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IT outsourcing: Legal mistakes that can cost you big

Meridith Levinson | Dec. 3, 2009
Good legal counsel can be worth every penny when putting together an outsourcing deal.

What's more, vendors rarely yield in this area. If they do, it comes at a cost. "Vendors will typically price into the deal the amount of risk they are willing to shoulder," says Wolfe.

Time arguing over liability or other intractable issues is better spent on performance indicators or practical remedies for problems that may arise over the course of the deal. "It's much better to use the time to ensure that there are clear policies, procedures and remedies in place to address problems rather than arguing about dollar limits," says Wolfe. "Most vendors are willing to talk about how problems are solved, steps to solve those problems and credits for failing to do so."

4. Contract complexity. "Thoroughness is a virtue," says Kimball. "Complexity is another matter." You pay attorneys to sweat the small stuff, but no contract can address all possible contingencies in outsourcing. "When things go wrong and surprises occur, as they are bound to, good processes may be more useful than detailed prescriptions," Kimball says. "Unwieldy documents that clients barely comprehend--or worse, misunderstand--are not helpful."

Seek clarity and brevity. Shorter documents not only take less time to negotiate, they're easier to manage. "The goal is to use the contract as a roadmap for problem-solving once you are working with the vendor," says Wolfe.

5. Adversarial negotiations. Contentious contract negotiations can be stoked by any number of parties involved in an outsourcing deal, but no one gets hurt more than the client. (In fact, the advisors and attorneys may rack up more fees during heated talks.) So check emotions at the door. Even better, hire an attorney who will keep you in check (not all of them will).

"Adversarial thinking and behavior too easily infect these relationships, unwittingly encouraged by the competitive instincts of too many purchasing professionals and lawyers," says Kimball. "When adrenaline flows and blood pressures rise, it is easy to forget that these relationships rarely succeed unless both parties succeed."

Collaborative negotiations yield better returns in the long run. "Negotiate for value," advises Wolfe. "This is all about allocating risk while building a foundation to work as partners going forward. Vendors have fairly standard parameters in their contracts within which they will work. The key is to understand those parameters and communicate what is most important to you."

No one likes to be bullied, even if you are the "big guy" at the table. "Providers are human," says Hansen, "and making them feel threatened will make them more risk averse, and lead to longer, less beneficial negotiations."

6. Lack of business buy-in. Outsourcing is difficult enough when everyone is singing from the same hymnal, says Kimball, but it's even harder when the customer has failed to build consensus among its business units and internal organization.


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