Outsourcing attorneys spend many hours negotiating complex terms and conditions governing the delivery of IT outsourcing (ITO) and business process outsourcing (BPO) services. As good outsourcing counsel, we spend a lot of time imagining ugly scenarios and allocating the associated risks and liabilities. Often as not, the result is an outsourcing contract that looks more like a phone book than anything you would use to guide the development and management of an outsourcing relationship.
It’s no wonder business people want to lock these contracts in the bottom drawer.
Industry-standard contracts have ballooned to hundreds of pages and yet, despite over two decades of maturation, the outsourcing industry continues to produce more than its fair share of disappointments: failed implementations, misaligned service delivery models, spotty operational performance, billing disputes, cost blowouts.
With all the scenario modeling and risk analysis that goes into creating doorstop contracts, why don’t they deliver better results? Are negotiations focusing on the wrong stuff?
A recent international survey of sourcing professionals suggests that this is so. In its Top Terms in Negotiation report, the International Association of Contracting and Commercial Management (IACCM) offered some blunt observations about the contracting process and its weaknesses:
“As a result of late involvement or fragmented negotiations, the contracts and legal experts focus on ‘protection’; business people see this as negative behavior, and therefore seek to delay or minimize their involvement. Indeed, this negativity flows through to the contracting process in its entirety, so we lose the ability to properly define projects and to frame them with an appropriate definition of oversight and management structure.”
And later this:
“We enter contracts because we believe that there is mutual benefit to be achieved. A focus on the consequences of failure undermines the probability of success. In part, it damages trust and collaboration but more importantly, it results in key areas of the contract content being overlooked or paid inadequate attention – specifically, clarity over scope and goals and over the on-going governance and management procedures for the relationship.”
These observations ring true in the outsourcing world. Too often, buyers encrust an already-complicated relationship with additional complexity. If this complexity were benign we could ignore it. It isn’t. In a world of limited resources, time spent negotiating risk allocations down to the gnat’s eyelash means time not spent exploring and addressing operational and strategic issues that are far more likely to bite.
We have spent much of this decade working to simplify outsourcing transactions while focusing the parties on the relationship issues that are fundamental to success. Guiding us in that journey is a careful attention to the things our clients tell us are important:
- Seeing an outsourcing project as part of a delivery strategy and not an isolated transaction.
- Completing projects faster, recognizing that the outsourcing life cycle has shortened and that restructurings and renegotiations are now more routine.
- Getting to a fair price quickly – without relying solely on a competitive bidding process to drive price negotiations.
- Avoiding scope confusion by moving the parties’ understanding of their roles from fuzzy to crisp in short order.
- Maintaining flexibility to respond to changes in business conditions and priorities.
- Managing risk in a more pragmatic way – without boiling the ocean.
The IACCM report suggests that the industry still has a way to go.