Exiting a contract: the grey area
For something that causes so much pain, exiting an outsourcing contract receives surprisingly little attention during a negotiation. Termination, step in rights, damages and other more colourful legalese receive all the glamorous scrutiny leaving the exit itself somewhat neglected.
Furthermore, very little best practice exists within the industry to assist on what ‘good’ looks like. Indeed, many issues that arise from exiting a contract are almost certainly due to it not being invoked until the very end of the lifecycle. It therefore receives little attention throughout the life of the contract, meaning whatever provisions were there, are now well out of date.
Contract exit is receiving more focus now with the sourcing trend to move towards Services Integration & Management (SIAM) ICT models and the complexity of breaking up sections of contracts that were originally designed to be transferred to a single provider but the process still has a long way to go before it reaches full maturity.
So what are the crucial points to be aware of when looking through your exit schedule or T&Cs?
Do I know what it’s going to cost?
Many of the contracts will have an agreed rate card, but this doesn’t stipulate the size of the team, its seniority and which resources from within the contract are included in assisting in exit or the process by which the exit will be followed. This makes it very difficult to determine the true cost of the transition to a new supplier.
What data is going to be provided and is the quality warranted?
The new supplier is clearly going to want as much information as possible to be running the new service yet the data they receive from the exiting incumbent is often unwarranted and out of date. This is complicated still further when TUPE is included and pension calculations and data protection becomes an issue.
Who owns the IPR?
Whilst generic clauses address common IPR concerns with clearly defined boundaries, proprietary solutions can be more complex, particularly where it’s a specific solution offered by a supplier which may be utilised by multiple clients (for instance Office 365). The question therefore arises: who owns the solution and who gets to use it.
Does the exit plan reflect my current service?
If you are lucky enough to have a contract that stipulates an exit plan (and many don’t), does it reflect your current service and has it regularly been validated/updated to reflect the current state. New suppliers will rely on a handover of some sort, so has this been detailed out and is it aligned to a unified transition plan?
How do I manage behaviours?
Placing a supplier in exit can often lead to some extremely poor behaviours as some unscrupulous suppliers look to maximise revenues to the last. Contract staff switched with permanent staff to up transition costs is a common ploy. In addition, warning signs like service levels being ignored and customer satisfaction levels dropping are good alarm indicators the relationship has broken down. Obviously many suppliers behave impeccably during the exit period but an important first check is what are the implications of exit. A common result of notification for instance is to immediately waive a supplier’s SLA obligations impacting upon the quality of services delivered.
The current trends toward SIAM models away from the traditional full-outsource models (in itself an extensive topic) are only going to make exits more complicated and difficult to manage than ever before, yet contracts need to evolve to reflect this growing trend to include the flexibility required to give the necessary support. It is to the benefit of both the outsourcer and the client that the exit costs, processes and plans are clearly defined and that the relationship remains a professional and respectful one rather than falling into recrimination and divergent expectations. Outsourcing is a global business, but it’s a small professional world, and an exit that goes badly will attract the kind of attention an outsourcer can ill afford.
About the Author
David Branch-Evans is a manager in the IT sourcing area of EY, specialising in complex IT contracts and outsourcing strategies. David joined EY in 2012 having spent seven years at one of the world’s leading outsource companies.