IT mediation and arbitration for managed services

 

The demand for mediation in IT sourcing is larger than expected. The Whitelane study is ideal for anyone looking to learn more about customer satisfaction with IT providers. A total of 6,272 IT sourcing relationships were examined for the 2024/2025 evaluation, 70 per cent of which were rated as "satisfied" or "very satisfied". That sounds good at first, but it also means: 30 per cent of deals are going worse than expected.

In our experience, almost a third of these unsatisfied relationships are broken or on a direct path to becoming so - with consequences for the supplier's performance and the customer's success. Some partnerships whose performance has been disrupted need support in relationship management or even conflict resolution: in arbitration tribunals, ordinary courts - or with an IT mediation.

Bad transactions, bad omens

After a celebrated sourcing contract signature, differences about the content and scope of agreed services, prices and deadlines often emerge during the honeymoon period. Service descriptions in particular are often unclear, as time pressure is high in the hot phase of the transaction - and with it the willingness to make concessions. The hope that such tiny cracks will close during the term is deceptive. Instead, a spiral of escalation begins during the transition & transformation phase. As a result, legal and, above all, emotional positions harden, making the path to a solution ever narrower.

Strategic problems arise in all phases (see chart):

 

Initiation: In the weeks after a contract signature, there is often a "honeymoon effect". This describes a phase of initial euphoria and positive perception - until the problems of day-to-day collaboration lead to initial disillusionment. One reason is that the contract does not meet the requirements: ideally, it describes the tasks of both parties and defines a process for overcoming challenges together. The aim is not to regulate all details, but to balance control and flexibility.
Joint co-creation workshops before signing also ensure a certain realism for customers and providers. The future partners get to know each other and will develop innovations together. This approach leads to a clear understanding of demands and dampens emotional waves through realistic expectations.

Transition: This is where the mutual trust between customers and providers is tested. Poor coordination on the part of the provider between the sales and operations teams ("What was agreed?") often leads to poor performance, as well as a lack of customer involvement - usually as a result of errors in transition and transformation planning. This leads to additional work on both sides and subsequent conflicts over compensation, if the transition service is not described comprehensively. A professional T&T project agreement with standards and best practices in T&T scoping offers a remedy. It also means that the "valley of tears" is not so deep.

Stabilisation: A dispute arises over the interpretation of the contract with regard to the subject matter of the service (in-/out-of-scope): What is owed, what is to be remunerated separately as an additional service or change, and is the provider's expense claim reasonable?

Standard mode: Here, the customer discusses the quality of the service (beyond SLA compliance) as well as the professional or technical expertise of the provider's employees. Sometimes the governance model is not implemented or regular meetings are cancelled. A detailed service description in the contract or a RACI matrix can help. Capacities for change must also be planned during standard operations mode so that the customer does not get stuck in the moment, which can put a strain on the relationship. It is important that run & change service remains in the foreground and that competition for SLAs and penalties (= bureaucratic contract management) does not creep in, creating the wrong impetus.

Optimisation & innovation: There is a difference in expectations between customers and providers regarding market standards and the service provider's obligation to continuously develop services and technology at its own expense ("technical progress"). Innovation proposals by the provider also fail to materialise - especially if they reduce the order volume. Or the customer demands innovation, but then rejects specific proposals.

The aim must be to reach the innovation plateau together: Here, the provider can proactively propose and implement ideas, technologies and processes that create added value for the customer beyond the contract (costs, revenue, risks, time-to-market, etc.). The phase on the plateau is not a one-off event, but an ongoing process based on partnership and a high level of trust. This also depends on the contract design, for example with innovation clauses, an innovation roadmap or metrics to determine the innovation contribution. Relationship management and governance as well as processes and culture (errors, knowledge transfer, transparency) are also important during the term.

Contract renewal: "Love it - change it - leave it" - if the customer and provider don't "love" the relationship, they have to change something. "Good enough" does not shape the future, but persistence.

Sourcing tensions in the valley of tears

There are many ways to strain the contractual relationship between customer and provider - and all of them take a heavy toll on both sides. The worst case scenario is reached when standard operations take place in the "valley of tears". Here, there is no longer any chance of making it up on your own. In most cases, going to court can only be the last resort - after all, this is about clarifying the question of guilt. However, in contrast to a fender bender, the aim in a strained outsourcing relationship must be to find a solution that is viable for both sides in a timely manner. And constructive conflict resolution is usually in the economic interests of both parties.

Mediation, conciliation and arbitration

The aim of mediation, conciliation and arbitration is to settle disputes voluntarily and out of court as upstream instances. In mediation, both parties work out a solution to the problem with support from a neutral mediator that takes into account the interests of all sides. The mediator is not an arbitrator, as he or she cannot decide, but can only moderate the process. In addition to mediation, conciliation mediates between the interests of the parties in order to develop a suitable and fair solution to resolve the conflict. Thirdly, arbitration reports are obtained if there are disagreements between the customer and the IT provider regarding technical, professional or commercial issues that require independent and binding clarification.

In most cases, all three approaches are sensible, efficient and discreet alternatives to protracted legal disputes. These can extend over several instances and take years, with the costs depending on the amount in dispute. Even after the last instance, a stable basis for further co-operation is rarely created.