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8 must-dos to safeguard your outsourcing contract

Summary:

Outsourcing deals are put in place at great cost and yet once they are in place the somehow we expect them to manage themselves –here are the eight critical tests.

Content:


In my recent career I was responsible, as a procurement project manager, for putting in place a major outsourcing deal.  It took nearly a year, the time and effort from the buying organisation was considerable and then there were the professional fees.  The contract was delivered on time.  As the procurement phase came to a close it was time to turn my attention to the post contract management organisation.  Following conversations with the sponsor I was perplexed to hear all was in hand and there was no need to concern myself with these arrangements.  Nonetheless, before I left, because of the importance of getting this right, I submitted an unsolicited outline suggesting the most appropriate management organisation, with roles and responsibilities, to fit with the contracted governance arrangements.  Some months later I was disappointed to learn, although unsurprised, the outsourcing deal had started to encounter difficulties.  It turned out, following a few enquiries, the management team for this major contract was minimal.  So, what are the eight aspects to a proactively managed outsourcing deal?


Avoid light-touch management –
don’t assume large contracts manage themselves just because the contract says so.  Ensure a sound governance structure and management procedures are in place and adhered to.  If meetings are postponed, stakeholder don’t attend or actions not followed up then services cannot be fine tuned to meet the needs of the buying business and outputs will therefore fall short.


Pick the right Key Performance Indicators
– there is nothing worse than a supplier not being able to manage the risk they have taken on or being measured by indicators it cannot influence.  Make sure the KPIs are appropriate, suitably incentivised and short term so everyone’s focus is early success.


Trap errors early –
everyone makes mistakes.  If left a long time before they are recognised, the cost of errors, omission and exceptions rises exponentially as the phases of development and implementation progress.  Ensuring timely quality reviews, specification checks and testing prevents unacceptable costs and delays.  Make sure the right people are involved in making the decisions.


Check invoices
– so often invoices are submitted to a purchase order function, passed out for approval and may not even be checked – always validate charges and don’t leave it to the most junior of the team.  Complex service level agreements and change control are prone to error, check invoicing against the contract and schedules of charges.


Manage change –
the most complex an outsourcing deal the more change control will happen.  As contracts move into the mid-years change is concatenated and the pluses and minuses of cost can be difficult to track.  Ensure change is well managed and sponsored by a stakeholder.


Listen –
whether it is paying attention the concerns of the supplier’s staff, taking time to understand the business context or probing to get to the bottom of a problem, this time will reward the supplier manager as they gauge the health of the relationship.


Audit, open book and benchmarking
– most contracts have these provisions.  Don’t wait until a problem arises; use the contract clauses to review parts of the contract when it is convenient.  Little and often keeps the suppliers commercial team sharp and it can be undertaken in a more relaxed atmosphere when both parties are willing to collaborate; less expensive to arrange too.


Manage the supply chain
– it is not just the prime contractor who needs managing, identify the commercial boundaries and make sure they are working well.  Don’t assume discounts are automatically passed on to you through the prime, that stock items are optimised and subcontracted services are value for money – work back through the supply chain, understand how it works, establish relationships and build assurance.


Occasionally, even a good supplier manager has a momentary lapse and may find they have taken their eye off one of the balls.  Relationships start to deteriorate when several of these ‘must-dos’ are ignored simultaneously.  The key to success is have the right supplier management team in place who take their role seriously and make sure no issue is left un-resolved.  In my experience, suppliers prefer to be proactively managed, it gives them something to engage with and a professional relationship will deliver the right outputs for both parties.  The cost of having the right management team, in the long run, saves money and saves relationships.

This blog was commissioned by SSON and can be found at: