IT marriage counselling to ensure outsourcing contracts don't lead to divorce

I have written extensively about the large amount of contract renegotiations going on at the moment. Keeping suppliers and customers happy at the same time is difficult. Particularly when the economic climate and technology are changing. Everybody has to give a little if they want to take something back. While the customer is always right, the supplier is a businesses that has to thrive to survive and to continue providing a high level of service.

The last thing anyone wants is to end up in court.

In this guest blog post Robert Saxby of ImprovIT, a company made up of former Gartner analysts, talks about relationships and spotting a bad project early.

OUTSOURCING:  Rescuing Relationships and Pre-empting Poor Projects

By Robert Saxby, Director of Consulting, ImprovIT.

“All outsourcing contracts start from a position of expectation:  the customer expects to procure a wide range of IT efficiency improvements at, of course, a reduced cost.  The supplier on the other hand expects to win additional business that is going to contribute to its profit margin. Since the chance of these two sets of expectations meeting in the middle is usually remote, suppliers have found creative ways around the impasse.

The loss leader approach

Often contracts are pitched on the basis of apparently low charges with the supplier expecting to make up the difference over the course of the contract through a process of cost creep that commences following  the initial transitional period and when the contract has settled down into a state of ‘business as usual’.  There are numerous ways this can be done including charging a high day rate for low paid staff and incrementally increasing the scope of the project and charging penalty rates for any changes or additions that fall outside of the original contract.  While these tactics may work for a time, eventually the customer notices and the relationship begins to break down. The customer is now running all costs through a fine tooth comb and questioning everything that is produced from new project suggestions to monthly BAU reports.

This is not a favourable state of affairs either way. So at this this point the question is: How to repair the damage?  To restore the relationship to a healthy footing, we offer here a few tried and tested remedies – the fruit of many years’ experience working with both corporate and public sector customers and their service providers.   

Repairing the breach

To begin with, realise that if the relationship of trust has broken down it may take some while to repair.  If the issue was poor service or delivery did not live up to the contracted SLA, then establish a structured timetable whereby staged improvements will be made. This will need to be benchmarked by an independent advisor since the customer will need external confirmation.  If the issue was one of cost creep, then detailed explanations will need to be made.  This may be educational as often quite justifiable costs – such as the high cost of maintaining old systems – are not adequately understood by customers. And if they are not justifiable, then negotiation and pricing adjustments need to be made that are henceforth transparent.   If the relationship has broken down irretrievably then nothing will help.  The good news, however, is that in our experience most organisations will go to great lengths to give their suppliers another chance. This is either on the basis of: ‘Better the devil you know’, or because of the time it takes to get another service provider up to speed on a customer’s business and operational methodologies. 

Re-establishing trust

 So, once the apple cart has been set back upon its feet, the task is to put measures in place that ensure the relationship never breaks down again.  To begin with, if it doesn’t already exist implement a proven, industry standard set of project management and IT governance procedures that are based on Prince 2 or similar. This will reassure customers that their supplier is complying with an established set of recognised criteria and not simply making up the rules as they go along to suit their own best interests.  Secondly, for any project large or small, ensure there is a formal post project review to see what lessons can be learned – both ways.  This will give the customer a chance to air any niggles or disappointed expectations at the point so things can be rectified while they are fresh.

Thirdly – and this is most important – ensure there is an open and frequent dialogue between both parties.  This sounds obvious but communications often unravel because people don’t have time, there is no one specifically designated or they simply put it off.  We always recommend that suppliers institute a proactive once a week call or meeting and quarterly reviews to assess productivity and discuss new efficiency measures and innovation initiatives. This gives them a chance not only to address any issues, but to demonstrate an understanding of their customer’s business needs and to win new contracts.

Starting from strength

Notwithstanding all of these measures, projects will still go out of control and/or some services will perform poorly.   Ideally, then, it would be best if one could select suppliers and projects which from the outset have the best chance of succeeding and of being fairly priced and contracted –  all of which would go a long way to ensuring  customer/supplier relationships don’t break down in the first place.  

One way the customer can guard against a failed project, poor performance or price creep is to bring in a sourcing specialist from the start who will compare similar projects done by a range of suppliers and advise on the most suitable options.  Or if the supplier has already been engaged, the specialist can compare the project plan and supporting material against best practice alternatives to see where it may go off course and what cost and time overruns may occur.  They can look at the scale and scope of a project against the resources assigned to it, the quality outcome expected, the time to completion and the process methodology to be used, including testing schedules, to see how realistic it is and the likelihood of success.  Having done all this, the sourcing specialist can then suggest efficiency, productivity and other improvements to the project, including how to avoid downstream problems before they happen. 

While all of this may sound obvious – or as the Americans would say: ‘mother and apple pie’ – it is surprising how often both customers and their service providers fall into the same traps. We know this is the case by the number of times we are called in to arbitrate and restart the dialogue which has broken down usually because of opposing expectations, as mentioned earlier.  Our job is to help both parties start their journey together on a clearly defined path, agreed on where they are going and how to get there, and with the best chance of continuing success.”