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Negotiating a good outsourcing deal, part 2

Negotiating a good outsourcing deal, part 2

Editor's note: This is the second in a series of three articles on outsourcing from (1)

In the last article we gave you some high level pointers to negotiating an outsourcing deal and now it's time to introduce a few more ideas to remember as you get into the process. This isn't the Holy Grail but should serve as food for thought.

Effective negotiation relies on having access to validated internal data that describes costs and service levels. This is where the problems start, no matter how much you think you know your IT systems you don't -- the outsourcers know that and they will be quite happy to let the scope slide in their favor. So make sure that you know exactly what you want to outsource.

Make sure that you negotiate with someone that is empowered to make decisions -- to'ing and fro'ing just wastes time, results in Chinese whispers and undocumented agreements that will be argued over for the rest of the contract period. While we're on the subject of people, stop your chief exec brokering a deal on the golf course, whilst we're keen for execs to be fully involved, they should focus on the business case rather than their golf handicap.

Don't over negotiate -- ask any outsourcer, some people just want to negotiate rather than actually operate the contract. If you follow this route you'll end up with an over committed outsourcer that has agreed to unrealistic service levels with no profit margin and you'll be renegotiating before you know it. And your love of negotiating will soon tire.

As we've said before -- outsourcing deals are contract intensive so involve lawyers from the start -- it will save time and effort in the long run. It is not sufficient for a lawyer to simply proof read the contract just before it is signed. They are bound to highlight serious issues that will cause delays at the end of the process.

Service credits and performance bonuses -- customers often expect outsourcers to exceed service levels without any incentive. Don't forget it's all about a win-win outcome, so use the carrot as well as the stick. Force majeure excuses one party's failure to perform certain actions in certain circumstances. In the context of outsourcing contracts, the outsourcer will look for as broad a definition as possible, whilst the customer will look for a narrow definition. Inclusions may be customer's non-performance, failures of third parties, failures in hardware and software. Again see a lawyer.

Provisions should be included that address the outsourcer's responsibility to correct and mitigate the effects of an excused performance failure as a force majeure event, should not completely absolve them from all responsibilities.

It is unlikely that the outsourcer will initially propose a SLA that is in the customers favor. So the customer must ensure they have a thorough understanding of the SLA both in terms of scope, content and structure. You'll spend the first six months of the contract interpreting the SLA and Ts and Cs so you may as well get familiar with it sooner rather than later.

That's its so far. In the last article we'll wrap up the advice and set you on your way.

Click to read the third installment of "Negotiating a good outsourcing deal".

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