Poorly negotiated contracts can undermine outsourcing benefits

Delegates gathered on the cruise ship Aurora this week to hear analysis on the state of IT budgets, offshore outsourcing and...

Delegates gathered on the cruise ship Aurora this week to hear analysis on the state of IT budgets, offshore outsourcing and financial regulations.

Companies are getting poor value for money from outsourcing deals because of loosely negotiated contracts.

That was the message Tim Pullan, outsourcing specialist and senior lawyer at law firm Tite & Lewis, was set to deliver to delegates at the City IT conference.

Despite the strong growth in demand for outsourcing over the past year, Pullan said companies often spent too little time planning a deal and often fail to agree crucial targets for services before signing a contact.

"Typically there is pressure to get the deal done to a certain timescale," Pullan said. This means customers may sign off the contract before it is fully nailed down.

"Quite often, for example, service level agreements are done at a later stage," he added.

Users risk paying the supplier more than they bargained for if key elements of a deal are agreed after the contract is signed, particularly if users want extra services from the supplier.

"Service providers can hike up the charge of delivering the service because, at the time of signing, the customer had either not defined service level agreements or had defined them badly and realised they needed extra functions," said Pullan.

Pullan also advised IT directors to help ensure that all parties affected by a proposed outsourcing deal - such as IT staff, users and business sponsors - are involved at an early stage.

He predicted that the robust growth of offshore outsourcing would continue with suppliers targeting smaller organisations with tailored services.

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