Do not forget the 'exit clause', warn outsourcing experts

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Do not forget the 'exit clause', warn outsourcing experts

Warwick Ashford

The biggest problems with outsourcing are usually around termination of contracts, but this is the area which is often most neglected, warn outsurcing experts.

"It is often too difficult to unravel business processes from an outsourcing company 10 years down the line, so many companies renew contracts because it is easier to do," said IT contracts lawyer Dai Davis, partner at law firm Brooke North.

Davis said many people who negotiate outsourcing contracts concentrate only on setting up the relationship and not on how to end it, with the average contract saying termination "to be agreed", which can often cause problems when the contract ends or things go wrong.

"This problem is not insurmountable, but many people do not think about it or are not concerned because when the difficulties arise in five to 10 years, it will not be their problem," said Davis.

He advises that all companies negotiating outsourcing contracts should agree on how the contract will be terminated as early on in the process as possible.

Martyn Hart, chairman of the NOA, said another way around the problem was draw up contracts in terms of business oriented metrics and not be too specific about tasks and services, because it is often difficult to predict how things will change at the outset.

"This builds more flexibility into the contract to allow for changing business conditions and requirements, which is more likely to keep both parties happy for longer," he said.

Hart also suggests making outsourcing part of business continuity plans. "This will enable organisations to understand exactly how dependent they are on outsourcers so they can plan alternatives and check that these work during routine business continuity testing," he said.

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