A good outsourcing contract should tell a story. In plain, easy to understand, it should outline what services and responsibilities each party to the contract is expected to do and expects of the other partner. It should also make clear what services or responsibilities are not covered. And most importantly, a governance mechanism that can deal with items that the above plain language turns out to not be and to deal with changes that will inevitably occur. The old adage that good fences make good neighbours applies. Spelling out as clearly and simply the purposes of an outsourcing arrangement in addition to the specifics of what services are expected set the context and framework to deal with the inevitable “surprises.”

On “surprises:” A proactive governance model that monitors the routine operations of the relationship provides a mechanism to identify and deal with these before operational level people of both parties dig in to a fixed position (creating a win-lose mentality which erodes trust), and it must be used.

Too often, when things are running reasonably well, these regular meetings and reviews of performance are seen as a waste of time, then a crunch occurs and the ability to deal with it is greatly reduced as the trust and communications haven’t been exercised. Governance, or as some prefer, a dispute resolution and score boarding discipline is a topic on its own for another day.

Seems obvious, doesn’t it? But the experiences of many bear out that it’s not that simple. For example, given turnover in the vendor and customer’s management, odds are the people around the table that set out the terms of the contract won’t be in place to operationalize it, let alone deal with the on-going nurturing and maintenance of the relationship over its term. With every personnel change, the meaning of words of the contract will change, usually in ways that will create differences and tension. The better the story is told in the contract, the less room there will be for misunderstanding.

Outsourcing contracts have to cover a myriad of issues. Some are relatively common across all relationships: terms of payment, performance incentives/penalties, services to be delivered, to what levels and how these are measured. Specific measures are important: “best industry practice” can easily become “since we’re one of the largest (best, premiere, etc) outsourcers in Canada, what we do is by definition best practice. Sound like a conversation you’ll never hear? Then you either have a very good contract in place or you just haven’t heard it yet.

I picked the title to illustrate that something as simple as defining a “business day” may not be unambiguous and could create a service gap. A “business day” is usually defined as a day when government offices and banks are open in the customer’s province. Easy, but assume that your outsourcer has (or later acquires) an office in India. What level of support will be available when it’s a holiday there? Will the local staff who haven’t worked on the service in years (or given turnover, at all) be able to effectively respond? Or will services be available if the offices are closed because of a cyclone (an event usually excluded from SLAs by force majure clauses)? What is your expectation and how is your service provider going to address them?

Another example closer to home is selling goods online across the US-Canada border with a US partner providing the goods, with the online services provided by a Canadian outsourcer. Your US partner’s expectation is nightly settlement of amounts owed using ACH for funds transfer. But what if it’s a Canadian bank holiday (Boxing Day, Civic holiday, St. Jean Baptiste) in your province? Will that mean you’re in default because it’s not a US bank holiday and non-receipt of payment triggers a penalty? In this case, the outsourcing arrangement had to obligate the outsourcer to make special banking arrangements to see payments were made on those Canadian holidays that weren’t also US holidays (and incidentally, also not to pay on US holidays). In short, defining a “business day” locally may not be enough. You have to understand how your partner does business and what things your business requires that will be other than the assumed BAU (business as usual).

What are your issues? Comments?

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