Outsourcing: How to Avoid Contract Disputes

23.06.2011
Outsourcing relationships are long and complex--the contracts that establish them seemingly more so. Yet for all their verbosity, many are filled with generalities and open questions, which can present major problems when conflicts between outsourcer and customer inevitably arise.

"One of the goals of outsourcing contracts is to develop a smooth working relationship between customer and supplier," says Brad Peterson, a partner in the business and technology sourcing practice of Mayer Brown. "When contract language is unclear, the parties develop different interpretations of the contract and those differences lead to disputes."

Disputes, of course, can hurt performance, and the compromises required to resolve them can leave both parties unhappy.

Uncertainty in the contract can also lead to . "Where the potential outcome is reasonably certain to both parties, they usually can reach an agreement on how to settle the matter and avoid a trial or arbitration," says Robert Kriss, a partner and litigator at Mayer Brown. "If the potential outcome of a dispute is uncertain, the parties may evaluate their positions very differently, making it difficult to settle."

Both sides lawyer up--digging through old emails, unearthing draft contracts, and interviewing witnesses--and that racks up billable hours for attorneys on both sides.

Outsourcing customers can mitigate the risk of by insisting on clarity at the time the contract is executed and at the first sign of trouble, say Peterson and Kriss. Anticipating all the issues that may arise during an is difficult, but drafters of outsourcing agreements should try to address as many specific problems as possible upfront to save money and heartache later.