2006 ADR Survey in the Australian ICT Industry

Extent of Disputes

Survey Objectives

Questions in this section were intended to provide an understanding of the number and quantum of disputes. In addition, we intended to determine the most popular dispute resolution techniques and their effectiveness.

Finally, and based purely on their experience, respondents were asked what improvements they would make in future ICT contracts.

Key Findings

How many were there

The opening question of the survey asked, how many contracts, with which the respondent was involved, resulted in a dispute. The result of 46% suggests that, as almost half the contracts resulted in some sort of dispute, there is a high level of disputes in the ICT industry. (Figure 1)

This is not a new idea. Other surveys and studies (Ref: Equest Report 1) have found that a large proportion of ICT contracts are not executed successfully.

The raw response data indicated that there were in excess of 600 disputes. On average, 2 per respondent. 75% of these disputes resulted in some form of formal dispute resolution.

Of the remaining disputes, it is assumed that either the dispute did not proceed, or, the parties resolved the dispute amongst themselves.

Why did these disputes arise

In this survey, the majority of the disputes were related to project management issues. (Figure 2)

Of most interest here were the specification related responses which accounted for 49% of the total.

This shows an obvious area to target for improvement – that of clearer specifications. Anecdotal evidence of poor specifications in the ICT industry has been supported by this result.

How much was at stake

The value of disputes in the ICT industry covers a broad range. A number of public disputes in recent years have been in excess of $100m.

The results of this survey suggest that higher value disputes resulted in some form of formal dispute resolution.

Most of the disputes involved amounts between $50,000 and $500,000. (Figure 3)

These numbers suggest that ADR, as a low cost dispute resolution solution, is well suited to the ICT industry.

How disputes were resolved and at what cost

Of those disputes that required some form of formal dispute resolution, most used a less adversarial technique.

Litigation and arbitration, the most expensive and formal approaches, accounted for less than 30% of the total.

Mediation was seen as the most popular method.

This reflects recent moves in the industry to raise the awareness of mediation. ACS has, for a number of years, promoted mediation courses to its members.

Mediation and expert determination appear as dispute resolution clauses in many government IT contracts.

It is interesting to note that the ICT industry has a preference for less formal and less binding methods of dispute resolution.

More than 50% of disputes were resolved for less than $50,000, with the bulk of these less than $20,000.

Earlier questions established that, in over 50% of disputes, the dispute value exceeded $150,000 and in 32%, exceeded $500,000. (Figure 4)

It can be concluded that the higher usage of ADR techniques provides for cost effective outcomes.

The lower costs of resolution most likely reflects the lower usage of litigation and arbitration. ADR is a successful approach.

What was the satisfaction with Dispute Resolution Techniques

The satisfaction rating for each of the Dispute Resolution types supported the generally accepted assumption that the less formal the process the higher the success and satisfaction.

Most of the ADR processes showed a satisfaction rating in excess of 70%. Litigation, not surprisingly, showed an approximately 50% satisfaction rating. This result is common across most industries and reflects the assumption that in litigation there is always a winner and a loser. (Figure 5)

The dominant reasons for satisfaction with ADR processes include fairness of the result, process effectiveness, cost and speed. This empirical evidence is supportive of claims made by the profession about the key benefits. (Figure 6)

A significant number of disputes (99) did not end up in formal dispute resolution.The primary reason was that these processes were seen as too difficult or too costly, and a related reason was that the amount in dispute was too low.

This perception may be addressed through better education about the variety of processes available and their effectiveness.

Other reasons were widespread and ranged from internal negotiation, through to the extreme of “parties were too far apart and not prepared to compromise”.

How can things be improved

Poor scope definition and lack of detail in Requirement Specification documents are seen to be major contributors to disputes in the industry. Respondents saw these as areas for improvement.

A lack of clarity in specifications is obviously a concern and there is a need for education about these issues.

The scope must be detailed. Scoping studies are recommended. Better ways of managing variations of the scope should also to be explored.

The inclusion of dispute resolution clauses in contracts was also considered by a large number of respondents to be a way of improving the dispute management process.

Further debate on the nature and effectiveness of such clauses, including standardisation where possible, is required.

There was some consideration given to the most effective type of dispute resolution clauses. Most respondents favoured the escalating clause, incorporating executive meetings, mediation and expert determination/arbitration.

The dispute resolution clause must clearly identify the process to be followed and the nominating authority to be used, otherwise it may be too difficult to invoke.

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