Tips for large scale business process outsourcing contracts

For some years now, the "sexy" part of the outsourcing industry has been very much business process outsourcing (BPO), covering such diverse areas as HR, finance and accounts, logistics, back office administration and even legal services.



in contrast, IT outsourcing has been increasingly seen as more of a commodity service, and as such is more mature and probably better understood as a result.

However, the reality is that just as businesses began to fully appreciate how much they were dependent upon their IT systems once they had been outsourced, so it is clear that the majority of BPO services are similarly dependent upon the IT systems which deliver them. What then are the implications of this for a typical BPO contract?

Establishing the service levels

A frequent challenge in BPO deals, is working out what kind of contractual service levels should be set. Unlike IT outsourcing deals (where internal departments will frequently have been measuring their performance in terms of such things as fix times and levels of availability, for some time, as part and parcel of good practice), customers can sometimes struggle to find metrics which are genuinely reflective of the "quality" of the BPO services, or to provide details of what the relevant levels of performance were before the BPO contract was signed.

However, it will frequently be the case that many of the types of service levels commonly seen in IT outsourcing deals (eg availability of particular applications/systems, times to resolve particular problems or to provide workarounds for them) will still appear, if only because the delivery of the relevant BPO services is dependant upon the integrity of the underlying IT systems and networks.

In any outsourcing deal, it will be essential for the customer to ensure that it has the right to make available to its supplier any particular materials or software which the supplier will, in turn, use in its provision of services to the customer.

Many forms of software licence now routinely provide that the scope of use extends to the licensed customer and any entity which it utilises to provide outsourced services to it, provided that such use is then limited to the provision of such outsourced services.

However, such provisions are less common outside of the "core" kinds of applications which the IT department is used to deal with, and may especially be lacking in relation to types of licences or contracts where outsourcing was not foreseen as such a possibility (including in particular therefore many forms of non IT business processes).

Particular care will accordingly be required in order to assess how many existing suppliers/licensors will need to be approached in order to give their specific consent to the use of their licensed products for the purposes of the envisaged BPO project.

Future licence rights

Many BPO services are provided from the supplier's own systems/facilities. For example, an outsourced HR payroll service may be hosted and run from a supplier's shared service centre. Whilst this may be simpler from a customer perspective and help ensure enhanced service levels, it raises difficult issues surrounding the customer's continuing licence rights (if any) to the system (and any modifications made to it on its behalf) following the end of the BPO contract.

By that point, the customer may have become largely dependent upon the supplier, and will at the very least need some time in order to migrate across to a replacement supplier, and for them to put in place a comparable system.

Some level of transitional services and continuing licence rights to access and utilise the original supplier's systems and software are accordingly highly likely to be required (albeit that the suppliers will inevitably be keen to ensure that such licence rights to no wider or longer than is absolutely necessary, given the fact that some of the real commercial differentiators for their service may well be the underlying software products which they have developed, and which they will accordingly not want their competitors to have access to).


DR and business continuity

In most large scale IT outsourcing contracts, the supplier's DR and business continuity obligations will be a key part of the contract, on the basis that the supplier will be expected to ensure that it has in place the necessary infrastructure to be able to reinstate the services in the event of a disaster event.

Whilst this may still be the case with BPO arrangements, one frequently finds that the customer itself is the most effective and convenient "fall back" option, and so may itself take on the BCP/DR arrangements.

If this is the case, the IT department will need to ensure that it arranges for regular checks and tests of its BCP plan, involving not just its own staff and systems but also those which interface with (or would need to replace) those of the BPO supplier.

Conclusion

IT issues and related services remain at the core of most BPO projects. Great care must accordingly be taken to make sure that the same issues that would be considered in the context of an IT outsourcing deal are assessed for likely relevance, and dealt with accordingly in the eventual BPO contract.

The customer's IT department must likewise be recognised as a key stakeholder in the overall process (much as the various business units should have had a major voice in connection with any proposed outsourcing of the IT function!), and consulted accordingly.