7 reasons IT services deals fail – and how to resolve disputes

When IT services deals break down, it can cause extraordinary pain for both the customer and service provider. Here's how to fix broken deals and mend the customer-supplier relationship.

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To resolve your dispute and put your deal back on track, you must put forward a set of precise terms and concessions you want from your provider. Those requests should be guided by the results of the preparation work discussed above. For instance:

  • Specific performance improvements (e.g., meeting key or new service level guarantees on a sustained basis within so many months).
  • Additional functions or services that you require your provider to perform.
  • Commercial changes to the agreement, including improved costs, reduced or waived spend commitments, or reduced or waived costs already incurred.
  • Changes to existing governance processes and procedures to resolve operational and contractual issues more effectively.
  • New or more comprehensive reporting and escalations to promote better transparency (e.g., on performance metrics or pricing).

A well-crafted request must be in writing, preferably in the form of a letter from an executive sponsor or other involved senior leader. It should be presented to an executive at the provider organization who is at a comparable level. The letter should list with particularity each item you’re requesting and also describe the contractual support you’re relying on.

In your letter, assert the relevant contractual rights you are invoking (e.g., if you are presenting the issues as a formal contractual dispute, with a specific response period) and cite contractual obligations that are not being met by the provider. As applicable, include what you are willing to offer in exchange for resolving the dispute and reformulating the contractual relationship. If, for example, the issues are related to your failure to meet growth or spend commitments, the letter should offer something of value to your provider, like a contract extension or partial payment of any shortfall-related payments that are due.

The communication should emphasize the benefits of reaching a mutually agreeable outcome and carefully allude to the consequences of not resolving the matter amicably. Striking a firm resolve to use your available remedies while also demonstrating a desire and willingness to resolve the issues reasonably in light of the facts and circumstances is the best approach. Admonishing your supplier, piling on the blame, overt threats and overplaying your position is likely to cause the provider to respond defensively. This will ratchet up the hostility, takes focus away from problem solving, and ultimately will delay earnest settlement negotiations.

The letter should then be used to frame the initial term sheet for the workout negotiation. When the negotiation progresses and the parties reach alignment on the resolution, the term sheet will establish the checklist for the parties to prepare and negotiate the detailed amendments and settlement agreements that will bind them to their negotiated compromises.

Keep your hands clean

Unpaid invoices can become a real problem in failing customer-provider relationships. Concluding that they are not receiving their contracted services, customers are often inclined to withhold payment. If your contract includes a right to withhold payment for disputed amounts, you should certainly exercise that right. However, only withhold the amounts disputed in good faith, pay the undisputed amounts, and strictly follow the payment dispute processes in the contract – even in the middle of contentious disputes and workout negotiations.

Holding back payments that are reasonably due for charges and fees incurred under the contract gives the provider a readily available contract breach claim. In most commercial agreements, suppliers can terminate the contract or suspend services when the invoices are not paid. Don’t hand your supplier this leverage over you during the workout negotiations.

Successful negotiation strategies

Customer-supplier negotiations ordinarily revolve around aligned mutual self-interest. The customer wants to buy products and services from its preferred provider and the provider wants to sell those products and services to the customer. Negotiating a dispute is a very different customer-supplier dynamic and can easily become a zero-sum game with hostile players. The right workout negotiation strategy adapts to this different footing and helps the parties circumvent the traps.

A workout negotiation can be emotive; both sides may feel harmed and angry, which can add a lot of baggage to the negotiation. When assembling the workout team, select an empowered lead negotiator who has not been deeply involved in the disputed matter or entrenched in the grievances. External advisors or senior leaders from a different part of your organization who have appropriate experience are good choices. They are better positioned to view the issues objectively, empathize with both sides’ challenges, and find common ground leading to practical solutions.

To blunt their impact when asserted by a supplier, consider acknowledging (when appropriate to reach agreement on critical points for the path forward) obvious areas where you may have contributed to supplier’s failure and can offer to do better in the future.  Acknowledgments of fault should be made carefully and strategically to reach compromise on important issues after consultation with legal counsel. Unless handled correctly, admissions of fault could prejudice your legal claims if settlement negotiations don’t work and formal dispute proceedings are initiated.   

Workout negotiation must always take place at the right level and seniority on both sides. On the provider side, the account and support team will be motivated to hold onto the dispute rather than admit their own failure to manage the account and escalate the matter to senior leadership.  They will have their own emotional baggage that hinders resolving the dispute and typically lack the clout within their organization to strike the deep compromises required to correct troubled deals. Hence, you should swiftly escalate and work at an executive level with your service provider.

When deals have broken down, the day-to-day working relationships between the customer and supplier teams often become highly dysfunctional and antagonistic. As part of the resolution of the dispute, it may become necessary for the provider to change the account team. This can be a difficult and fraught discussion and should be managed carefully with input from legal counsel. Switching out the account team also has the important benefit of minimizing the likelihood that long-standing grievances between the parties will infect the workout negotiations and execution of the agreed upon resolution.

Although they will jealously protect their margins and revenue, most providers do not want unhappy customers. Preserving customer goodwill can, therefore, be a factor in workout negotiations. For clients they value, some providers will make concessions to resolve disputes amicably — even when the customer’s contract rights don’t provide strong support for its requests. This is most useful in cases where there is a long-term contract or the contract in trouble is only part of a broader commercial relationship between the parties.

The value of a well-negotiated contract

An acrimonious dispute or deal break down exposes the importance of putting in place service agreements that thoroughly documents the providers’ service delivery responsibilities, incorporates commercial flexibility, clearly states the parties’ termination rights and responsibilities, protects your ability to recover likely damages, and establishes an effective dispute resolution framework. During the initial contract negotiation, the effort and time required to prepare and negotiate a robust and durable agreement may seem unnecessary. But when a deal breaks down, a well-negotiated contract (from the customer’s perspective) delivers significant value. It can minimize ambiguity that leads to divergent interpretations on core commercial or legal terms, provide the customer with protections against service disruption while disputes are pending, and offer specific remedies that can be used to hold the provider accountable for its contract commitments.

The best way to ensure a positive outcome from a critical dispute or deal breakdown is to negotiate a good contract at the outset.

Ben Fox is a managing director at TC2, a global IT and networking consultancy dedicated to helping enterprise clients develop and execute technology transformation and sourcing strategies. TC2 maximizes savings, performance and future capability in telecommunications services and network infrastructure through a full range of strategic sourcing, benchmarking, optimization, audit, and technology consulting. He can be reached at bfox@techcaliber.com.

Marc Lindsey is a partner at Levine, Blaszak, Block & Boothby, LLP (“LB3”), an IT and telecommunications law firm dedicated to advising enterprise clients on technology transactions and telecom regulations. He can be reached at mlindsey@lb3law.com.

Copyright © 2019 IDG Communications, Inc.

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