On day two of the NOA Summit today in Westminster, I and other delegates were treated to an in-depth discussion of the challenges of outsourcing contracts.
Far from being documents to fling into the bottom drawer once deals are struck (and never look at again until litigation is imminent), contracts are the bedrock of any sourcing relationship's success or failure – as evidenced by such high-profile fallings out as the Department of Health and Fujitsu earlier this year.
Contract negotiations will become an increasingly contentious area for everyone in the industry as the downturn deepens and the temptation for either side to drag deals back to the table is strong.
Sanjay Kumar, general manager Banking and Financial Servuces Solutions for ITC Infotech India said that the reasons for contract failures are underperformance, outsourcer over-expectations, poor management, cost overruns and contract inflexibility.
With common drivers for outsourcing being cost, resource scarcity and the need to either survive or grow in the market, the customers often try to “outsource their troubles away”, he said – sometimes without discussing it with management sponsors and stakeholders.
Asked by sourcingfocus.com about the DoH's and other public sector organisations' sometimes fraught outsourcing relationships, he said: “The moment a contract is being scanned [for ways to catch out the supplier or customer] the relationship has broken.”
In a concise and upbeat presentation on next-generation contracts, NOA Award-winning advisor Rob Sumroy of lawyers Slaughter and May said that people often rush into contracts with little understanding of what they are for, devoting inadequate resources to them in the belief that “one size fits all”.
While admitting that standardisation is important, on their own boilerplate clauses cannot hope to reflect a complex relationship, he said.
Sumroy blamed poor tendering for being the root of failed contracts. “The RFP process does not link in to a good contracting process; but the output of RFP is the contract,” he said.
“Contracts are supposed to assign activities and responsibilities, and allocate risk for where things go wrong,” he continued, adding that a good contract should define operational tasks, telling you what's going on (or should be going on) on an operational basis.
In other words, Sumroy was essentially saying that a good contract should be the operational manual for a working relationship, not the output of a tortuous legal process that's then buried in the bottom drawer until trouble rears its head – as it inevitably will if the contract is misconceived at the outset.
Transport for London (TfL) CIO Phil Pavitt drew the morning session to an entertaining close with his insights into the workings of the public sector – that sector which has, so often in recent years, got outsourcing wrong, despite its fondness for buying in private expertise.
Pavitt put up his hands and said that, in the not so distant past, TfL and other public sector organisations had got it wrong – not the outsourced service providers – because there was often no in-house expertise to help manage outsourced relationships.
In other words, contracts break down because they have been poorly understood and drawn up by the client, the government – which has come to rely so heavily on third parties working in partnership on large public projects.
Pavitt's transformative zeal has, in just 18 months, brought TfL almost to the point of being an outsourcing provider itself – he revealed that The Greater London Authority, the London Development Agency and the Metropolitan Police are among five London organisations being brought under his wing in an effort to make IT management processes more efficient.
All this is good news, but I can think of at least one other public sector outsourcing grandee who came into office trailing clouds of transformative glory just a few years ago – and he ended up bailing out of the National Health's IT programme in high dudgeon having offended just about everyone involved.
Fortunately, however, Phil Pavitt seems much more pragmatic, amusing and good with people than a certain Mr Granger – who is now on the other side of the planet.
We wish Mr. Pavitt well: a promising future beckons, methinks.