No. 3: A contract, not a cage
Among the most deadly of the five sins is the drawing up of an ironclad contract that doesn't allow for flexibility, argues Timothy Barry, VP of application outsourcing at Keane. "Contracts written so strict can put the relationship in a bind. A client's needs are going to change over time, especially with 10-year contracts."
Barry says in the very worst cases, inflexible contracts can drive trapped customers to the very brink of disaster. "We've seen the situation where a client had to go Chapter 11 to get out of a contract," says Barry.
John Howell, a partner at Hughes & Luce who negotiated the watershed 1986 outsourcing accord between General Motors and EDS, says a good contract will have some firm boundaries around the scope of the work but will allow for pricing flexibility as technologies and markets change over the course of the agreement.
Having contract flexibility, for example, has been a particular blessing for the Port Authority of Allegheny County, which is in the 28th month of a three-year legacy system outsourcing deal with Integris, a unit of France-based Bull.
Bertocci says that if the Port Authority needs something that is not specifically called for in the contract, the lawyers from both sides work out the details without having to go back and rewrite the original document.
Curt Haines, director of the Bureau of Consolidated Computer Services in the Governor's Office of Administration in Pennsylvania, says no deal will work unless the vendor has the flexibility to provide deliverables not actually specified in the agreement.
Haines oversees a seven-year, $515 million mainframe operations pact with Unisys that is considered a model of effective state government IT outsourcing. "It is an extremely flexible contract with proper change/ order documents. We haven't had to change one word in the terms and conditions," says Haines.
Mary Jo Morris, the president of Computer Sciences Corp.'s Technology Management unit, argues that contract flexibility on the vendor's part is essential to doing business because the economic climate has shifted into lower gear. "We have a situation where a client was in a significant growth mode and we structured a contract that wanted to be responsive to the growth," she says. "Now, with the economy like it is, we are working to help them consolidate."
