Computer Counsel: Six Issues Facing Outsourcing Service Providers

It's important to maintain the flexibility to grow your outsourcing business

As an outsourcing service provider, you know the importance of the next deal over the horizon. Ensuring that your company will thrive sufficiently for the next deal requires that you manage your business with an eye toward the future. Consider the following six issues:

Issue No. 1

Perhaps the No. 1 issue confronting a service provider is whether its outsourcing agreement affords it the flexibility to change its technology platform over time.


Ensure that you're able to change your technology as your business grows. Otherwise, a customer could require one set of technology even as you provide separate technology for other customers. This doesn't mean that you have to disappoint customers' requirements for service levels and technology refresh over time. But it should allow you to meet these requirements in a flexible fashion.

Issue No. 2

Does the service provider have the freedom to move services offshore or use subcontractors as a cost-savings approach?


To reduce costs, your outsourcing contract should provide that you may relocate services and work with subcontractors of your choosing. The customer will require you to negotiate appropriate confidentiality provisions and may attempt to assert other limitations on these rights. The key to securing this right is to guarantee clients seamless, high-quality service.

Issue No. 3

What other measures does the service provider have to keep costs under control?


If a "cost-plus" deal isn't an option, alternatives include per-service fee increases. In this event, the contract should also let you process change requests through an orderly change-control procedure. If there are increased costs, you should have the right to come to agreement with the customer on additional charges. Also consider attempting to get the customer to agree to shoulder some of the burden of unanticipated cost spikes caused by the customer not following agreed-upon procedures.

To the extent that the customer's delays require you to sideline valuable resources, you should consider putting appropriate cost-containment provisions in the agreement. For example, if a customer delay forces your personnel to work overtime, the customer should pay for any increased wages. In addition, the contract can allow for cost-of-living increases if appropriate.

Issue No. 4

Does the service provider own the work that it develops on a customer engagement?


Your outsourcing contract should clarify which party owns work performed rather than leave this matter open to question or later negotiation. Vagueness could lead to conflict later on. You and the client should clearly define ownership of the contracted work, whether it's software, business processes or other intellectual property developed over the course of the contract.

Issue No. 5

Is the service provider protected from the customer hiring its best employees away?


Good talent is always in demand. Your outsourcing contract should reduce the likelihood that the customer will try to recruit your employees by having an appropriate nonsolicitation and nonhire clause.

Issue No. 6

Is the service provider's outsourcing contract provided to the customer modular enough?


A master document that references concepts or attachments is suited to the ever-changing reality of an outsourcing. For example, the term of your contract should be a stated number of years or months after any transition period is completed rather than a specific begin and end date. If your transition effort runs late, the length of time for service delivery is effectively pushed back so that a provider won't find his term shrinking. Contrast this with a more limited, specific date-driven contract that isn't flexible enough to recognize the manner in which project plans may change.


The flexibility to grow your business is worth considering every step of the way to ensure maximum growth potential.

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Copyright © 2005 IDG Communications, Inc.

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