The Importance of an Effective Contract Handover Process

The natural objective of companies entering into outsourcing contracts is to get the best possible terms. The parties assemble working teams which include legal, technical, business and operational personnel. The teams spend weeks, if not months, in negotiating the terms and conditions. While the negotiation team members are very familiar with the end result, the rest of the team members may have very little knowledge of what has been negotiated. With the exception of the operational team members who will stay on to deliver the services or to manage the account, most of the negotiating team will disperse after the contract is finalized. Regardless of how good the contractual terms are, the team may not even be aware of what is in the contract. If the operation team does not fully understand the terms in the contract, this could mean supplier may end up delivering more than the scope of the contract or the customer may end up receiving less (or paying more) than what they bargained for, or the implementation schedule may be delayed and both parties will get frustrated.

Having an effective legal knowledge transfer to the operational team in an outsourcing arrangement is crucial to the success of the outsourcing relationship. For example, the parties may have already negotiated the mechanism to deal with changes in laws, but if the working teams are not aware of such terms, they may negotiate the changes on a case by case basis and sometimes to the detriment of the parties. This is especially the case if some of the working team members have been previously involved in other similar deals but with different contractual terms. They may tend to address the situation in a way similar to what they did in the last deal without much understanding of what has been negotiated in the contract.

Companies can maximize the effectiveness of the contractual terms they have negotiated by designing and implementing a knowledge transfer process from the negotiation team to the operational team. This is not to say, however, that every time an issue comes up, the parties should resolve the issue by resorting to the legal terms. Knowing each party’s rights and obligations can avoid many unnecessary disputes.

The right individuals should be part of the knowledge transfer process. It is important to include not only the individuals who will be managing the outsourcing relationship, but also those who will be running the services or account on a daily basis, including individuals from the technical, finance, service level management and governance areas. Ideally, if it is an important outsourcing engagement, the knowledge transfer should be more than just a legal memo to the team. I find the dialogue format to be very useful. For big outsourcing arrangement, this legal knowledge transfer process could take a couple of days depending on the complexity of the arrangement and may involve one or more seminars.

It will be useful to provide the team with the business context within which the deal was negotiated. This will provide the team with a better appreciation of the key objectives of the parties in entering into the outsourcing arrangement. Some of the items that should be addressed in the knowledge transfer process include the scope of the services, the milestones, the service levels, the fee structure and invoicing, the governance model and reporting requirements. The idea is to equip the operation team with as much background information and contractual knowledge as possible so that they fully appreciate the context that governed the negotiation and the objectives sought.