4 IT outsourcing agreement loopholes to watch out for

IT outsourcing agreements have a strong impact on a company’s business. Watch out for these IT outsourcing loopholes before signing the agreements.

IT outsourcing has become a norm in the market today.  The popularity of technologies such as infrastructure-as-a-service (IaaS) and software as a service (SaaS) have further made it possible for companies to outsource their entire IT resource needs to third party providers. It allows companies to focus on their core business, while their IT worries are take care of by the service providers.

However, there are loopholes hidden in every IT outsourcing agreement, which can lead to poor service, high operating costs, and end-user complaints for the organization. CIOs must be wary of any ambiguities or unspecified factors in the IT outsourcing agreements they sign. Presented here are four points to ensure that you don’t get taken for a ride when you next sign an IT outsourcing agreement.

1) Examine the exclusions in the service level agreement (SLA): CIOs should carefully study the exclusions made in the IT outsourcing service level agreements (SLAs). For example, a vendor may promise an uptime of 99.9% for the network, with exclusion if there is a dependence on third parties for providing internet connectivity, or if the systems at the client-end are obsolete, in which cases the service provider may shirk responsibility for network failure.

Study contract parameters for third party dependency, equipment age, the present state of the data center, and the power supply arrangements. Perform a comprehensive assessment of your company’s existing IT infrastructure, and ensure that the IT outsourcing agreement has all the provisions to match your company’s needs.

2) Ensure that application support includes development activities: Do not miss out on estimating future development and enhancement activities, and creating provisions in the IT outsourcing agreement for them. If your organization installs a new application, the infrastructure provider is obliged to provide support for it only if it is categorically mentioned in the IT outsourcing agreement.

IT outsourcing agreements generally provide support only for applications and not for enhancement services. If an organization is spending Rs X every month for application support services, and enhancement specifications are not mentioned in the contract, the organization  will be charged for Rs X, plus additional charges for any enhancement done. There is the possibility of being charged extra for each enhancement used.

3)Double check the quality of the people assigned to your organization: Before signing the IT outsourcing agreement, it is a good idea to double check whether the vendor’s talent pool meets your company’s requirements. CIOs should request vendors to provide the profiles of personnel assigned to the account, so they can personally evaluate them before accepting them into the team.

In case of total outsourcing contracts, the IT outsourcing agreement should specify that all key and skilled vendor personnel be transferred to the company’s payroll and be assigned to the company’s account for the long term. This helps in ensuring quality of service.

4) Ensure that the outsourcing team possesses domain expertise: The infrastructure provider’s support personnel must possess domain expertise relevant to your industry. This will ensure business acceptability of the outsourced services and bridge the gap between IT and business.

In the airline industry, for example, it is vital that the vendor’s support personnel have a fair understanding of aviation industry-specific processes such as the passenger name record (PNR), data in the reservation system and how it is used, the flying pattern of the crew, all of which are part of regulatory requirements. If the support personnel possess such domain knowledge, it brings value to the relationship. Ensure that it is written into the IT outsourcing agreement.

About the author: A veteran CIO in India, R.N. Moorthy has 16 years of IT leadership experience. Currently, he works as senior general manager - IT at Jet Airways. Prior to this, he worked  as Systems Manager at DHL Worldwide Express.

(As told to Anuradha Ramamirtham)

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