Media

Disputes red hot but silence is golden

The Australian 09 October 2007
By Andrew Colley

The hi-tech industry is seen as quarrelsome and litigious, but even the biggest vendors are very shy of talking about the smallest contractual conflicts.

NEW research paints Australia's $7 billion ICT sector as a highly quarrelsome and litigious bunch, but Australia's biggest IT vendors, including IBM Australia, Sun Microsystems and Oracle stoically refuse to discuss the most benign aspects of the topic.

Information Technology Minister Senator Helen Coonan last month vocally and enthusiastically endorsed a new industry strategy to promote alternative ways to resolve IT contract disputes: "The IT industry has been identified as an industry that could greatly benefit from alternative dispute resolution (ADR). It's a conclusion that I agree with."

The alternative strategy was presented with results of an anonymous company survey by the Australian Computer Society and the Institute of Arbitrators and Mediators Australia, showing that ICT contracts forged in Australia were falling into dispute at a rate close to one in every two.

The survey attracted responses from 400 companies and showed that about 46 per cent had been involved in a contract dispute with their IT supplier.

Disputes grew to legal action in 18 per cent of cases while 12 per cent were resolved by another formal resolution process.

The report's authors say they're unable to estimate the financial burden that contract dispute resolution places on the industry, but the cost of resolving disputes exceeded $500,000 in 32 per cent of cases.

The report's co-author, project management and mediation specialist Anthony Grieve, says the rate of litigation is far too high: "I think the point is that the industry is not fully aware in our view of the advantage in some of these processes, particularly in mediation."

Mainstream IT research on contract disputes is yet to reveal evidence of legal action over ICT disputes anywhere near dramatic as those published by the IAMA and the ACS. Gartner research vice-president Jim Longwood says the rate in Australia is much lower, hovering slightly above the Asia-Pacific average of 3 per cent.

"That just isn't consistent with what we see at all," Mr Longwood says.

"If anything, the package providers might take them to court just to check on licensing arrangements because they've used too many seats."

Howard Elliott, private consultant and co-author of the ACS-IAMA survey, said the results were consistent with a major survey by project management consultancy EQuest in 2004.

The EQuest report showed that Australian IT projects were delivered late in 50 per cent, and over budget in 32 per cent, of cases.

A contract consultant specialist who asked not to be named is sceptical about the ACS-IAMA finding and says research on litigation faces its own peculiar challenges.

"How would you ever know?" he says, referring to the veil of secrecy over pre-court litigation that the business community traditionally tries to preserve. It's no different in the technology sector.

IBM and Oracle have both been dragged into courts by major clients and discussing their litigation, even in the broadest and most mundane terms, is strictly taboo. The ACS-IAMA report was conducted anonymously and although not revealing them, Gartner keeps some records of the identity of its survey subjects.

As one enterprise technology vendor media adviser put it: "it's a bit like being asked to discuss STDs".

Gilbert and Tobin solicitor Fraser Shepherd says IT industry contract disputes are well represented incase files passing across desks of corporate lawyers but most don't reach a courtroom.

"It's certainly true that a relatively high proportion of IT projects end up with some kind of legal dispute between the parties," Shepherd says.

"Most of those disputes are resolved fairly quickly, however, by negotiation between the parties or their lawyers, without either party starting court proceedings. Even where court proceedings are commenced, the majority are settled soon afterwards. Only a small number of IT disputes go all the way to a trial."

Matthew Franceschini, chief executive of contract management services firm Entity Solutions says, however, the ACS-IAMA survey overstates the situation.

"I don't think there's a high degree of litigation in the industry," Franceschini says.

"I think that in the main people are careful enough and sensible enough to work out their disputes," .

Daniel Lucas, chief financial officer of utility company Integral Energy, which has settled a high-profile legal dispute with IT services giant EDS, says the number of contract disputes resulting in damaging court battles appears to be increasing. Lucas, whose tenure predated the utility's dispute with EDS, says most litigation involving ICT contracts proves to be needless in retrospect.

"If it gets to litigation it's a sign of other problems in the management of the contract," he says.

"It has been deficient in the management phase or the early set-up phase and that falls to both parties."

Mr Shepherd agrees, saying project teams on the ground that simply ignore processes lawyers set down at the start of an IT project are a recurring feature of legal disputes over ICT contracts.

"Many disputes could be avoided by appointing someone on the project team to be responsible for ensuring that the procedures set out in the contract are followed," he says.

The ACS alternative strategy aims to increase use of mediation and other dispute resolution techniques by promoting them as less costly alternatives to litigation. Mr Shepherd concedes that arbitration offers an attractive alternative to litigation for disputing companies, particularly those that are shy about publicity. He says, however, that it is frequently oversold.

"A disadvantage of arbitration is that, without a court to enforce a timetable, it can be easy for one party to delay the process for strategic reasons," Shepherd says.

"As long as it's conducted in the right way, litigation in the courts can actually be a quick and cost-effective way to resolve IT disputes. The problems arise when some lawyers become fixated on the litigation process and forget that their clients really just want a resolution to the dispute." Court victories often prove to be hollow after their impact is considered, Lucas says.

"I think the companies might have a financial win on paper but they've probably lost when they look at all the other operational disruptions and the need to move to a new contract," he says.

"The industry is not fully aware in our view of the advantage in some of these processes, particularly in mediation." Anthony Grieve, Mediation specialist

"IT has been identified as an industry that could greatly benefit from alternative dispute resolution." Senator Helen Coonan, Information Technology Minister

We gratefully acknowledge the permission from Andrew Colley at The Australian to reprint this article.