Outsourcing: Success is in the details

PALM DESERT, CALIFORNIA (03/10/2004) - There's a lot that can go wrong in an outsourcing deal if terms aren't clearly spelled out before an agreement is signed, Paul Roy, an attorney at Mayer, Brown, Rowe & Maw LLP warned attendees Tuesday at Computerworld's Premier 100 IT Leaders conference here in Palm Desert, California.

Roy, who represents user firms in outsourcing agreements that sometimes include offshore work, urged his audience to take nothing for granted in an agreement.

There is no single thing a company can do to ensure that it will be protected, but it can craft a "web of protections" that can ensure that an outsourcing arrangement meets expectations, said Roy.

Among the steps users can take is to reduce the opportunities for dispute by carefully describing the services sought, as well as how services may change over time. "A contract that doesn't obligate the vendor to evolve the technologies and stay current can become obsolete very quickly," said Roy.

Companies should also have the right to "in-source" or return previously outsourced services back to the user firm.

"Having the ability to take a slice of the services back in-house maintains that competitive pressure on the vendor," said Roy. It also allows a user to "surgically remove" a service that the vendor isn't meeting expectations on, he said.

There will be disputes about price in the course of a contract, said Roy, "but you cannot let that interrupt your contract or progress or even introduction of new services, and you need a mechanism to manage disagreements."

Ownership of intellectual property is another critical area. Users have to ensure that they will own the development created by the outsourcer. But one of the reasons a user may pick a particular vendor is because that vendor has systems it may be leveraging, "and you can't stop vendors from owning developments on those systems." So any agreement requires a balance. Users have to understand what it is they don't own, said Roy.

Addressing when and how a contract could be terminated, he said companies should clearly spell out the things that could trigger termination, such as failure to meet project milestones. But he also recommended that the pact allow a user to terminate it for any business reasons, or because the outsourcer -- even if not committing a material breach -- somehow makes the customer unhappy.

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