#CPRAM22 Highlights: Why Do I.T. Outsourcing Projects Fail? How to Keep Them Going with Dispute Resolution Boards and Standing Neutrals

By Katerina Karamousalidou

A second-day CPR 2022 Annual Meeting panel last week analyzed why information technology outsourcing projects fail, and highlighted ways to keep them going with dispute resolution boards and standing neutrals.

The panel included moderator Zachary Hill, a partner in Morgan Lewis’s San Francisco office; Cherrie Fisher, a civil engineer and ADR neutral and consultant in the Dallas-Fort Worth area; David Frydlinger, managing partner at the Stockholm, Sweden law firm of Cirio Advokatbyra AB, and Kate Vitasek, an adjunct faculty member at the Halsam College of Business, University of Tennessee in Knoxville, Tenn.

After the panelists’ introduction, the March 3 discussion started with addressing common IT outsourcing projects, how they sometimes fail, the consequences of such failure, and then evolving to the use of a standard neutral from an academic and practical perspective to help resolve problems.

Zachary Hill, who represents clients in the technology, energy, and pharmaceutical industries, with a focus on contract disputes involving business software, addressed the issue of IT outsourcing in the software implementation context. More specifically, he explained how even large organizations lack the necessary in-house expertise to handle that type of implementation and, therefore, hire hundreds of consultants and programmers to ensure that the software components function properly.

But given the complexity of such software, projects can often fail at multiple points. Considering the potential risks of software implementation and the failures and high litigation costs associated with such disputes, using a standing neutral is usually useful.

The standing neutral is “a trusted neutral expert selected by the parties at the beginning of their contracting relationship to be readily available throughout the life of the relationship to assist in the prompt resolution of any disputes.” James P. Groton, “The Standing Neutral: A ‘Real Time’ Resolution Procedure that also Can Prevent Disputes,” 27 Alternatives 177 ( December 2009) (available at https://bit.ly/3hSWoy4). See also, Kate Vitasek, James P. Groton, and Dan Bumblausakas, “Unpacking the Standing Neutral: A Cost Effective and Common-Sense Approach for Preventing Conflict,” (University of Tennessee Haslam College of Business Fall 2019) (available at https://bit.ly/3pSD1d4).

The standing neutral originated in construction projects.

Panelist Kate Vitasek, who works on global supply chain issues, focused on the importance of preventing conflict, rather than resolving it. For this reason, pre-selecting and appointing a standing neutral as part of the governance team, who will assist the parties in resolving misunderstandings before they escalate, communicate effectively, and engage in constructive dialogue is extremely useful.

The construction industry began to use dispute review boards to prevent conflict; adding standing neutrals can be effective in every type of industry. The parties can decide upon the expertise they need from their standing neutral–from being a lawyer, or a mediator, to being an industry expert, or an engineer.

Panelist Cherrie Fisher, who acts as a standing neutral herself, emphasized the importance of dispute avoidance from the beginning of a construction project, because most problems arise early, such as a scheduling delay, or a differing site condition.

Then, she focused on analyzing the importance of both construction partnering facilitation and dispute resolution boards working simultaneously to assist parties in dispute prevention.

Panelist David Frydlinger, an attorney focusing on complex customer and supplier contracts, explained that standing neutrals are continuously involved during the project in advising parties and providing them with their neutral perspective.

Videos from #CPRAM22 will be posted; watch www.cpradr.org for updates.

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The author, an LLM student focusing on international commercial arbitration at Pepperdine University School of Law’s Straus Institute for Dispute Resolution in Malibu, Calif., is a Spring 2022 CPR Intern.

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