LONDON, 11 NOVEMBER 2008 - Outsourcing of ICT services was very popular in the 1990s and, a decade later, many of these contracts are coming up to expiry. With an increase in the number of re-tendering exercises (often referred to as a 'second-generation' outsourcing) there are some timely lessons that can be derived from the experiences of the early movers.
Outsourcing was already an established practice in many industries when business started to outsource ICT services. However, there is a significant difference in the nature of the services supplied under an ICT contract to those of, for example, a facilities management contract. The most significant difference is the very complexity of the subject matter and the effect this has on the ease with which the service can be transferred between suppliers. Consequently, the biggest issue for an ICT re-tendering exercise is the availability of time or, more frequently, the lack of it.
It is common to discover that the original managed service agreement makes limited provision for exit management. Some contracts may have provided for the development of an exit plan, though these are frequently either inadequate or the parties have failed to comply with the obligation to develop a plan. The lack of an exit plan is not insurmountable, provided that there is adequate time and the parties are willing to work to the common goal of a smooth service transition. However, where contracts do make provision for exit management, this activity is frequently limited to a time period three-to-six months prior to expiry.
Since even modest ICT solutions will require a period of at least six months to make a controlled transfer, the customer will have a number of preliminary problems to resolve.
Whether a re-tendering exercise is in the public or the private sector, it will take a reasonable period of time to select a replacement supplier and agree the terms of a new contract. This exercise is likely to be regulated in the public sector by the Public Contracts Regulations 2006 ("Regulations"), which means that the selection of the replacement supplier can add a further eight to 12 months onto the process. Although private-sector customers have the freedom to set their own procedure it will still require a reasonable period of time to select a replacement supplier, and a similar period would not be atypical.
Consequently, it would be prudent for any customer to commence a re-tendering exercise at least 18 to 24 months prior to the expiry of an existing contract. This highlights one of the big differences between the public and private sectors: it is open to the parties to agree a contract extension in the private sector if there is insufficient time to complete the exercise. Such an extension has been deemed to amount to the award of a new contract which can force public-sector customers to choose between some unsavoury alternative strategies.
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