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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.

A lack of consensus early on will cost you during contract negotiations, says Wolfe. To avoid infighting that may protract negotiations, Wolfe recommends facilitating a strategy session to review outsourcing goals, anticipated return on investment, alternatives available, vendor selection criteria, key expectations and concerns, and greatest wants, needs and risks you're not willing to take.

"Put that strategic plan on paper and consult it on every red line change [during contract negotiations] to stay on focus."

7. Ambiguous governance. The single most common, yet avoidable error Kimball sees his outsourcing clients make has little to do with law; it's weak management of the contract.

"Form governance documents are thrown thoughtlessly into the closing binder, then ignored as responsibility passes to a short-handed team that may not, at least initially, fully appreciate the difference between managing operations and managing a contractor," says Kimball.

Governance schedules have a tendency to be drafted sloppily, agrees Hansen. "I have seen negotiations where we work very hard to make sure that there are clear lines of responsibility in the contract and its statements of work, just to see a bunch of language in the governance schedule that talks about joint responsibility," he says.

Build robust and tailor-made governance and communications processes into the contract and discuss them thoroughly with the team that will manage the deal, advises Kimball.

8. Speed sourcing. "Legendary UCLA basketball coach John Wooden used to admonish his players to 'be quick, but don't hurry,'" says Kimball. "Now, more than ever, customers want to complete negotiations quickly, reduce transaction costs, and accelerate anticipated benefits."

They're worthy goals all, but not always worth the risk. "Pains taken to assess current operations, weigh alternatives, check references, plan transitions and make other essential preparations are generally worthwhile," says Kimball. If you're looking to speed up the process, he adds, explore simpler documentation or streamlined processes, but don't give short shrift to outsourcing fundamentals.

9. Last minute changes. In outsourcing parlance, "last minute" means any time after negotiations have begun. "The more up front work that is done before the formal negotiation process starts, the better," says Wolfe. "[Otherwise] all costs will be significantly increased--legal costs, advisor costs--not to mention opportunity costs in the time that is wasted."


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