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How To Implement A Performance Related IT Outsourcing Contract

An essential step in managing the performance of an IT Outsourcing relationship is that of establishing a sound and agreed contract between the buyer of IT services and the supplier. A contract in this context is simply an agreement between the client organisation and the supplier as to how they can best work together. It is a chance for each party to outline expectations, goals, targets, and is a superb opportunity for both parties to fully understand each other in terms of needs, values, and business objectives. It is also an opportunity for the client organisation to ensure that the supplier fully understands their role and responsibilities. During the recession, clients need more from their suppliers. Traditional IT Outsourcing contracts rarely take into account the business goals of the customer, so Intellect UK have launched a guide aimed at businesses & suppliers on how to structure and implement Outcome Based Agreement (OBA). In this article we will review some of the necessary conditions to successfully implement a performance related IT outsourcing contract.

- Establish an integrated solutions team between the supplier and client. And ensure the team has shared values so they are working as one team.

-Integrity during the negotiations. Ensure complete transparency and do not hide any IT problems and then look to the outsourcer to solve them ad-hoc. Be open and direct about the environment, risks and issues.

-Define the problem & business goals that needs solving. There are too many contracts out there with unclear definitions Dedicate time to resolve any differences and ensure all parties have a clear understanding of the business goals.

-Benchmarking: Examine possible solutions as there are many ways to skin a cat. Evaluate & collect data so you can back up decisions with hard facts. Benchmark solutions against competitors & other industry verticals if applicable. Pick a solution that has plenty of short term deliverables so everyone can celebrate milestones early on to further strengthen relationship.

-Develop & rationalise scope of contract. This is one of the fundamental parts of any contract and so often too little time is spend on it. Have a flexible contract with at least 15% variance to allow for minor scope changes.

-Decide how to measure performance. Get both parties in a room to define operational definitions. Live and breathe by these definitions so you can speak the same language during issue resolution.

-Select the right partner. When choosing a supplier ensure it is one that require minimal cultural realignment, trying to merge two separate corporate cultures is both costly and time consuming.

-Manage performance through ongoing rigorous project governance. Mutually agreed definitions, clear escalation procedures, regular communication, appropriate resource allocation and resolving issues promptly are essential ingredients for creating and maintaining performance.

So performance related contracts can be effective in creating a shared goal and as commented by Karl Flinders on Computerweekly "Peter Brudenall, partner at law firm Hunton & Williams, said this type of contract can work if customers and suppliers are clear about what they want. If the supplier understands where the customer wants to be in a few years and this supplier is sophisticated. This is because they are the experts and can achieve targets in the best way rather than what the customer thinks is the best way" Performance related contracts offer an alternative risk sharing model that is often the preferred option during the recession... as both parties stand to lose or gain more in the success of the relationship.  

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