59 percent of respondents have had to exit or re-negotiate an outsourcing contract before the end of its term, typically due to poor service from the supplier a survey from legal firm Addleshaw Goddard’s technology and outsourcing team has revealed today.

The research, conducted by Wheeler Associates and McCallum Layton, surveyed sourcing and legal experts from 68 FTSE 350 companies, operating mainly in the financial and retail sectors. The survey explored organisations’ approach to managing the outsourcing contractual process and the key issues that companies face at each stage.

The study found that the main risk associated with exiting was inadequate exit planning – 24 percent of respondents said that their company had been significantly impacted by inadequate exit planning. Exit is the area where companies feel the least confident in their abilities, compared to every other aspect of the outsourcing process - 57 percent of respondents scored a mean of 6.5 out of 10.

The survey also shows that high profile outsourcing disasters do not appear to have increased concerns about outsourcing risks. Only one fifth (21 percent) of respondents said that problems, such as Gate Gourmet and BA, have prompted their Boards to take a closer look at outsourcing risks. Board involvement in outsourcing is directly correlated to the size of the deal – although 91 percent of respondents said some contracts were signed off by the Board, only 60 percent said that none were and a not insignificant nine percent said the Board had no involvement whatsoever.

Regarding the perception of outsourcing risks, 21 percent thought that the deterioration in the quality of the outsourced service process was the factor most likely to cause the failure of outsourcing. Lack of control was cited as the second largest risk, by 18 percent. Hidden costs associated with outsourcing contracts were deemed less risky, with 13 percent.

With regards to the outsourcing lifecycle, transition is seen as the riskiest phase – the lack of internal resource to affect transition (cited by 69 percent) and lack of supplier skills (41 percent), specifically lack of supplier project management skills (44%) were seen as the main risks in transition.

The survey also showed that while there isn’t a trend to insource, one in three UK organisations have taken or intend to take a business function that has been outsourced back in-house. Over 50 percent of those companies have cited service quality problems as the main driver and two fifths said that the failure to deliver cost savings was the reason behind their decision.

Commenting on the research, Margaret Harvey, head of the technology and outsourcing team at Addleshaw Goddard said: "The research has highlighted some key areas within the outsourcing lifecycle where there are risks which are not being adequately addressed. 59 percent of customers have had to exit or renegotiate contracts before the end of their original term but this is the area where they feel least confident about their capabilities and contractual protection. Customers and their advisers need to focus more on these "overlooked" stages in every outsourcing contract to avoid potentially significant problems."

Some Other Statistics from the Research:

• Companies are most confident in their ability to prepare the business case for outsourcing (86% scored an average of 7.6), whilst they are least confident in renegotiation and exiting (57% scored an average of 6.5)

• IT is the most outsourced business function – 69% outsource some or all of IT; 34% outsource payroll; and 32% outsource telecoms

• Business case preparation is often down to the department of the relevant function being outsourced – 79%. The finance department leads in 43% of cases.

• Two thirds of companies talked to instructed external lawyers at some stage (usually around development and negotiation of contracts) although only 11 percent called on their help post contract sign off.