By Marc Tanowitz
Last week, we examined how most outsourcing contracts contain provisions that are to be completed post contract execution, require periodic updates, or simply vary over time. It is important to take a close look at these “active” obligations, identify any elements that require service provider action, and develop a plan and timetable to ensure that your relationships are ready to succeed in 2012.
Having already covered resource and productivity commitments, pricing and fees, pass-through expenses, continuous improvement plans, and benchmarking (and also having previously devoted separate in-depth analysis to service level agreements), we will now review the importance of a number of other critical active obligations, starting with process and procedure documentation.
Process and Procedure Documentation
Service providers are typically required to maintain up-to-date documentation for all processes and procedures. This is valuable for training new resources, providing specifications for technology requirements, ensuring standardization of common processes, knowledge transfer as and when resources rotate or are replaced, and preparing for transition to another service provider or to internally provisioned services. Up to date documentation can also enable buyers to significantly reduce transition timing and risk if /when services are delivered by multiple service providers or locations. Verify that documentation has been updated according to the contracted frequency and that they have access to the latest versions of this documentation.
Audits
Periodic audits (e.g., SAS 70 Type II, SSAE 16), whether compliance or operations related, may be required by company policy, regulatory entities, standards bodies, or may simply be desirable to validate the efficacy of the services being delivered. Determine when audits are contractually allowed or due and plan accordingly, especially in the case of mandatory audits.
Technology Configuration
The technical specifications for applications and hardware utilized by a service provider to administer the service being provided (for example, the service provider may be providing a help desk trouble ticket management application) are typically established at the time a contract is executed. In many cases, these specifications may change over time and may impact provider performance. Some contracts may contain technology refresh provisions that are in place to ensure continued optimal performance. Understand the contracts and ensure that outsourced resources are operating with the proper hardware and software required to efficiently provide the services.
Resource Certifications
Certifications are often required to ensure outsourced resources are aware of contractual obligations (e.g., confidentiality) or may be required due to the nature of a buyer’s industry (e.g., security clearances for aerospace and defense, compliance training for healthcare providers). Verify that the necessary certifications are in place to ensure the provider’s resources meet all minimum qualifications.
Document and Data Storage/Retention
Most contracts include provisions for document and data storage/retention, established based on company policy or legal obligations. Over time, these requirements and the manner in which they are best provided may change. Check to make sure that the current practices meet all necessary requirements.
Business Continuity/Disaster Recovery Plan and Procedures
Business continuity and disaster recovery plan obligations often contain requirements for testing and updating. These provisions are in place to minimize operational interruptions due to unforeseen events. As services evolve, these plans may quickly become outdated and, if left untested, may prove to be inadequate when the need arises. Confirm that the plans are current and tested.
User Access
High attrition rates can be common in certain areas of outsourcing (particularly when services are provided from offshore locations) and, as such, a robust user access management process is necessary to ensure: (1) only authorized users have access to buyer systems; and/or (2) license and support costs are optimized to the number of active users. Verify that user access is current and internal processes to manage proper access are effective.
Key Personnel
Key Personnel and personnel restrictions are often specified in contracts and may link to specific buyer and service provider obligations (e.g., certain service provider resources and/or certain positions may not be swapped out for a minimum time period, buyer right to remove resources, preclusion of service provider resources to serve buyer’s competitors). Make sure the list of Key Personnel is closely monitored, remains current and is appropriately enforced.
Competitors
Similar to Key Personnel, buyer and service provider competitors may be specified in contracts for many reasons. Check the list and confirm it is current to limit the risk of a competitor benefiting from a buyer’s strategic decisions and best practices, especially if a service provider is also serving a buyer’s competitors.
Governance Cadence
Governance meetings (at both executive and operational levels) are typically envisioned to take place on a periodic basis throughout the year (e.g., quarterly), with certain governance levels chartered to address certain business and technical issues. Buyers should evaluate that the historical cadence is optimal and schedule these meetings in advance to maximize the likelihood that necessary participants are available to actively participate. Additionally, consider the governance meeting agenda and invitees to ensure they are sufficient to address the strategic and tactical needs of the relationship.
Anticipated Business Challenges
It may benefit a buyer to consider anticipated material business changes that are likely to occur throughout the next year (e.g., acquisition, divestiture). Such major changes often affect an outsourcing relationship, as transaction volumes, required resources, and services are likely to change. Develop a strategy to inform and engage service providers so they are prepared to provide modified services when appropriate.
Marc Tanowitz is a principal at outsourcing advisory firm Pace Harmon.
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