When General Electric Co. hires a contractor to install a computer system, run a data center, remediate legacy systems for Y2K compliance, or perform any number of other information technology tasks, it routinely inserts a small clause that can yield big returns. The provision, known in the legal community as an alternative dispute resolution (ADR) clause, stipulates that if a dispute arises between GE and the IT contractor, both parties will try to resolve the dispute without involving the court system.
Elpidio Villarreal, counsel for litigation and legal policy at General Electric Co.
Over the past five years, Elpidio Villarreal, counsel for litigation and legal policy at GE, in Fairfield, Conn., has convinced GE executives that inserting ADR clauses can save the company millions of dollars annually and avoid the type of unwanted publicity often associated with large, splashy, and sometimes messy courtroom battles. Villarreal says the company saved about $40 million using mediation and arbitration in 1998, and that 1999's savings should be even higher. The company began inserting ADR clauses into many of its contracts in earnest about two years ago. Since then, more and more company executives routinely insert some form of a dispute-resolution clause into contracts. Some IT contractors are suspicious of dispute-resolution clauses--mainly because they believe anything written into a contract favors the other party. But Villarreal says the clause actually fosters a better working relationship between IT managers and outside staff by building trust and removing obstacles.
AT A GLANCE: General Electric Co.
The company: General Electric Co., with headquarters in Fairfield, Conn., employs 280,000 people worldwide, with revenues of $101 billion in FY1998.
The problem: The company wanted to find a mutually agreeable way of ensuring that all disputes go through some type of alternative dispute resolution before legal action is taken.
The solution: Elpidio Villarreal, counsel for litigation and legal policy at GE, suggests adding mediation and arbitration clauses to all contracts. But if vendors balk, GE is flexible in working out an agreeable compromise.
"The clauses reinforce the notion that this is a relationship, and if we get in a fight, we aren't going to go to court. We have already agreed on a way to resolve the dispute because we are committed to the concept of getting the job done," he says. Inserting ADR clauses in IT-related contracts is especially important, since IT's complexity makes terminating IT-related contracts difficult and expensive. And, because technology changes so rapidly, the parties often don't negotiate how to handle a particular--often unforeseen--circumstance, notes James Wilkins, head of the technology transactions and outsourcing practice at Shaw Pittman, a Washington, DC-based law firm. Many companies are beginning to insert such clauses--albeit slowly--as they realize the consequences of spending countless hours and dollars fighting legal battles. They now understand their time is better spent keeping current with the technology necessary to run their businesses. Because ADR clauses can help avoid Y2K-related lawsuits that may otherwise arise from inadequate systems remediation, the new millennium is an added reason for companies to consider inserting such clauses into IT contracts.