When IBM signed a $5 billion, seven-year deal to provide outsourced data-processing services for JPMorgan Chase & Co. in 2002, the company called the move "groundbreaking" and said it would "dramatically change the way IT is delivered." However, after JPMorgan Chase merged with Bank One in 2004, it opted to bring those services back in-house, leaving 4,000 IBM employees in the lurch and in effect disintegrating the contract.
"During the term of an outsourcing contract, things happen," said Debra Branom, manager of U.S. and Latin America business support at Electronic Data Systems Corp., a global technology services company. "Priorities shift and businesses ebb and flow."
Although IBM and JPMorgan's outsourcing fallout was amicable, most contract conflict is impregnated with mistrust. And due to the unpredictable climate of outsourcing business functions either overseas or to a company down the street, participants agreed that setting up dispute-resolution methods preemptively is essential. Branom recommends incorporating a written agreement about how the parties will address disputes into the contract.
While it is impossible to predict whether conflict will arise out of an outsourcing agreement, in-house counsel need to keep in mind that both parties have an interest in making it work.
"Neither side wants the agreement to fail," said Neil Olderman, partner at Gardner Carton & Douglas. "Both sides want to preserve the agreement and negotiate a solution."