Seventhman Blog

How to Resolve Disputes with Your Outsourcing Provider

"contract breach"When it comes to contracts in the outsourcing world, one cannot ignore perceptions.  Are contracts all about perceived promises of a reciprocal exchange between two parties?  If that is true, we might as well say that your outsourcing contract is in the eyes of the beholder, you and the outsourced service provider’s.  In reality, there is the legal obligation written in fine print that comes with jargons… and disputes happen because both parties rely on the spirit of the ‘handshake’ when it comes to following the terms and conditions that are not spelled out clearly in the first place.  Come to think of it, there are plenty of fuzzy terms that make it necessary to supplement this written agreement with unwritten promises.

Don’t get me wrong here.  I’m not saying that the written formal contract between you and your outsourced vendor has no value.  It’s just that the more explicit the terms are, the higher the expectations can get, and though having a fine print reduces the likelihood of a breach because some terms are misunderstood, having a successful outsourcing contract means converting these oral promises into a simple and clear binding contract to start with.

Asking Hard Questions Matter

When something goes wrong, the initial reaction is to terminate the contract by reason that the other has breached it.  Don’t jump the gun too soon though, as you will really need a hard proof.  Instead, you can ask yourself these six questions:

  1. What’s the nature of the dispute?
  2. Can you resolve this dispute without going for a lawsuit?
  3. Do you have the right to withhold payment when your service provider failed to produce results?
  4. Do you have a provision for a neutral arbitration?
  5. Where exactly is your outsourced service provider based?  Can you enforce your judgment in that location?
  6. How much money are you looking to collect with your claim?

Answering these questions matter a lot, so you can avoid costly damages when a dispute arises.  Besides, you might want to define your definition of ‘damage’ – like, is it the cost of having work done by a third party outside the contract?  Or, is it loss of profit?

Having a Back Up is Better than None

Minor disputes can easily be resolved if you both agree to share a log of all these disputes, like a ticket system.  There must be written statements when a dispute arises and transparency in who exactly are responsible for it.  Having a room for escalation can help collaborate your team into meeting regularly to work on resolving disputes – even if that meeting has to be done via web conferencing tools.

Beware of Poison Provisions

Before you even sign that agreement, check out for any open-ended statement that may cause you major pains in the future.  Or simply, anything that’s left you hanging in the air should be avoided.  This means that you have to state all important provisions BEFORE signing the contract, and you must check out all the dates and terms of payment stated.  Everything must be crystal clear!

A contract without a dispute resolution process is like a jellyfish in the open seas.  There are, of course, plenty of options to deal with disagreements.  The only question is:  Are you willing to keep the relationship from going sour… to bitter or better?

Disclaimer: This post is not a legal advice

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  • Prime Outsourcing

    A contract is really necessary between two businesses. Though not all transaction are required to have a written form of it but a contract that was signed by both parties are hard proof of the obligation you have for one another, and another proof if there was a problem that occurred in the work that has been done.

    Thank you so much for the very informative post!