commerce. Elimination of disputes is not economically feasible; management of the cost of dispute resolution is the most sensible way to reduce the economic impact of disputes and improve GDP.

Currently, the most common form of dispute resolution, litigation, is also the most expensive. This additional cost ultimately burdens businesses and consumers; driving up the cost of services, reducing GDP and increasing inflationary pressure.

Most ITC disputes involve advanced technology issues. Disputes that are highly subject matter based are not easily addressed through litigation. ADR provides the economy with a significantly more cost effective solution to dispute resolution.

The use of ADR trained subject matter experts (such as arbitrators, mediators and expert referees) has been shown to result in significantly lower resolution costs and deliver significantly higher satisfaction with the resolution process.

However, the low adoption of ADR in the Australian ICT industry imposes an unnecessary, significant burden on the judiciary, courts and legal system; resulting in high costs to business and consumers.

The survey found that the low rate of adoption of ADR was due to a lack of education and awareness both by the parties to contracts as well as their legal advisers.

Training needed According to the survey, over half of the respondents do not have formal dispute avoidance procedures in place. There are many possible reasons for this, the most likely being: • Lack of understanding or familiarity with the available processes; • Lack of experience and training in the various techniques; and, • Legal advice being offered. The survey explored these hypotheses, with a view to determining the most appropriate education and awareness campaigns to address these matters.

There were few surprises in the respondents' levels of familiarity with dispute avoidance and resolution procedures.

There was a lack of familiarity with Dispute Review Boards, which are more common in the construction industry, and to a lesser extent with project governance. This indicates that attention has not yet turned to proactive dispute avoidance processes in the ICT industry. The respondents were quite familiar with the more common ADR processes such as mediation, conciliation and arbitration.

It was expected that the majority of the respondents had not been trained in litigation or arbitration as these more formal techniques generally involve the use of lawyers or barristers.

However, there were a large number trained in ADR techniques, the most popular being mediation. This may also reflect the fact that a significant number of respondents belong to the ADR industry.

There was a clear lack of training in expert determination, despite the fact that many government contracts specify expert determination as the primary ADR technique.

Very few of the respondents had training in dispute review boards. This proactive technique is more popular in the building and construction industry. It has application in the ICT industry and should be the subject of awareness and education programs.

Notwithstanding the above, there is a clear message here that the majority of members of the ICT industry are not adequately trained in dispute resolution techniques.

This result was, to certain extent, expected. The respondents were then asked whether they would attend training courses or seminars. There is a significant opportunity for the industry, government and business to reduce the overall cost of ICT in Australia. This opportunity, if executed well, will provide significant benefits to the economy through the more cost effective use of technology.

However, this opportunity requires a joint effort between government, businesses, the ICT industry and the legal profession.

Government, as the major consumer of technology in Australia, must take a leadership position in demanding that all ICT contracts include relevant and workable dispute resolution clauses, and, when the need arises ensuring that these clauses are performed to minimise the time and cost impact of resolving disputes.

Business too, must ensure that appropriate dispute resolution clauses are included in technology contracts.

Of key importance is the education of the ICT industry about the importance of alternative dispute resolution methods and how these techniques can be implemented. Similarly, the legal profession, especially those advising the vendors and consumers of technology, need to be educated about the benefits and implementation of alternative dispute resolution.

IAMA, ACS and PMI must take leading roles in these areas through the provision of professional development and education programs designed to increase the proficiency of their members' ADR techniques.

Detailed survey responses are at www.iama.org.au

[breakout] How can things be improved? Poor scope definition and lack of detail in requirement specification documents are seen to be major contributors to disputes in the industry. Respondents saw these as areas for improvement.

A lack of clarity in specifications is obviously a concern and there is a need for education about these issues.

The scope must be detailed, scoping studies are recommended and better ways of managing variations of the scope should also to be explored. The inclusion of dispute resolution clauses in contracts was also considered by a large number of respondents to be a way of improving the dispute management process.

Further debate on the nature and effectiveness of such clauses, including standardisation where possible, is required.

There was some consideration given to the most effective type of dispute resolution clauses. Most respondents favoured the escalating clause, incorporating executive meetings, mediation and expert determination/arbitration.

The dispute resolution clause must clearly identify the process to be followed and the nominating authority to be used, otherwise it may be too difficult to invoke.