An American company decided to outsource sensitive software development to a prominent Israeli firm. The outsourcing contract clearly stated that if a dispute arose, all judicial action would take place in New York City, the buyer’s domicile.
Business Process Outsourcing (BPO) can give companies a decided advantage in today’s marketplace. However, four legal issues have the power to derail an outsourcing contract’s success. If buyers include legal protections in their outsourcing contracts, they can enjoy the advantages BPO outsourcing brings, according to attorney David Pace, a partner in the Dallas office of Arter and Hadden LLP…
Leslie Willcocks of Oxford University discusses the rising market trend toward outsourcing IT.
Why do customers and suppliers often mutually characterize their outsourcing relationships as adversarial? The single biggest reason is a failure by both parties to distinguish between legitimate disagreement and discussion, on the one hand, and improper and harmful dispute, on the other.
Outsourcing: All outsourcing relationships are adversarial in nature because vendors want to be paid as much as possible for delivering as little service as possible, while customers want as much service as possible for as little money as possible. That, in a nutshell, is how Dean Davison, analyst, Meta Group, sees the industry.
When Don Borgschulte, managing director of information technology and services, New Century Energies, arrived on the job in November 1996, his mission was clear. He had been hired to ‘fix’ his company’s badly faltering outsourcing relationship with IBM Global Services.
When a marriage falls apart, the problems frequently aren’t big ones. They are, rather, little things that build up until they threaten the relationship. The same is true in an outsourcing relationship, according to Dean Davison, senior research analyst with Meta Group.
Anticipating change and the likely need for future renegotiation can enable the parties to plan for it, and that preparation can provide a more cooperative environment for making changes.
Outsourcing’s maturation as an industry has created a substantial body of experience in ‘renegotiating’ and ‘restructuring’ outsourcing contracts. Today, these transactions — sometimes referred to as re-do — are more the rule than the exception.
Renegotiation has become a fact of life in long-term outsourcing contracts, and customers entering five to ten-year arrangements should be prepared for that.That’s the bottom line, according to Syd Hutchinson, senior consultant, COMPASS America, Inc. It’s unusual for a contract not to be renegotiated, he said. There’s no way you can see everything that far out, so you should go into these agreements prepared to renegotiate.
There are two problems that pop up consistently in people who have problems with their vendors. Number one is as they are going into the contract, the customer underestimates future work they will require the vendor to do for them. Number two is a failure up front to say what work is in scope and what work is additional. My experience has been that those are the two most common reasons for relationships that so south pretty quickly.
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