7 tips for managing an IT outsourcing contract

Stephanie Overby

outsourcing ts

IT organizations put great focus into drawing up their outsourcing contracts, but those agreements alone do not guarantee satisfactory outcomes. Attorney Brad Peterson has seen it time and time again.

"Time and money are spent on drafting the contract-often a substantial amount of money. And a tremendous amount of potential value is created in that contract," says Peterson, partner in Mayer Brown's Chicago office and leader of its technology transactions practice.

But then the engagement is handed over to a well-intentioned supplier management team that wasn't involved in the contract and often can't make heads or tails of what's in it. "It's understandable. Contracts are complex and confusing, and relationship managers are selected based on their knowledge of technology or their skill in building relationships, not on their knowledge of how to run a contract," Peterson says.

Those professionals managing the engagement often don't understand how their conduct or communication can impact their company's legal rights, which can cause a number of problems should disputes arise. "The result is that the benefits for which you negotiated hard and are paying great amounts may be lost," says Peterson. What's more, disputes may be more difficult to resolve, and those that aren't becoming costly to litigate, requiring interviewing dozens of witnesses and sorting through thousands of emails to figure out what has happened and who is responsible.

The real value of IT outsourcing is achieved through active governance-not only of the projects in play, but of the communication and interaction between customer and provider. "Protecting the value of the contract after the ink is dry is about motivating suppliers to deliver on their promises," says Peterson, "and preserving remedies for failure." Peterson and Robert Kriss, litigation partner in Mayer Brown's Chicago office recently share some best practices for governing the IT outsourcing contract once the ink is dry.

1. Control your communication

If someone on the customer side isn't already designated in the contract, send a notice to the service provider at the start of the engagement identifying one employee authorized to speak on behalf of the customer. IT service providers are savvy. If they want to push a change in approach or document through, they will find the employee most likely to sign off on it.

By designating one spokesperson,"You avoid the inadvertent but unfavorable change that occur to your contract when lower level people are approached by the provider to approve a procedural manual, for example, that ends up changing the obligations of all the parties," says Kriss. "That makes it clear up front and in writing who represents and can bind the customer. It's just good for the relationship and will result in fewer misunderstandings."

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