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Agreements and contracts

The major exercise that should be occurring during the transition to outsourcing must be ensuring a clear mutual understanding between the organization and outsourcer of what is required. The aim must be to reach an agreement, not a contract.

Until agreement has been reached, it is wise not to lose control of the process to financial or legal advisers. They can be called in later to move from the agreement to a contract.

Qualifications

Many organizations use inappropriate ways for selecting an outsourcer. Principal amongst these is the use of a request for proposal (RFP).

The process works by the organization issuing the RFP, a document that describes what they want to get. Each proponent then responds with a proposal, a document describing what they will provide. The proposals are marked and scored by the organization, and a "winner" chosen.

There are three serious disadvantages to the RFP process for outsourcing (and, indeed, for almost any other "single vendor" acquisition).

• The RFP process is conducted at "arms-length". In some RFPs, the proponents are told that they will have a formal procedure for asking questions, which will be directed through a single point of contact in the organization. Even when the proponents are asked to present their solution, the presentation is usually a formal affair, with the proponents' staff giving rehearsed speeches followed by a single session for questions. No real relationship between the organization and proponents is established.
• The process can lead to conflict. The RFP is one player's move, followed by a proposal as the other player's move, and so on. The formality of the process means that each player proceeds cautiously from move to move. The eventual "agreement" can turn out to be a compromise with which neither "side" is happy.
• The process ignores actual capabilities. This is the worst fault of all for outsourcing. Many RFP processes involve a "reference check", which is usually a telephone call to a list of existing customers that has been compiled the proponent.

It is essential that the organization works with a couple of potential outsourcers to determine their level of comfort with each other.

The outsourcers must provide access to all their existing customers, so that the organization can determine their real reputation and their real relationships with their customers.

Some questions that should be used during discussions with an outsourcer's existing customers are:

• Have they continued to provide service to your original standards?
• Do they check that you are satisfied with your service?
• Do they make suggestions for improvement?
• Do they continually renew their knowledge and expertise to provide a better service?
• Do they discuss problems openly with you?
• Do you discuss problems openly with them?
• If we became one of their customers, are you satisfied that the level of service provided to you would be maintained?
• Do you believe that the level of service may rise?

In addition, it may be worthwhile to have the outsourcer's provision of services checked by an independent third party, who will be able to ensure that the outsourcer meets the following criteria.

• The outsourcer must be aware of current best practice.
• The outsourcer must have an effective mechanism for remaining aware of current best practice.
• The outsourcer must have effective methods for implementing current best practice.
• The outsourcer must have effective methods to enable its customers to share costs, benefits, risks, and information about a variety of issues including new developments, new best practice, and new strategic opportunities and their impacts.