Curb ICT suppliers’ contract power by plugging legal holes
Outsourcing

Curb ICT suppliers’ contract power by plugging legal holes

The following is a contributed article by David Brook, managing director of Turnstone, a UK consultancy that focuses exclusively on IT & telecoms procurements for many FTSE100 organisations.

 

With companies making more use of third-party IT suppliers and outsourcing, the problem of supplier-centric contracts is getting worse.

Historically, suppliers have enjoyed the upper hand in getting their contracts through with the minimum amount of hindrance. The reasons are many and varied but a sample might include an overstretched IT team, insufficient procurement resource, too much attention on the legal terms only, or a perception of unchangeable contracts. All of which suits the salesman’s agenda very nicely, resulting in many companies having one or more unfavourable contracts in their portfolio.

There are many mantraps that we regularly see:

  • Woolly descriptions of the IT or telecoms services to be provided
  • High-level pricing, with no granularity or links to the services, or nebulous and punitive pricing models
  • No exit provisions, detailing what should be provided, by whom, by when, and crucially at what cost
  • Fuzzy SLAs and lack of meaningful service credits or penalties
  • Draconian cloud deals with no ramp-down provisions
  • Data return and exit strategies with an absence of clear roles and obligations
  • Archaic use of reporting systems leading to overly long timescales
  • No project plan
  • Suppliers looking to negate or minimise data liability as a starting point in negotiations

With the proliferation of cloud services that are available, extra focus is now being placed on extraction of data and potential liabilities being a critical component of exit strategy. You’ll want to get this watertight from the start.

Increasing globalisation, reputational scrutiny and tightening of legislation have led to data sovereignty becoming a hotbed for potential contractual disaster. Sadly, when it comes to these key services and commercial areas, the negotiation of contracts can be perceived either as tedious, or an area for legal, who naturally tend to focus on the ‘Latin’ elements of a contract.

According to our experience, the areas most frequently leading to potential dispute are: failure to include anti-bribery clauses in contracts with customers in heavily regulated industries; services; termination; charges; and data protection. These findings are not uncommon. It is down to human nature: unless they are challenged, IT suppliers will remain silent on key areas, or use language with an obliqueness that could rival a political party manifesto.

Many clients considering cloud-based provision are rightly concerned about loss of data and security with ongoing hacking scandals, the EU Data Protection directive and recent rulings on US Safe Harbour conditions. For instance, one of the biggest service companies cannot guarantee that data will be erased after decommissioning.

Considering that a typical outsourcing contract lifecycle is three years - often with multiple renewals - it’s imperative to establish fair terms from the outset. And this is ideally done while you are still choosing your supplier and have competitive pressure; retrospectively, it becomes more onerous and you have less leverage. Any supplier that knows the client is in a rush, or has already fallen in love with their product, is not likely to budge on commercial terms.

It’s easy to quote some famous Latin ourselves: caveat emptor or ‘buyer beware’, but it’s what you do about it that counts and having the right procurement resource in place is, arguably, the lynchpin.

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