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Are Outsourcing Contracts Getting more Difficult to Handle?

by: Sarah Joson

Tuesday, May 8, 2012 | Outsourcing News |

As outsourcing evolves and becomes more popular, technology is becoming easier to understand, which also makes new products and services more attractive to clients and consumers. However, the persistent issue is that contracts are also getting more complicated and are harder to set in stone as clients get more experienced in outsourcing and are thinking of other ways to get the most out of the process.  

An article written by Stephanie Overby at CIO.com discussed the noticeable changes in outsourcing contracts and negotiations.

In the 2012 Legal Pulse study done by KPMG, 41 percent of outsourcing lawyers said they gradually experienced or saw more complex transactions. Moreover, with the ever growing outsourcing industry, it is unquestionable that vendors and clients are facing not only basic outsourcing challenges but issues in contracts as well.

Stan LePeak, Director of Research for Advisory Services at KPMG, said even if processes that can make outsourcing transactions easier emerge and buyers use these new tools to their advantage, they still have to overcome the diversity of service providers, various types of service delivery models, and issues in vendor locations.

Identify Possible IT Issues 

In outsourcing contracts, parties involved should voice out their concerns even before a contract is drafted. LePeak said if these are not discussed during the first few stages of meetings and pitches, these will definitely take a toll on the operation.

Another important thing to consider is to check if the estimated level of effort to be exerted in complicated outsourcing situations is within the scope of the operation. More often than not, contracts turn sour due to an overprotective buyer or overselling vendor.

Outsourcing lawyers usually use a standard pricing model and come up with measurable goals to overcome issues, but 27 percent of survey participants said there is “little to no standardization” when it comes to defined terms. According to LePeak, the development of outsourcing comes with expansion in new territories as far as scope, goals, and location are concerned.

One of the pressing issues is that parties do not want to take responsibility for problems, insurances, damages or anything that could be a risk on their part. For providers, it is more on the financial aspect of the contract including termination fees, termination rights, service levels, and transformation and transition fees.

LePeak said transformation is often included as an add-on for parts of the operation that can be modified and improved but hard to justify. He adds that it is hard to conceptualize a clause for something that is not concrete or entails several factors. Transformation-related issues are 17 percent higher compared to last year since more clients tend to consider transformation as one of their objectives in outsourcing.

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