What do technology contracts and marriage have in common? The overwhelming likelihood that the relationship will encounter disputes. And now we have the stats to prove it.
Did you know that one in three Australian marriages will end in divorce? Similarly, over one in three Australian technology contracts will result in dispute.
Before a married couple can separate, the law mandates that the couple attend a popular form of alternative dispute resolution (ADR) – mediation. In light of the comparable figures, maybe all technology contracts should include a well drafted dispute resolution clause?
Earlier this month the results of a survey into dispute resolution within the Australian information and communication technology (ICT) industry were released by the Institute of Arbitrators & Mediators Australia (IAMA), the Australian Computer Society and the Project Management Institute.
The result? There is high incidence of disputes and limited approaches to resolving these disputes. The answer? Increasing the use of ADR techniques. The survey tells us why.1
What are ICT goods and services?
We're talking about computer software and services, telecommunications equipment and services, computer hardware, communication cable and wire, recorded media, internet service providers (ISPs) and additional ICT products.
For example, ICT hardware might include personal computers, network equipment, mainframes, and printers. ICT services might include systems integration, software, software development/support, services provision, consultancies, and telecommunications.
Why is dispute resolution in the ICT industry a big deal?
Total revenue in Australia from the production of ICT goods and services is $54.4 billion, 2 representing 4.6% of Australia's total GDP.3 The capital expenditure on ICT by Australian governments alone exceeds $3 billion.4
Consequently, the cost of disputes is in the tens of millions of dollars and the government has a vested interest in trying to find a solution.
What are the key findings of the survey?
Almost 50% of technology contracts resulted in some sort of dispute
That's right. If you are a party to a technology contract you actually have close to a 1 in 2 chance of having a dispute. Factors contributing to this include, for example, the failure to properly define:
- the scope or specifications
- agreed timelines
- payment milestones.
Whilst some of these issues are inevitable in large complex contracts it is not difficult to draft a sensible ADR clause that allows parties to seek to resolve disputes without resorting to court.
The disputes ranged in value and lower costs corresponded with higher use of ADR techniques
In over half of the disputes, the value of the dispute exceeded $150,000. In a third of disputes, the value of the dispute exceeded half a million dollars.
The survey found that disputes that used ADR resulted in lower costs being incurred.
The majority of respondents did not have formal dispute avoidance procedures in place.
A lack of dispute avoidance procedures in part explains the high level of disputes.
The more interesting question is: why aren't these procedures in place?
Users are satisfied with ADR for reasons including fairness of the result, process effectiveness, cost and speed
Not surprisingly, litigation, as a technique for dispute resolution, showed about a 50% satisfaction rating. We can assume that this 50/50 divide represents the sentiments of the so-called "winner" and "loser" of the dispute.
Most of the ADR processes had a higher satisfaction level. Users attributed this to the fairness of the result, the speed and cost of the process and also to the effectiveness of the resolution process. Another common reason was that the dispute resolver had expertise in the subject matter of the dispute.
The majority of the industry is not trained in dispute resolution techniques
The results indicate that attention has not yet turned to proactive dispute avoidance processes in the ICT industry, because of a lack of adequate training in dispute resolution techniques.
What else does the survey tell us about technology contracts?
Australian law is favoured despite prevalence of international parties
This is good news. Despite most major suppliers in the ICT industry being international companies with over a third of contracts involving an international party, the survey shows that a majority of contracts provide that the law of the contract is Australian law.
Too little dispute resolution clauses vs too many contracts requiring dispute resolution
This is not so good news. One the one hand, close to half of contracts had no dispute resolution clause. On the other hand, more than half of the contracts required some form of dispute resolution. But of those contracts containing dispute resolution clauses, mediation and arbitration were the most common techniques for dispute resolution.
So stat's aside – can ADR help to minimise costs?
Yes. The high level of disputes in technology contracts is costing the industry and the Australian economy. The survey results show that the use of ADR to resolve disputes can:
- result in considerably lower costs to the parties
- leave the parties more satisfied with the resolution process
- benefit the economy due to a more cost-effective use of technology.
The members of the Dispute Resolution group at Gadens act for numerous clients in the ICT industry with specialist expertise in drafting ADR clauses appropriate for the ICT industry. The Dispute Resolution group also offers training in ADR techniques to clients.
1. Alternative Dispute Resolution in the Australian ICT Industry (Paper).
2. In 2004-05 period.
3. In 2002-03 period.
4. In 2003-04 period.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.