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Contracting for effective multi-sourcing strategies

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





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