Everyone is keen to obtain a bargain, whether it is a
new TV in the January sales or a cut-price corporate desktop
agreement. But as deals grow, so do the risks, and that big desktop
outsourcing deal may bring a reduction in quality rather than
cost.
In an ever changing business climate, more and more companies
are modifying their long-term strategy in order to stay
competitive, and many are looking at the offshore environment as a
sensible cost-saving option. The result is that long-term
outsourcing deals, while bringing stability and joint benefits, are
having to accommodate change.
A good partnership will always be flexible enough to allow
change, but even with the best intentions, sometimes it is just not
possible to maintain the ongoing relationship, in which case,
contract termination is often the only way forward. So when is the
best time to address this issue?
Breaking up is never easy
Certainly, the most difficult time is at the end of the contract
life. At this point, both parties are probably fighting their
corner or simply do not have any spare cash to throw at the
problem. Both are looking at exiting with maximum profit and
minimum fuss, which inevitability removes any level of decorum or
the possibility of an amicable settlement.
So what about in the middle of the contract? Think about how
this might be approached and manage expectations because the impact
may affect your business relationship with your outsourcing
provider.
It is a difficult topic to raise and if you drop “exit strategy”
and “termination plan” into conversation, however politely you
phrase it, it is unlikely to result in the response, “That’s
wonderful news, please let me know how I can assist.”
The reality is that both parties are now on the retreat and
start to distrust each other. Alternatively, the supplier looks at
how to pass the cost of this proposal back to the user.
The above describes a change in circumstance or business policy
which invariably was unforeseen, but with a little insight this
need not happen. So, in an ideal world, when should termination and
exit procedures be discussed?
The best time is always at the beginning of the relationship,
before the contract is signed, because the supplier is at its most
accommodating and you are looking forward to that exciting
partnership, profitability and improved level of service.
It is also the best time to assess your supplier and understand
their flexibility. The salesperson may appear to be accommodating
and offer all the right gestures and warranties, but that does not
mean their lawyers will be and it is always surprising how few
verbal agreements make it though to the contract. It is important
to press some of these issues because your company will not thank
you if the service takes a dive and things get messy.
Negotiating sensibly
Nobody likes to look on the gloomy side when negotiating, but
ensuring the service is fit for purpose also means negotiating
sensibly. When negotiating termination rights it is important to
consider:
- The associated costs to both parties: are termination costs
fixed or variable?
- Time period to exit
- How to deal with partial termination
- Exit strategy
- Staff movements before, during and after termination
- Rights to staff information if there is any Tupe
consideration
- Audit rights
- Access to buildings
- Continuation of the service and service level though
termination
- Any increase in price if the exit is delayed
- Asset transfer and licences
- Repairs and damages.
This might sound daunting but taking on a supplier is never
going to be simple.
It is also easy to lower the priority of these tasks, as clearly
the focus is on putting the service in place, not ending it before
it has started.
However, this is a big risk. Getting it right is difficult, but
getting it wrong is disastrous: you will find yourself working
harder, longer and swamped under a plethora of paperwork and
service issues.
It is important, therefore, to use the right engagement model,
which is paramount to delivering a quality solution.
Richard Ellis is a sourcing adviser with independent outsourcing
consultancy Quantum Plus