Back last autumn, admitting defeat, IT services company Accenture called time on the £12.4 billion NHS IT project, terminating the £2bn-worth of contracts it was working on to deliver new patient and GP systems. The decision wasn’t taken lightly, but Accenture was suffering financial losses – the company had suffered a reported 67 percent profits drop after losses incurred on the contract. And disputes in outsourcing are not uncommon – there have been any number of problematic deals over the years.

Outsourcing disputes cost a great deal of time and money and are generally a loss maker for all concerned. It isn’t only cost – it can also seriously damage reputations. Brand damage and loss of shareholder confidence can arise from the perception that organisations are unable to handle outsourcing arrangements effectively.

So how do disputes arise in the first place? Invariably, the fundamental problem is down to money. Often the end user company will be inclined to negotiate very tight terms and conditions, whilst the supplier underbids to win the business. An outsourcing partnership based upon the agreement of unrealistic delivery terms for a price which leaves little profit for the supplier, is a relationship that is almost destined to fail. This combined with the fact that no outsourcing project is cut and dried at the requirements stage and will almost certainly involve change of some sort means that conflict is bound to arise. Understandably, the customer will try to hold the supplier to the bargain, whilst the supplier will need to do everything it can to stay in – or get into - the black. These entrenched positions will ensure the two sides stay at loggerheads, until the dispute can be resolved

These unshakable attitudes to outsourcing that customers and suppliers can nurture, can be seriously detrimental to the success of the project. Both organisations and their suppliers need to be aware they need to have a flexible, positive approach, where there is give and take on both sides. The cost and inconvenience that it causes to change supplier, step in or in-source the business process or IT system, means that it is highly preferable to do as much as possible to make these relationships work.

So how can such conflicts and disputes be successfully avoided or else resolved once they start?

In the past, lots of organisations bent on outsourcing signed up to very long term contracts. Long term contracts can be viable, but in deals of this longevity, the parties need to pay careful heed to dispute resolution clauses. The ways in which disputes are resolved are essential in keeping the relationship on an even keel and making the project a successful one.

The starting point is to use a mechanism that requires the parties to talk to each other. A proper process for escalation is essential. Irrespective of polarised views, people are generally more amenable to seeing the other side's point of view when they meet face to face. Communication restricted to letter or email is a recipe for bravado and threat.

The next is the use of adjudication – a form of rough justice – whereby a dispute is resolved quickly, outside the courts. There is no reason why the outsourcing contract can not specify a number of adjudicators in specialist fields, each of whom has confirmed at the outset their willingness to accept an appointment as an adjudicator if asked. The contract can then provide that particular disputes be referred to one of the panel of specialist adjudicators, who have been pre-agreed. The adjudication can proceed quickly. Decisions are often made within 6-8 weeks of appointment, before the matter has really "festered” between the parties. The decision is binding, unless overturned by some higher authority, such as a court or arbitration, if the parties take it that far. It is a method of dispute resolution used widely in the construction industry and there is no reason why it should not apply to all outsourcing contracts.

Adjudication can also iron out disputes over the scope and interpretation of requirements in IT contracts. Take the example of a local government IT project. The requirements said that if employees were off sick for more than three days, they must be advised that they need to provide a doctor’s note. The supplier decided that it was sufficient for the system to generate an email to the employee's work email address. The council pointed out that not all employees had access to email (cleaners etc) and if employees were absent due to illness, they wouldn't be picking up emails anyway – therefore the system would need to generate a letter to the home address. An adjudicator would decide where the obligation lay. Quick binding decisions can help keep a long term relationship on as even a keel as possible. The contract needs to be capable of dealing with issues, no matter how large or small.

Another means to settle disputes is the use of mediation. This is where all relevant parties get in a room to hammer out the issues, with the assistance of a mediator. This form of shuttle diplomacy tends to work very well. As mentioned, both parties can get very entrenched in outsourcing agreements – and it is much easier to be belligerent on email or over the phone. When sitting down at the table together, or engaged in the same process, it usually becomes easier to move towards a resolution. It can also provide a means of saving face for the different people who are involved – often the mediator is blamed for any concessions that were made in reaching settlement.

To avoid disputes, sensible management of the contract is also needed. This may seem an obvious point to make, but it is often the case in public sector outsourcing, that the people who are involved in these deals, may never have been involved in an outsourcing project before. The team that signs up to the contract is not necessarily the same team who runs it. The people who are involved in the management of the outsourcing need to be up to speed on the main contract provisions and understand where the real risks lie. Many an IT project gets delayed through no fault of the customer. It's a natural thing to ask the supplier for an explanation and be presented with a plan B. The client team may not realise that each time they agree to work to the new project plan it often becomes the new contractual timeline against which claims for delay will be assessed – even if by the end the supplier is years behind the original schedule. Risks like this need to be understood. It is one of the reasons why client delivery teams are encouraged to undergo contract management training at the outset of a project.

Despite the conflicts and disputes that arise, there is no doubt that the technology and outsourcing projects that abound in the UK’s private and public sectors are amazingly innovative and essential in the UK’s evolution. But in order for these projects to succeed and to limit potential failure, client companies need to be aware how to limit dispute fall out. They need to sit down at the outset, work out objectives and develop a contract which will form a protective layer around the project. And is must be remembered that all the measures described above – adjudication to mediation – are just a means to an end, not an end in themselves.