The typical outsourcing involves the outsourcing of not only a business function, but also the technological infrastructure to support it. When preparing an outsourcing agreement, the hardware, software and systems of each party to the outsourcing need to be carefully considered and well understood. It should be part of the due diligence of embarking on the outsourcing process.
Most companies that are looking to outsource will already have in-house technical expertise. This in-house expertise should be relied upon to map out a company’s technical capabilities and limitations. This will set the stage for properly mapping the technical requirements for the outsourcing, including what resources are necessary from the company to be successful. Failing to properly identify these technical requirements will inevitably lead to higher transition and implementation costs, and may lead the parties to the outsourcing to dispute.
The analysis may not be adequately performed by in-house resources. In-house resources may speak their own jargon and not the language of the industry at large, leading to interpretation issues that can rise later on. Some “three letter” companies particularly are known for their use of jargon, but it is a tendency that persists in every organization to some degree. Similarly, in-house resources may not be aware of the most recent or most prevalent standards in the IT industry at large because they have been working within their own particular niche and the particular needs of their business. Serious misunderstandings in the scope of services to be provided can arise from these subtle but important differences in meaning.
In more complex or sensitive outsourcings, companies should consider bringing in additional technical resources on contract. In-house folks are invaluable in understanding the needs of the business itself, but they should be paired with outside technical expertise who can translate the needs of the business into technical specifications that are clear and written in the industry standard language.
Having adequate technical expertise assists in preparing the outsourcing agreement as well. Technical resources that have prepared the technical specifications can be a resource to lawyers preparing the contract by ensuring that the language used in the contract is consistent with that in the specifications and the industry at large.
Technical resources should be also be consulted to assess whether contractual mechanisms that are in place are appropriate for the technology being employed. For example, consider an outsourcing which calls for an interface between the in-house systems and the systems of the party performing the outsourcing services. The interface should be very carefully understood to identify any dependencies between the two parties to it. These dependencies need to be understood at the contracting phase to avoid differing expectations, scope creep, and disputes. If the dependencies or requirements of each party are not understood after the contracting phase it may be too late to provide for adequate remedies in the contract, or adequate flexibility within the contract, to address unforeseen circumstances caused by them.
Technical resources can also be invaluable in determining appropriate remedies for contractual failures. For example, in typical North American outsourcing, there will be service levels which may have service level credits or penalties applied for failures. The service levels, and how failures of service levels may arise, should be understood from a technical perspective so that the parties are not creating service levels that are immeasurable, unmanageable or unrealistic. Such flawed service levels distort the business relationship between the parties and drive undesirable behavior, undermining their value entirely.
Any outsourcing team should be staffed with skilled technical resources – individuals that can speak to both the in-house technologies being used, and to the outsourced technologies being employed, and understand any dependencies and interrelationships between them. If you are considering outsourcing, consider not only having appropriate legal counsel but also appropriately skilled and knowledgeable technical counsel.
