Multi-sourcing IT arrangements can reduce risk and maximise
market expertise by enabling customers to avoid over-dependence on
a single supplier and assign services to those who offer the best
deal. But multi-sourcing is not without its own complications and
risks. Without the right contractual safeguards up front and
careful management through the process, the involvement of multiple
suppliers could, in reality, drive up cost and risk.
Structuring the deal
As with any kind of major sourcing strategy, multi-sourcing
requires careful planning and assessment. Customers need to
consider what they want and how best to achieve it, as this will
have an inevitable impact on both the choice of suppliers and the
manner in which they are utilised. They also need to think how the
services will be assigned: will there be separate contracts for
each piece of work, or will the services be managed via a framework
contract?
In any event, it is essential to have a clear understanding of
the roles and responsibilities of each supplier and how they "hand
off" to each other. The benefit of a single supplier is that the
customer knows who is responsible if anything goes wrong. When
multiple suppliers are involved, identifying blame can be difficult
and descend into an endless round of finger-pointing.
Multi-sourcing contracts should, therefore, be clear on where
the boundaries of responsibility lie, the input and co-operation
required from each supplier and how suppliers signify the
successful completion of a particular task, for example testing and
signing off on the installation of newly-developed code prior to
passing it to another supplier for maintenance and support.
Governance
Customers need to decide whether there will be a "lead" supplier
responsible for co-ordinating the input of others, how frequently
the parties will meet and in what manner potential disputes will be
resolved. Ideally, the fewer overlaps in reporting, the better -
where possible, customers should look to establish a single, common
process to which all suppliers adhere, particularly in the case of
dispute resolution.
An additional layer of internal management is inevitable with
multi-source arrangements. Outsourcing the service is not the same
as outsourcing the responsibility. Ultimately, it is the customer
who remains responsible for its business and they must keep
extremely close to any business critical services to ensure
problems are prevented or resolved as swiftly as possible.
Sanctions and termination
One of the advantages of multi-sourcing is the ability to
terminate or switch services from one supplier to another. The ease
with which this can be done, and the potential cost, depends on the
termination provisions in the contract. For instance, some
suppliers will enforce a termination fee in the event of a "no
fault" termination prior to the end of the agreed term.
It is also important to ensure that provisions regarding
intellectual property rights and confidentiality do not oblige the
customer to use the services of a particular supplier or ensure
that licences to materials which the customer needs automatically
end when the contract expires.
Multi-sourcing is proving increasingly popular, both with
day-to-day procurement and larger scale outsourcing projects.
However, the more suppliers there are, the greater the potential
for confusion. In order to best reap the benefits and flexibility
of multi-sourced arrangements, the onus is on the customer to take
especial care in its contracting process to ensure they do not end
up taking the brunt if, or when, things go wrong.
Kit Burden, co head of technology and sourcing practice at law
firm DLA Piper