Partnering and Outsourcing Masterclass Report

March 8, 2010

When does outsourcing become partnering? Does it matter? Does partnering actually mean anything when lawyers get involved? Will a partnership survive better than a traditional outsourcing arrangement? Which projects suit which approach? And above all what makes the contract work?

These were just a few of the questions considered at the recent Partnering and Outsourcing Masterclass hosted at DLA Piper’s Noble Street offices as a team of speakers chaired by Kit Burden and a roomful of 40 delegates rolled their sleeves up and got stuck into the dynamics of outsourcing and partnering agreements.

The Masterclass had four speakers. The speakers encouraged the delegates to add their own experiences and insights for the benefit of all (under Chatham House rules of course) – with considerable success. Clive Davies of Fujitsu, the SCL Chair, set the scene with a consideration of what partnering means in outsourcing projects and introduced the little known idea of the intelligent customer function (ICF) (ie the part of the outsourced function which remains with the customer – a vital interface for the supplier). Joel Harrison of Milbank, Tweed, Hadley & McCloy LLP tackled negotiations, highlighting warning signs and whether second time contracts can survive the vicissitudes of the original deal. Richard Hawtin of Baker & McKenzie provided the customer’s perspective and Simon Winter from the suppliers Wipro looked at the issues from the other side.

All four speakers gave excellent overviews of the key issues. In the ensuing debates, several recurring themes, conclusions and examples emerged, though not always a consensus. I will attempt to summarise, in no particular order, below:

• contractual problems rarely arise from the technical clauses such as limitation, waiver and termination – the problems are caused by the service definitions and governance schedules
• a contract cannot save a bad relationship between customer and supplier
• only the customer can determine whether they want to operate as partners
• if penalty clauses exist then its fair to consider incentives as well, though this needs to be considered case by case
• lawyers should be involved at an early stage but be wary of setting the wrong tone. In-house lawyers in particular should attempt to demonstrate the value they can bring to their teams
• the supplier should be able to make a profit from the deal – a customer who thinks they have got one over the supplier is drafting a flawed contract (but beware the lawyerly trait of wanting to do this!)
• customers must be prepared to accept reasonable responsibilities – too often they are looking to divest themselves of burdens – “It’s outsourced now so I don’t need to worry”
• beware the hidden icebergs in general, sweep clauses. (The example given was a Canadian health authority that had a clause that the supplier would abide by all policies in place in the organisation. Doing so would have meant that the contract was a financial disaster.)
• there is healthy degree of cynicism among lawyers about the partnership concept and partnerships often happen only by accident
• service is the most important part of an agreement and price is secondary, but in the public sector a supplier must be in the same ball park as the cheapest quote
• flexibility on behalf of the supplier and recognition of that by the customer is the key to a successful partnership
• contracts frequently failed to match the reality on the ground – also too often the tone of contract does not match the realities of the working relationship and such a mismatch is undesirable as you cannot go back to the contract when a problem occurs
• the recession has put pressure on the partnership model with customers looking for maximum benefit and suppliers struggling for work creating an imbalance in negotiation and agreements.

I make no claims that this list is exhaustive as it is difficult to give anything but a flavour of the contributions from both delegates and speakers in this short report. Any additional comments from others who were there would be gratefully received on this site.

{b}David Chaplin is an SCL member and director of Bath Publishing, online law publishers.{/b}