11 May Arbitration can help when IT deals go sour
The situation is exciting at the beginning.
Two companies enter into an agreement to develop software, implement software, develop a new Web site, or have a service provider deliver a range of services in the information technology area. Often these contracts work out perfectly well and the parties come to the end of the engagement reasonably satisfied with the work that has been performed or received.
However, sometimes the agreement goes astray and disputes arise. One of the most common disputes in these types of agreements is what is referred to as “scope creep.” This is the situation where the parties agree to a project, but either misunderstand the amount of work it will take, or realize that the initial specifications for the project are not really what was desired. Often, bit by bit, the parties go down the road of tweaking the arrangement until, eventually, one party or the other realizes that they have far more invested in the project than they had originally intended.
If scope creep doesn’t occur, it is not at all unusual that promised software improvements (sometimes called “vaporware”) do not materialize or do not work as promised.
One way to resolve disputes that arise in these situations is to take the other party to court. This can be a reasonable way to resolve disputes, but it is often time-consuming and expensive. Even a speedy court case can take nearly a year, and in some jurisdictions disputes may take several years to come to trial. Additionally, courts are bound to respect certain rules of procedure as well as prior case-law precedent, which may sometime lead to what a party will perceive as an “unfair” result.
Another way to resolve disputes is commercial arbitration. Arbitration is sometimes required by the contract between the parties. Even if not contractually required, parties can agree to resolve a dispute through commercial arbitration. When done properly, commercial arbitration can be a fast, fair and final way to resolve such disputes.
If the parties have agreed on a reasonable set of rules for the arbitration to occur under (for example, limited or no discovery, a hearing that occurs quickly after the request for arbitration has been made, a decision that is issued promptly after the hearing, and arbitration at a convenient location) arbitration can be much more efficient than taking a dispute to court and can result in a “friendlier” process for the parties – one the leaves less room for game playing and harassing procedures.
Under U.S. law, arbitration decisions are final unless the arbitration decision is obtained by corruption, fraud or prejudicial misconduct on the part of the arbitrator. Arbitration has other advantages as well. The arbitration award is normally private and even the fact that a dispute has occurred will often not be made known.
The privacy inherent in arbitration can be a major advantage where even a hint of a law suit can damage a business, whether the suit is justified or not. Written decisions are normally not available to anyone other than the parties, so there is no precedent set. Arbitration hearings are also informal. Parties can represent themselves if they chose and generally the formal rules of evidence will not apply.
Most importantly, the parties may pick their own arbitrator. In technology disputes it is not uncommon for the arbitrator to be a neutral party who is experienced in the industry in which the dispute is occurring. The goal of the arbitrator is to conduct a friendly hearing that results in a fast, fair decision based upon the evidence that is put before the arbitrator.
Arbitration can be pursued on either a private basis (with the parties selecting a neutral arbitrator from among those who are recommended by, for example, the party’s attorneys) or can be held under administrative and supervisory rules of a variety of arbitration service providers (the most prominent and well known of which is the American Arbitration Association).
In my experience, the key reason a party would choose arbitration of a technology dispute is the ability to select an arbitrator who is knowledgeable in the area of the dispute. While state and federal judges are experts in the law, they typically have no expertise in the subject matter of a commercial dispute. This expertise is particularly important in technical areas where the parties do not want to spend time educating the “judge” about the terminology and subject of the dispute at hand, but just want a fair decision.
Because arbitrators can bring special expertise to the subject matter, they are often able to render a fast, fair and friendly decision that leaves the parties reasonably satisfied that they have had a chance to present their case, and that the neutral arbitrator who decided the case understood each party’s position and treated each fairly.
The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.