Many relationships have a rocky patch. Most quickly recover. However, some can deteriorate to the point where separation seems like the only option. When the temperature is rising and heated words are exchanged, what can you do to recover a relationship. If you are past the point of no return, can you end it with minimal pain and cost? William Hooper and Anthony Rance consider this question from the perspective of both expert and lawyer, sharing their own experiences of distressed IT projects.
It can be a common scenario in distressed IT projects. When issues occur, delays creep in and costs escalate, tempers can easily get frayed. Unless the cause of those issues is diagnosed early and a solution proposed, it can affect the relationship between the parties and erode the faith that once existed.
In one example, an organisation de-merged from a larger parent, novating contracts without change. The operational separation of services had not been going well. The business was giving the CEO and CIO a very hard time. Rapid and effective recovery were needed. Jobs were on the line. The CIO wondered whether matters were ever going to improve, or whether he should terminate.
Experienced lawyers will know that one should tread very carefully around termination. Terminating without valid grounds could amount to a repudiatory breach of contract. This is a quick route into an expensive dispute.1 Therefore, before any irretrievable steps are taken, it often pays dividends to pause and to consider what is really going wrong. This is where independent expert assistance can prove invaluable. An expert consultant can bring operational experience of distressed projects to complement legal guidance. A fresh pair of eyes may also see things that the project team may have missed and find solutions that no-one has thought of yet.
Feasibility
In such a situation, the best starting point is often the contract itself. It is important understand the dispute resolution and termination clauses. Then the service schedules. Is the disputed area of performance a contracted service? Some clients think a service should be provided, without it being specified or paid for. Such a situation needs amendment of the contract or a change of mind, and is not discussed further here.
What Does the Contract Say?
The dispute resolution provisions may well set out a contractual mechanism. This should be used to shape agreement and recovery actions, to get a project back on track. The approach might be called a “correction plan”, a “rectification plan” or a “remediation plan”. Whatever the name, the purpose of such a plan is:
- to help the parties to diagnose what is going wrong on the project;
- to agree steps to rectify matters; and
- to establish measures and targets to ensure that recovery is achieved.
It may also present a contractually compliant route to termination if the plan cannot be agreed or is not followed.
Pulling the Plug Too Early
When recovery actions are being delivered, there can be a painful delay between intervention and response. The nightmare in a distressed service is for the customer to pull the plug when the right things have been done and results are just about to be seen. The baseline assumption should be that a recovery plan has a chance of succeeding. Both customer and supplier need to commitment to supporting actions. This is the ideal. A short and confident intervention has every chance of getting a distressed project back on track.
In the case of our CIO who was under pressure, this was largely what we found. Diagnosis showed that the underlying business-as-usual service was working well. The project manager for the demerger was not up to the job and was moved on. Governance was inadequate and was greatly enhanced. One service was hopelessly under-resourced and was accumulating an ever-growing backlog of unfulfilled requests. It needed properly designed tooling, a sensible plan, the CIO to step back and give it a reasonable chance to deliver. He also had to communicate to the business. That worked. Stage two, once faith had been restored, was to amend the contract to suit the needs of the de-merged business.
When a Contract is Unachievable
However, without proper oversight and effort, it can be all too easy for a recovery plan mechanism to escalate a dispute. In another case, a supplier had taken on a desktop refresh project. The customer had an IT estate that the incumbent supplier had heavily tailored over many years. When the new supplier pitched for the job, it had not appreciated quite how complex and integrated the customer’s existing systems were. So when the project started it quickly ran into problems, with delays and costs escalating rapidly.
These spiralling costs and unexpected delays led to the customer triggering a contractual correction plan mechanism. The resulting plan went through numerous (but rejected) iterations. Ultimately, the customer elected to terminate the contract for a so-called “correction plan failure”. However, it appeared that it did so without sufficiently evidenced justification. This had the effect that its purported rejection of the correction plan was questionable. This then led to an expensive and hard-fought dispute over whether the customer had valid grounds to terminate.
Steps to Resolution
When properly managed, a contractual recovery mechanism can provide a viable route to a satisfactory outcome. Even if that outcome is termination.
In another case that the authors worked on together, a customer had all but lost faith in a supplier to deliver a solution with the required functionality. The customer had no faith in achieving the agreed cost and timescale. The prospect of termination was quickly looming.
Having analysed the contract, we saw that there was provision for a rectification plan and an obligation to give the supplier a fair opportunity to recover. However, for such a plan to have any prospect of success, the customer should carefully state its requirement of the plan. These would need to include targets, standards and measures to assure achievement.
Remediation Plan
The supplier had to have a demanding but reasonable target to aim at. The process would have to work within the contract’s dispute resolution terms. A literal reading of the contract indicated that a commonly encountered risk would arise, as it had in previous unsuccessful attempts between the parties. This was that the supplier would not understand the customer’s requirements. Thus the two would get into a death-spiral. Each iteration of the plan would fail to deliver what was really wanted. This would sap energy and cost.
The suggested approach therefore involved a liberal reading of the contractually defined mechanism. We proposed that the supplier should first produce a high-level approach and “outline recovery plan”. A workshop with the customer was to review the draft. On acceptance, the supplier would refine it to deliver and implement a detailed plan (the “detailed recovery plan”). With the benefit of both legal guidance and expert technical assistance, the customer put this approach to the supplier.
The proposed approach gave the customer’s senior management comfort that either way they would achieve a viable outcome. Either they would get a re-energised project with a clearly defined plan and agreed targets. Or they would expose the real cost, timescale and effort to complete. From the supplier’s perspective, the opportunity to get to the real root of the issues was also appreciated. They had been having a thoroughly unpleasant time. They had been haemorrhaging cash. So the opportunity to bring clarity and focus to where the project was headed, and ultimately resolve the impasse and successfully deliver the contract, was gratefully received.
Implementing Remediation
The initial workshop was seen as decisive, fair, and providing an achievable high-level approach. The customer’s project manager had been armed with clear guidance on what should be expected of both the outline rectification plan and the detailed rectification plan. The relationship between the two plans was also laid out.
Following the initial workshop, the supplier submitted their outline plan together with supporting artefacts. This was carefully reviewed by the customer’s project manager, using the required standards as the basis of assessment. This established material shortfall in several respects. The supplier was given feedback and invited to re-submit an amended draft. At that point however, the supplier disengaged from the rectification plan process and seemed to resign themselves to defeat. No further plan was submitted within the required timeframe, and the customer proceeded to terminate on robust grounds.
Conclusions
In distressed IT projects, it is normal to find that both parties have actions to take to make change sustainable. It is possible, for example, that the two parties have read ambiguous documents differently. These would contribute to disputes over scope and responsibility. Such gaps need to be resolved and changes may be expensive for one or both parties. However, such issues do need to be grappled with or else they will fester and lead to dispute. Often, as the above examples illustrate, it can be helpful to pause and to take a step back, asking what is really going wrong on the project, before rushing forwards to termination.
Engage Expert Help
When disputes emerge in an IT project, legal guidance is often crucial. In particular, a lawyer can help the parties to implement any applicable dispute resolution procedures in order to resolve their differences. Alternatively, if resolution does not prove possible, they can provide the necessary legal guidance (in a way that is legally privileged and protected from disclosure) to mitigate the risks of terminating the contract wrongfully, or even losing a termination right that had validly arisen.
Where there is a contractual recovery process that can be followed, it can also often be helpful to engage an independent technical consultant to ensure that the process is used to maximum effect. Such a consultant needs to have sufficient skill and experience to anticipate problem areas and to manage risks. Where the consultant has experience of legal disputes, such as that obtained when acting as an expert witness or expert determiner, they can also be alive to legal risks and challenges and support the legal team effectively. This is often a situation in which lawyer and operational consultant must work closely together throughout, to achieve a successful outcome.
Whilst undertaking such a rescue is not cheap, the costs of delay and wasted project expense (or indeed the costs of a contested termination) are frequently high enough to make intervention worthwhile. However, the intervention will need to be carefully handled if it is to have the desired outcome.
…………………………………..
A version of this article was first published in Computers & Law, the magazine of the Society of Computers and Law. It is reproduced with permission.
Anthony Rance is a partner at Weightmans LLP with expertise in technology disputes arising from commercial contracts and distressed IT projects. He can be reached on 0113 213 4137 or Anthony.Rance@weightmans.com.
