Thought for the day:The art of the contract

Outsourcing and communications expert Martyn Hart looks at a hot issue of the day.Listening to Radio 4 the other day, I heard an...

Outsourcing and communications expert Martyn Hart looks at a hot issue of the day.Listening to Radio 4 the other day, I heard an MP complain that "outsourcing had failed" because a supplier had made a fortune out of contract changes. Surely we should have tougher procurement systems?

He asked how this could this happen. Wasn't it like the bad old days when suppliers tendered for equipment at a low price and as soon as the government department wanted to change it they made their money out of variations?

It does indeed sounds like it could be true and the MP rolled off a list of "failures", but what's the issue behind it all? Is it greedy suppliers ripping off innocent government departments, or is it something more?

I asked a colleague, who has probably helped construct more outsourcing contracts than anyone I know (even me), for his take on this.

He said that you have to consider two things: how have you constructed the outsourcing deal, and what would be the result if you had an in-house team?

You have to construct the deal, so that you - the owner, customer or user - always keeps the intellectual property and the supplier does the mechanistic work. The supplier can contribute to the intellectual property (for example, building the database) but you own it.

Let's look at it this way. The supplier is the machine, while you are the intelligence. So even if you fall out, all the supplier can take is the day-to-day operation, because you own the intellectual property rights.

Next, you should consider what would happen if you were using an in-house team rather than an outsourcer. An in-house team would also have to put in a lot of effort to cope with any changes you desire, so remember that an outsourcer's charges may reflect the efforts they have to make to accommodate your changes.

That's only fair, but do you know enough about the process to understand if the outsourcers' costs are appropriate? That's down to your knowledge or the knowledge of your advisers.

Lastly, humans will always try to maximise their position and, once they understand how a system works, they will try to exploit it, so you can't put your faith in a system alone. Some good advice on the potential pitfalls of your system is invaluable.

What's your view?
Has outsourcing failed? Tell us in an e-mail >> CW360.com reserves the right to edit and publish answers on the Web site. Please state if your answer is not for publication.

Martyn Hart
is chairman of the National Outsourcing Association and practice director at Mantix, a consultancy that delivers value from complex programmes.
This was last published in August 2002

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