In our article for the IADC (linked here), we explore why, despite careful negotiation and planning, parties to IT contracts often avoid invoking the contractual remedies that are available to them.
Projects often begin in a state of tension because, regardless of the strength of a customer's commercial position, the customer usually needs the supplier to define the deliverables, to identify implicit requirements and to define "success". The contractual tension arises because neither party wants to bear the risk that the project is larger or more complex than anticipated.
In complex projects, the customer usually has to invest a lot of time up-front to explain its requirements. This introduces a new point of friction, to ensure the supplier maintains that knowledge and that the requirements are unambiguously brought into scope. This may lead the customer into conflict with a supplier which is already struggling with delay or trying to limit the scope of work.
Further, in high-complexity projects, the parties sometimes lack good information to make decisions. If the parties trust each other, they can succumb to the temptation to make easy decisions (so as to maintain momentum), whilst deferring the trickier issues. It is a common feature of these projects that parties maintain a friendly, constructive dialogue whilst accumulating a list of increasingly intractable problems which are not discussed. This becomes a serious risk if the trust between the parties is ever exhausted. If a project gets into difficulties, trust often dissipates immediately.
Although IT contracts are usually full of contractual mechanisms to help the parties to address problems and to break deadlocks, these processes demand:
- time and effort;
- willingness to confront the gaps and uncertainties in the original contract and, if necessary, to be confrontational; and
- an ability to make decisions, despite uncertainties.
In other words, although the parties might have contractual mechanisms to resolve problems, they also need to guard against the subtle but powerful disincentives to using those mechanisms.
There is no contract so good that it can guarantee the supplier’s IT deliverables will completely satisfy the customer...The best that can be achieved is for the parties to establish strong frameworks to deal with uncertainties as they arise. However, it is also vital for the parties to use those frameworks and to take conscious steps to overcome any natural reluctance to engage with problems.