Since outsourcing emerged as a distinct commercial practice in the '90s, it has developed its own jargon. For instance, can you tell a BPO from an ITO? What is the difference between outsourcing and off-shoring? Is your agreement first- or second-generation? To the uninitiated, such terms appear as baffling as a foreign language.
Even more off-putting are the frequent news stories of large transactions, often involving government departments and large corporations, where costs have spiralled out of control and the whole deal has gone into meltdown. The result? A mess of underperformance, unjustifiable expense, mutual recriminations and bad publicity for all involved. It is enough to put anyone off.
So why is outsourcing still so popular? The fact is that, when managed properly, outsourcing deals can result in massive cost savings and increased operational efficiency. The potential benefits are simply too great to ignore. There are plenty of businesses who have reaped the benefits of these transactions but you are unlikely to hear about them because good news makes bad headlines.
Why do deals go wrong and what do potential outsourcers need to consider?
Lawyers with years of experience in this area consider that one of the main reasons for the failure of outsourcing deals is inequality between the partners. This factor is frequently exacerbated by the lawyers themselves adopting a ‘win at all costs’, overly-adversarial approach to the contract drafting and negotiations. For instance, if onerous contractual provisions are placed on a supplier who cannot possibly fulfil them, there is a tendency not to try. A remedy of termination or damages is likely to be of little practical value for extreme underperformance. The first piece of advice to potential outsourcing partners, therefore, is to be realistic, both about what you want to achieve and your capacity for achieving it.
Another frequent cause of dispute is 'project creep'. An initial lack of clarity about the precise nature of what the customer wants to achieve can lead to delay, additional expense and tension between the partners. Failure to scope a project properly at the beginning is a sure recipe for problems, if not disaster.
Outsourcing deals are often long-term projects and failure to provide for future requirements can also mean trouble. For instance, whose responsibility will it be to bear the cost of compliance with changes in the relevant law or regulations? The only certainty in long-term outsourcing deals is that circumstances will change and a rigorous change control procedure needs to be built into the contract to allow for this.
These are just some of the questions to consider, quite apart from the important issues of how best to enter and exit agreements, define service levels and deal with IP rights and assets. While nothing short of a loose-leaf encyclopaedia is capable of covering every aspect of outsourcing, we have tried, in this special issue of the Technology Law review, to highlight some of the issues which will prove of interest to those considering, or involved in, outsourcing, whatever their degree of experience. And, just for good measure, we have also included a practical guide to disaster recovery; not a principle element of outsourcing, perhaps, but an essential part of any IT-service provider’s offering.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
