IT outsourcing contracts and their crises: solve them or, better, avoid them!

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IT outsourcing contracts

Alfredo Saad – IT Outsourcing Consultant

Have you lived a crisis in an IT outsourcing contract? What actions should be taken to solve it? Even more, what could have been done earlier to avoid it?

  • Six clues to check for a crisis

At least 6 clues typically mould a crisis in an IT outsourcing contract.  All of them evidence some kind of discomfort inside the buyer organization which has the perception that…

…the quality of the services provided is unsatisfactory, …the resources consumption reports are incomplete and, still worse, error prone, …some requested services are not executed allegedly because they would be out-of-scope, …the amount and skill of resources allocated to the contract operations are insufficient …the resources allocated by the provider are not aware of the buyer’s business priorities …the provider action is always sluggish and reactive and never come up with an innovative solution Such clues, when not timely addressed, tend to deteriorate the relationship between parties, making it difficult, little by little, the achievement of the potential outsourcing benefits.

Such deterioration can be identified through some clear signals, made explicit by both parties, such as:

o             A feeling that each party is trying to take undue advantage from the other party

o             Emotional discussions at the wrong hierarchical level inducing insurmountable personal conflicts

o             Intolerant attitude during discussions about divergent visions around contract terms

o             Difficulties to openly discuss and agree a solution for the problems found

o             Inability to argue through the utilization of solid facts and data

  • Actions to solve the crisis

In an extreme situation, such crisis scenario can reach levels which may irrevocably prevent its reversion, leading to a contract cancellation, which typically results in a tiring and traumatic process for both parties.

Crisis remediation mandatorily compels both parties to admit the seriousness of the scenario and to recognize that the conflicting points must be discussed and solved in a frank and fair way. Some actions typically adopted are:

  • The replacement of the previous interlocutors, exhausted after so many personal fights, by freshly new experienced negotiators, sponsored by the adequate executive level of both parties.
  • Their clear and objective mission can be summarized as:

o             to find fair solutions for the identified conflicting points, also eliminating any past financial misaligned viewpoints,

o             to document the agreed criteria, aggregating them into the formal contract terms in such a way that future divergent matters can be solved rapidly and with no ambiguities

o             to improve the quality measurement mechanisms and also the report on consumed service volumes, formalizing the agreed terms into the contract, in such a way that accurate data turn out to be the basis for future discussions and

o             when applicable, to define action plans to remedy all failures identified, with their respective owners and deadlines, whose progression will be periodically tracked by both parties, including the executive sponsors

  • Along the process, the negotiators must be supported, when needed, by some experts (legal, financial, etc) to discuss, frankly and openly, some specific questions concerning their area of expertise.
  • How to avoid the crisis

Actually, the actions proposed above constitute a reactive action to an undesirable scenario that already exists. However, some previous actions should have been taken to drastically minimize the probability of a crisis occurrence.

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