The umpire strikes back

Arguments and conflicts are a fact of life, but disputes between business partners can be devastating. Annie Gurton looks at limiting the damage.

The relationship between reseller and supplier or reseller anden business partners can be devastating. Annie Gurton looks at limiting the damage. customer is like a marriage. And it too can founder. Despite hopes, optimism and expectations, the harsh reality is that disagreements and discord can creep in and grow like a cancer. Before you know it, you are at loggerheads.

And, if the situation is allowed to continue unchecked, you can find yourself in court and liable for considerable costs.

THE PAIN BARRIERS

There are two key strategies that can help to avoid the costs and pain of litigation. First, make sure that all possible eventualities are enshrined in the contracts, and then secondly, if problems do arise, deal with them promptly. If the contract is too vague, or if problems are allowed to continue unchecked, the outcome can be costly both financially and in terms of your reputation.

LITTLE DEVILS

But some clients seem hell-bent on causing trouble and, of course, there are some suppliers who have never heard that the customer is always right.

So when, despite your best intentions, the relationship is heading for the rocks, what should you do?

According to Dennis Keeling, director of the Business and Accounting Developers Association (Basda), the answer is to call in a calming third party. He explains: 'I have been called in to many situations where war was about to break out across the boardroom table. So far, I have had a 100 per cent success rate in getting the parties to talk sensibly and resolve their problems.'

Like many professional bodies, Basda runs a free mediation service for its members and their customers, and with membership at a mere #125 per year, it is almost worth joining for a low-cost way to resolve a dispute.

Keeling says: 'We are not an arbitration service, which can be legally binding, we are a mediation service which means that we just facilitate the process of bringing the two sides together.'

Some problems can even be resolved over the phone because they are often based on a misunderstanding than a deliberate policy to be obstinate.

INCOME SUPPORT

'We have had conflicts surrounding support costs, which the customer may want to change because their circumstances have changed but the reseller wants to stick to the contract, or upgrades which don't work,' Keeling explains. 'The first objective for us is to avoid the costs of full litigation by sorting out a problem before it escalates.'

The National Computing Centre (NCC) runs a similar service. Head of expert witness service, Jerry Humphreys, says that like unhappy marriages, every circumstance of conflict is different. 'Cases range from conflicts over intellectual property rights (IPR), to service level agreements, or the lack of them, to disputes over invitations to tender. And they include systems that don't work and consultants who don't deliver,' he says. 'Usually, the problem is a gulf between reality and expectation and then it is a matter of finding out where the difference lies.'

Humphreys and Keeling agree that for mediation to work there has to be goodwill on both sides, something that can often be found lacking in companies and individuals who are in dispute. Keeling says: 'If the parties are unwilling to talk sensibly, we explain the negative consequences of litigation, which is a combination of expense and damage to reputation. It is far easier to sort everything out before it reaches that point. In court, there are no winners, everyone is damaged in some way.'

QC COME-A-COURTIN'

Humphreys points out that once matters come to court the costs go through the roof. 'There are the legal costs such as the QC and the barrister, and the court costs, not to mention any compensation which may be awarded.

Compare that to the #1,000 a day it costs for the NCC solution.' Or, of course, the free Basda solution.

The NCC provides a service called Alternative Dispute Resolution which, like the Basda service, is not legally binding, although Humphreys points out that an agreement to resolve problems with ADR can be written into the contracts, in which case it is binding. 'We do alternative dispute resolution on a consultancy basis, and we also act as expert witnesses to arbitrators.'

Keeling argues that disputes should really be regarded as an identifiable risk, such as damage to goods. 'The possibility that there may at some time be a dispute of some sort is a probability, and though unpleasant, it should be regarded in the same way as the possibility that goods are damaged or a project runs over time. No one wants it to happen but these things do happen. Therefore having a clause in the contract about how to resolve disputes makes very good sense.'

Peter Cornell, a partner at solicitors Linklaters & Paines says: 'All too often I find that dispute resolution provisions do not adequately meet the needs of the parties, once a dispute has arisen. They did not address their likely needs at the time of contracting. Often the clause will be about three lines long, simply providing for some form of arbitration. Occasionally there is no provision at all, in which case the dispute is a matter for the courts as a starting point.'

CORNELL ON THE JOB

Cornell adds that resolution through the courts may be the most appropriate course. 'But the tremendous advantage the contracting parties enjoy at the pre-contract stage is that they are in a position to objectively negotiate the dispute procedure. It is far harder to agree dispute procedure once the dispute is taking place. It is even possible to have a dispute about a dispute, which only serves to prolong matters still further.'

It is, of course, good to talk. Disputes can often arise innocently, perhaps because of inexperience on either of the two sides. 'If this happens,' Keeling says, 'the party with more experience has a responsibility to point out that the less experienced side hasn't got the whole picture.'

Sometimes pressured situations are a source of conflict. For instance when there is a deadline to get a system installed, one or both sides may overlook something which becomes a problem later. Once again Keeling emphasises the the importance of discussion. 'The trick is to keep communications open so that as soon as a problem appears, it is quickly aired,' he says.

Roger Southgate, operations director with the Sema Group, believes that all resellers should take full responsibility for the systems and solution delivered to customers, and bend over backwards to settle any disputes.

'The principle should be that the customer is always right. But it is even better to have processes which ensure that disputes are defused as quickly as possible. They should never come to a head. Avoidance is the key thing, and that is achieved by tight specifications and contracts covering what to do in the case of disagreements.'

BAMBOOZLE SHOOTS

Since most reseller and solution house businesses depend heavily on partnerships and relationships, they should be conciliatory about problems and disputes, says Southgate. 'There is rarely anything to be gained by hanging out for some satisfaction in being proved right. Better to give in gracefully, concede and compromise. In the long run, it is a much better approach.'

Keeling says: 'Sometimes it is easy for customers to be bamboozled, but the resellers are just being shortsighted if they take advantage of a customer's innocence.'

However, Southgate adds that compromise and conciliation requires a mature approach. His advice is to ensure that the customer's expectations are realistic. 'In my experience, most disputes arise because a customer has expectations that are too high, either of what a system will do or how long it will take or sometimes even what it will cost.

INDECENT PROPOSAL

'The trick is not to oversell. If you think a customer is building too much expectation into your quote or proposal, you must be honest and tell them. If not you will have trouble later when they don't receive what they were hoping for.'

He believes that every single project has issues which must be discussed, negotiated and agreed upon. 'If the relationship and individuals are mature, they will regard this as a normal part of the process and wouldn't dream of letting things reach the litigation stage.'

In the long run, says Southgate, it will be a relationship built on trust, and not one built on hype and false hope.

ADVICE FROM THE EXPERTS

Hold frank and open discussions from the beginning, and as regularly as possible

Keep contracts simple, but at the same time try to cover any eventuality (even with a simple phrase to the effect that any dispute is to be resolved by mediation)

Ensure that regular reviews of the relationship are an aspect of every meeting, and voice any concerns

Tackle problems - don't let them fester

If possible, don't let the problem sour the relationship in the long term

THE OPTIONS

Mediation

Low-level dispute resolution, but by far the cheapest. Can even be done over the telephone. The parties sit down and discuss the issues and how to resolve them. Needs goodwill on both sides to succeed.

Arbitration

Also needs to be consensual, but is governed by the Arbitration Acts.

The parties can discuss and agree the constitution of the tribunal and the procedure to be followed. The same applies to the powers of the arbitrator, or they can accept the code laid down by the Arbitration Acts. The authority of the arbitrator cannot be revoked except by a court. Resembles court proceedings, except there need be no publicity. However, the conclusions and decisions of an arbitrator can be difficult to enforce. The arbitrator has no sanctions to back up any decisions, and although a court can be used to reinforce an arbitrator's ruling, it will add weeks or months to the process.

Expert Determination

An old form of arbitration in which an experts in the field is allowed to use their professional expertise and experience to resolve a dispute.

Courts

The most costly and time-consuming method, but either party, without reference to the other, can resort to the courts to get a dispute resolved.

However, all court proceedings are public, together with any documents, writs or statements associated with the matter. Costs can be exorbitant and there can be lengthy delays before a case is heard, but courts have wide-ranging powers. For example, they can insist that a recalcitrant defendant appears, and courts usually attempt to make the process as speedy as possible. Decisions can be appealed against, with three possible levels of judicial authority.

CONTACTS

Basda 01494 678840

Linklaters & Paines 0171 606 7080

NCC 0161 242 2200

Sema Group 01625 531531.