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Outsource magazine: thought-leadership and outsourcing strategy | July 25, 2017

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Parting is such sweet sorrow: managing service exit

Parting is such sweet sorrow: managing service exit
William Hooper

Juliet’s farewell to Romeo was full of remorseful kisses. For some approaching the end of a sourcing agreement, the move cannot come too soon. How can you minimise the pain of partition? Most attention is paid to transition in. Here we look from the perspective of the terminating operation.

Why Exit?

Most agreements run their natural course. The original term was set; time passes; it ends. If the successor is not the same as the incumbent or there is significant change to the nature of the service, an exit will be necessary. There is no shame in this beyond the tears of the grieving salesman.

Occasionally agreements run into significant issues. In such a case, one party will issue a notice of termination for material breach, commonly accompanied by a claim upon the other. Counter-claims may fly. Call the lawyers and wince at the bill. If a settlement or Alternative Dispute Resolution is not reached, it is off to court that they go.

Some agreements provide for “termination for convenience” [Ref 2]. This permits one or both to bring the agreement to a close without accusation of fault. The terms of such a clause frequently limit the circumstances of invocation and provide for the recovery of some costs by the other party (e.g. unrecovered set-up investment). Although perhaps more commonly inserted into a contract by customers, some suppliers may occasionally be just as happy to walk away from a service that is not working and appears irredeemable. Termination may be by mutual agreement.

We shall here side-step the legality and rights and concentrate on what is done to extricate the operational incumbent from the service.

Exit Before You Start

Some contract exit provisions seem to be more exhaustive than the obligations for service delivery. Other agreements barely give the matter a thought. There are some things that ought to be considered and provided for in contract before you sign and celebrate a new deal. If nothing else, bear in mind that some of these are difficult, expensive and only really practicable if established from the start of a service. So unless provided from the start, you will be unlikely to get them for free as the exiting supplier packs their bags:

  • Service management data – extracted from the old supplier’s system and available for interrogation and perhaps upload to the new.
  • Asset and configuration data – financial, ownership, dates, warranties, location, interaction, identification, model, release, licenses, passwords and keys.
  • Assets orderly moved – access is provided to the current assets, which are moved to their new location and are configured to work on schedule. Those identified as obsolete are replaced by the incoming supplier. Transferring licences and support agreements are novated.
  • Architecture, technical and service documentation, source code – project products delivered at great cost and frequently changed.
  • Know-how, knowledge, process, procedure, known errors, workarounds – the soft understanding of how to make the service work and keep it functioning, supported by documentation (if you are lucky) with relationships and quirks understood by people.
  • Tools and their configuration – service management tools can take years to configure and tune successfully. Monitoring, alerts, release automation, service catalogue.
  • Project work in progress – project plans, product certificates, test plans and reports.
  • Transition support – project management for exit, transition of knowledge, data extraction and transfer to the incoming party (with acceptance), staff transition support, meeting attendance and performing exit tasks, service support.

Other than the final provision of transition resource, all also support the provision of good service by your new supplier so it is arguable that marginal cost is low for a well-formed agreement. If honest appraisal suggests that these are not in your agreement now, call on appropriate operational, commercial and legal expertise to draft and negotiate contract amendment to rescue as much as possible.

When David Laws took over in the UK Treasury from the former Treasury Chief Secretary, Liam Byrne, he discovered a note had been left for him. He read “I’m afraid to tell you there’s no money left” [Ref 3]. Do you expect more from your departing provider? Do not rely on brand alone. I have recently heard of a blue-chip supplier who was reported unceremoniously to have dumped and run on receiving notice. This must have been expensive to recover.

Monitor Throughout

During contracting, you have put time and effort into thinking about what the exiting supplier should accumulate and maintain throughout the service for direct use and in preparation for exit. Those obligations must then be taken seriously by your organisation or the supplier will soon sense that these are avoidable costs and cut them. You should be inspecting for compliance at intervals proportionate to the length of the contract and to risk. If your supplier is conscientious and has demonstrably maintained control, you need choose only a few of the more expensive and risky obligations to inspect each quarter. If not, take appropriate care.

Some software suppliers have long relied upon software compliance audits as a means of revenue generation when new license sales are thin. Equally, I worked with a customer who reacted to straightened IT budgets by pursuing suppliers for rebates associated with breach of contractual obligations. Exit provisions were a favourite target. Whilst the financial tactic was low, the operational integrity it promoted was laudable.

Managing Hand-Over

The incoming supplier will have sat down with the customer and discussed a high-level approach to transition. Which sites are to go first? Which services cut-over when? When are the change freezes? How do we organise access and knowledge transfer? Having established the approach, the detailed planning can then be undertaken with implications for cost, risk and resourcing.
Have you involved the departing supplier in this?

There are multiple perspectives to the project for both incoming and outgoing suppliers, as well as for the customer. All will need their own transition staff and project managers. It is likely that the incoming supplier will take the lead, as they bear the risk for performance failures. A well-drafted service acceptance and associated Service Design Package provide an effective framework for managing this, along-side a project plan to deliver the products to fulfil it. For once, the thoroughness of ITIL comes to the fore and brings a rigour that saves much trouble. If a listed item is not necessary, mark it as such and move on. This is better than negligent omission. Expect to go through the list many times, progressively knocking items off the list in a series of meetings and exchanges. Expect also to need a firm view of the contractual deadlines and obligations. This is not a time for surprises.

In January 2013, an ITO supplier 2e2 went bust with little public warning. Contractors left immediately, realising they would be unlikely to be paid. Some customers had probably prepared good business continuity plans and put them rapidly into action. From an announcement of the appointment of adminstrators on 28th January, the company went into liquidation on 7th February, having failed to find a buyer for all bar its unified communications business. It then emerged that many of the physical data-centre services had been sub-contracted to others and customers faced difficulty in obtaining access to retrieve their assets. A company notice asked for customer funding to provide continuity of service. This is hardly an example of orderly exit.

One of the great challenges for a departing supplier is that of managing their own staff through this period. TUPE has significant influence over proceedings. As the name suggests this is for the “protection of employees.” Not all service exits constitute a “transfer of undertakings” within the meaning of the law [Ref 4]. The organisations will need to form a view of which staff are to transfer, which are to remain with the previous incumbent and when movements are to occur, the staff themselves of course will have an influence on this. Redundancies may arise and thus must be managed. This can understandably have a severe influence on motivation, performance and the effectiveness of knowledge-transfer. The staff rolling off a service must be managed with care equal to that applied to those coming in. Concerns arise with continuity of service, the integrity of assets, all compounded by uncertainty regarding what needs to be done.

Incentives and Obligations

The departing supplier has invested in aspects of the service and has intellectual property rights, particularly in their own operating procedures. It will rightly wish to protect these as many will be common with other operations in which it competes with parties that may include the incoming supplier. An incoming supplier may wish to obtain access to this, and is likely to be disappointed. A wise supplier will protect their intellectual property carefully whilst still being helpful during the transition.

An exiting supplier must fulfil all its obligations, or risk claims by the customer for non-performance. The courts tend to take a dim view of one party maliciously causing damage to another, referring to a “duty of care” and similar constructs. Pursuing a bankrupt supplier is rarely an option.

One can never rely completely on the obligations, as every union convenor knows when suggesting a period of “work to rule”. This means that there is heavy reliance during exit upon the good-will and co-operation of the parties. At this time, if the customer has consistently flailed the supplier, they are likely to get their just reward. If termination is accompanied by a claim against a supplier, count on minimal compliance. I know of instances in which the incoming supplier made such a hash of providing the service that the customer was soon courting the previous supplier to come back. In another customer, knowing that they needed good support from the departing supplier, they chose to fund project days, which the supplier was happy to book as incremental revenue. This and the hope of other work from another part of the organisation may be a valuable incentive to the exiting party to behave cooperatively.

This is an emotional time for many. It is wise to be sensitive to the situation. Some may even go as far as saying “thank you!”

Much of the quality and timeliness of service transition depends on the performance of the exiting party. The same exit obligations apply regardless of whether the termination is at the time originally envisaged, earlier or later. There is inevitably a heavy reliance upon co-operation to assure success. Commercial and operational care up-front in drafting the obligations will pay significant dividends when the time comes to rely on them. Shakespeare’s star-crossed lovers suffered tragedy. How will your parting play out?


 

References
1    “Parting is such sweet sorrow that I shall say goodnight till it be morrow” Romeo and Juliet, William Shakespeare, Act 2, Scene 2
2    The Legal View: Termination for Convenience. Lou Oliver. Outsource Magazine Issue #29 Autumn 2012
3    Ex-Treasury Secretary Liam Byrne’s note to his successor: there’s no money left. Paul Owen. The Guardian 17 May 2010.
4    Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246)

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