Contract specialists advise protection clauses

With so many technology vendors struggling to keep pace in a sluggish economy, some savvy IT executives are adding new protection clauses into licensing and outsourcing agreements to ensure smooth operations should a key technology or service provider go belly-up. “We’re asking for protections, like lifting restrictions on hiring their staff and putting the software code into an escrow account,” said Roland Salvato, manager of contract and vendor relationships at Blue Shield of California. “We didn’t have those provisions in our contracts before, because these companies looked like they were stable.There’s a payoff between getting unique services from a vendor to whom you represent a big piece of business and the risk of working with a start-up.”

A number of IT executives say they’re concerned about the viability of large firms as well.

For example, Columbus, Ohio-based Nationwide Corp. regularly monitors the financial performance of its largest technology suppliers, said Patrick Campbell, IT procurement officer at Nationwide Services Co., the company’s IT services arm. It also maintains relationships with alternate suppliers.

Sharon Horton, a senior consultant at Winter Park, Fla.-based ICN, recommends that users put stipulations into contracts to buy back equipment from the outsourcer as a backup plan, given the degree of cutbacks at many of these firms. — Lee Copeland, Computerworld online

Services to address T+1, other issues

Hewlett-Packard and Capco of Antwerp, Belgium, announced in January an agreement to develop customized, large-scale business and technology solutions for the global financial services industry. Under the agreement, which includes a $30 million HP equity investment in Capco, both companies will work together to develop, market, sell and deliver comprehensive solutions to customers in the capital markets, private client and asset management segments of this industry, according to a joint press release. The companies claim that their global alliance solutions will help customers address key market issues such as consolidation, cross-border trading, changes in privacy laws, disaster recovery and the move to T+1 — the SEC initiative to shorten the settlement cycle of a trade from three days (Trade + 3) to one day (Trade + 1) — thereby reducing risk. Additionally, the alliance will address solutions for financial institutions to better meet the needs of their increasingly sophisticated customers. The alliance promises to link “business process strategy to technology implementation” and will focus on developing and implementing customized, integrated solutions for transaction processing, operational

risk management, straight through processing (STP), multi-channel distribution, data management, operational and financial performance management.

Banks’ IT spending to increase in 2002

Despite the economic downturn and industry consolidation, competition is forcing banks to increase IT spending this year by an average of four per cent, according to a report from Cambridge, Mass.-based Celent Communications LLC. Overall IT spending within the U.S. banking industry this year is forecast to total US$32 billion. At the largest banks, IT budgets this year will account for 20 per cent to 25 per cent of their overall budgets, with medium-size banks spending 12 per cent to 15 per cent of their budgets on IT, according to the report based on a poll of CIOs and individual business units at 25 of the 100 largest banks in the U.S. In contrast, overall IT spending in the U.S. dropped sharply from the fourth quarter of 1999 to the same period in 2001, according to a poll by Marcoccio Consulting. The results of the poll of 1,200 U.S. companies by the Westboro, Mass.-based consultancy showed that IT spending dropped 26 per cent, from US$307 billion to $227 billion during the period. As a total percentage of revenue, IT spending dropped from 27 per cent to 15 per cent, a 44 per cent drop. The Celent report shows that, on average, large banks are spending more than small banks as a percentage of their total expenses, with the top four banks in the world each spending more than US$2 billion on IT this year. Citigroup Inc. tops the list of big spenders, with US$5.1 billion allocated to IT this year, Celent said. — Lucas Mearian, Computerworld (US online) with Computerworld’s Matt Hamblen