Outsourcing: keeping divorce private

Public outsourcing failures could be laid bare by FOI, says Renzo Marchini.


Public outsourcing failures could be laid bare by FOI, says Renzo Marchini.

When outsourcing goes wrong, it can go spectacularly wrong, as Sainsbury's decision to bring back in-house its IT function from Accenture makes abundantly clear.  

A mutual termination has been agreed, and money will inevitably change hands. It is usually the case that both customer and supplier (perhaps one more than the other) want to keep the actual terms of the divorce confidential - a jointly agreed press release will of course be part of the terms, but usually no more is deliberately disclosed. 

Things are different in the public sector. The Freedom of Information Act has been in force for almost a year now. This gives the public the right to request any information held by a public authority.

For IT companies, the act is most relevant for the potential disclosure of contracts (including terms of settlement) which include commercially sensitive information. The requests do not have to be for bona fide public interest reasons, but can come from competitors seeking to gain a competitive advantage, or journalists investigating a story.

A recent example in an outsourcing context came in a disclosure under the act made by Bedfordshire County Council. The council did an outsourcing deal with Hyder Business Services Group in 2001. In early 2005 the trade union Unison published a dossier which stated that the standard of services had actually fallen since the agreement had been in place.

Confidential settlement?

A rapid deterioration in the relationship ensued. In July the council sought to terminate the agreement, and Hyder resisted.  Rather than embark on expensive litigation, both parties agreed a confidential settlement.

Local journalists made an application under the Freedom of Information Act for disclosure of the terms of settlement. The council felt itself obliged to disclose all the terms of the settlement (including payment of £7.7m by the council to Hyder).

The duty to provide information under the act is not absolute. Certain statutory exemptions were available to the council, and suppliers will increasingly want to ensure that there are contractual obligations imposed to force their public sector customer to use these exemptions. This can put public bodies in a quandary.

For example, a request would be exempt from disclosure under the act if it would result in the breach of a confidentiality agreement. The Hyder-Bedfordshire settlement contained a fairly standard confidentiality clause, but this was not enough to stop the disclosure.

The clause stated the duty to keep their deal secret would not apply where disclosure was required "by compulsion of law".   Given the Freedom of Information Act, Bedfordshire Council thought it was under just such a compulsion and that the confidentiality provision therefore did not apply and did not prevent it from disclosing. 

Public interest

Another possible exemption to disclosure is where it "would prejudice the commercial interests of any person (including the public authority holding it)". This, however, is qualified by the overriding requirement that disclosure will be allowed if it is in the public interest.

Bedfordshire Council was keen for political reasons to release the terms of the settlement, which it viewed as being commercially beneficial. As the ultimate arbiter of the public interest test, the council was able to use this to its advantage in deciding to disclose the settlement terms. Although disclosure benefited the council, there may be situations (albeit relatively rare) where it is the customer that wants to prevent details becoming public.

More likely it will be suppliers to the public sector trying to prevent in advance disclosure of what they consider to be confidential - their pricing, service level commitments, or the terms of settlement.

Increasingly, suppliers are beginning to insist on confidentiality obligations tailored to the new landscape of the act. These include such elements as a duty on the customer to consult prior to disclosure. However, there can be no absolute guarantee that deals (or divorce terms) will always remain confidential.

Renzo Marchini is a solicitor specialising in IT and outsourcing in the London office of law firm Dechert


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