Implementation Failure Disputes: Project Behind Schedule

A mediation of a software or other technology implementation failure dispute is more likely to be successful if the mediator has technology transaction expertise and experience. The reason for this is that such a mediator is best positioned to help the parties assess the strength of their positions by helping them to identify and consider the issues that are likely to be in controversy in the arbitration or litigation if the mediation is not successful.

In this KCS INSIGHT we identify a handful of issues that the mediator may need to recognize and understand where the User Company’s claims that the Service Provider is in breach because the implementation is behind schedule. In subsequent KCS INSIGHTS, we will identify issues to consider where other claims are being made such as:

  • User Company spend has materially exceeded the project budget;
  • a party (User Company or Service Provider) failed to staff the project properly;
  • a party (User Company or Service Provider) failed to plan or otherwise manage its performance;
  • functionality is missing;
  • the design is poor;
  • software quality is poor;
  • the software performs poorly (e.g., slow processing time); and
  • the software is not scalable.

The Scenario

User Company retained Service Provider to implement an AI-based materials management system. The Agreement required that Service Provider complete the project and the system go-live within eighteen months of the Agreement effective date. User Company was to compensate Service Provider on a time and materials basis, but with a budget and detailed notice and reporting requirements if Service Provider had reason to believe it would exceed the budget. When, thirty-months after the Agreement effective date, the implementation was less than sixty percent complete, User Company terminated the Agreement for material breach and sued Service Provider seeking considerable damages.

User Company Claims

  • Service Provider committed to a schedule and has not met it causing User Company significant harm.
  • Service Provider has the expertise and experience to plan the work. We relied on that expertise when we selected the Service Provider and are failing to reap the benefits of the system twelve months after the target go-live date.

Service Provider’s Response

  • We communicated all delays properly by sending updated Project Plans to User Company. User Company did not object to the updated Project Plans.
  • User Company failed to provide timely notice of its concern with the updated Project Plans.
  • Delays were attributable to the User Company’s failure to perform its retained responsibilities or to perform them in a timely fashion.
  • User Company changed its requirements expanding the scope of the project.

The Value of the Experienced Mediator

A mediator with technology transactions expertise and experience will be able to determine the relevance of, and where appropriate, raise critical issues the realistic assessment of which may facilitate the successful settlement of the dispute. Such issues may include:

  • Whether the Project Plan was reasonable and feasible when agreed;
  • Whether both User Company and Service Provider activities were represented in the Project Plan;
  • Whether the Project Plan was prepared in accordance with industry standard practice;
  • The Parties relative responsibility for any deficiencies in the Project Plan;
  • Whether Service Provider has performed its responsibilities in a timely fashion and the consequences of its failure to do so; and
  • Whether User Company has performed its responsibilities in a timely fashion and the consequences of its failure to do so.

Moreover, in a technology implementation failure dispute based on a claim that the project is behind schedule, the mediator should be in a position to discuss with the Parties the possible retention of an independent expert to perform a formal “schedule delay analysis” to determine the amount of the delay for which each Party is responsible.

KCS Mediation and Arbitration

At KCS Mediation and Arbitration, we have the expertise and experience to determine the relevance of these issues and raise them with the Parties if appropriate.