Offshore Outsourcing and the Mechanism of Issue Resolution

September 14, 2016 2:42 pm | Updated 1 month ago.

In the recent past, there have been a few critical judgements passed by US Courts relating to issues with IPR violation and fulfilling commitments made towards service provisioning. While the number of such instances is few and far between given the size of the Indian outsourcing industry and the period for which the outsourcing activities have been going on, it still makes sense to have some well-defined mechanism for conflict resolution between the customers and the outsourcing partners.

The process and mechanism of issue resolution assume lot more significance as we start looking at outsourcing of critical business processes, where  damages resulting from misconduct is hard to prove and even harder to assess.


While litigation is always an option in case of failure to meet commitments or violation of other provisions of the contract, it is extremely time-consuming and can be very expensive for both parties. In addition, especially for offshore outsourcing, it often becomes difficult to enforce the judgement in a foreign jurisdiction. In D2E’ opinion a well drafted Mediation and Arbitration Clause in the Contract can not only be used effectively at the time of dispute resolution, but more importantly can keep both parties focused on their respective responsibilities and may avoid both parties reaching an impasse when they need to go either to the Arbitration body or even to the Court.

D2E recommends a combination of mediation and arbitration with the mediator with their knowledge of the engagement determining the root cause of the failure and then the arbitrator deciding the cost to be borne by each party. While, given the complexity of today’ contracts this, on the face of it, seems to be an oversimplification, but companies have used it very effectively to avoid long drawn legal battles.

Mediation is a voluntary process and can take place when both parties agree to go thru the process. Mediators help parties to arrive at a solution by developing effective communication and building consensus and the focus is to build a common sense settlement that is agreeable to both parties. The option of going to court is, of course, always open.

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Arbitration, on the other hand, involves, submitting the dispute to the Arbitrator whose decision is binding on both parties. The common advantages of arbitration over court proceedings are:

– Convenience and flexibility
– Privacy
– Efficiency
– Choice of decision maker
– Finality, and last but not the least
– Cost

In conclusion, it is D2E’ opinion that the parties in an offshore outsourcing engagement need to have a well-defined dispute resolution process in place with a proper governance structure and issue escalation process. In the event the parties are unable to reach an agreement to settle certain issues, they should try the process of mediation and arbitration, before taking recourse to legal action.