No organization can completely buy its way out of risk. If the contractor fails to deliver, both parties will lose. Since this is a real risk from the buyer's point of view, it is incumbent on that buyer to manage that risk. Software is a risky business, and both sides of any software project need to do serious risk management. We believe that most organizations understand this, but our data indicates that those who get into litigation are disproportionately likely not to.
Litigation is almost always a result of imperfect risk management by one or both parties.
So far, everything we've discussed has to do with events that precede the actual court case, the causative factors. Litigation may be a lose-lose business, but there are certain defensive strategies that may help to limit your losses. The most important one we know is to investigate and calibrate your project with respect to industry norms. For example, if the other side alleges that you have been fickle about the requirements and heaped an unreasonable number of change requests on the builder, then your best defense is to show that your performance in this respect is better than the industry norm. As you may surmise from this example, a successful use of the norms implies a certain fluency with metrics.