Friday, August 05, 2005

CLE PROGRAM: Outsourcing - Getting it Right the First Time

The Committee's first program for the 2005 meeting has begun -- Outsourcing: Getting it Right the First Time. CLC member Stephen Hollman chairs the program, and is speaking on, using his phrasing, Service Level Arrangements. He points out the many ways that attorneys can, in their zeal to get the most they can out of a vendor, have often created static and non-relevant SLAs that lead to problems such as Stephen's concept of "Death by Metrics." Stephen pointed out an amazing statistic given by an Accenture analyst -- That 70% of outsourcing contracts are re-negotiated within 3 years, which demonstrates to some degree that many of those contracts were not written with the idea of 'partnership' between the vendor and buyer but were written as an adversarial exercise.

Chicago's own Diana McKenzie from Neal Gerber and Jonathan Kaplan from Accenture both spoke to processes of how to get into an outsourcing program. Diana pointed out the value of doing much of the ground work before sending out an RFP, keeping the vendors on their toes by maintaining dual track negotiations, and controlling the agenda by such tactics as having the proposed contracts in the RFP. While many buying companies think they are saving time or costs by putting off those things, Diana clearly felt that those savings were illusory because the deals that result are usually favorable only to the vendor (or worse, only to the vendor's sales person's pocket).

Stephen Mathias, attorney from Kochar & Company of Bangalore, India, gave a wealth of practical tips on contract points that need to be addressed with offshore outsourcing. His written materials for the program should be consulted as part of any lawyer's checklist if a deal is being struck with an Indian vendor -- If only for learning the significantly different legal rules for transfer and assignment of intellectual property between US and Indian systems.

Stephen Gold -- Who completes the trifecta of Stephens -- Joined the panel from Gordon and Glickson of Chicago (which firm is also a sponsor of our Cyberspace meeting this summer). He had a number of tips on avoiding further pitfalls if one is buying an outsourced service. One of his mantras was the idea that one "cannot outsource responsibility." The buyer remains holding the bag when it comes to internal controls necessary for SarbOx, the obligations of confidentiality for GLBA, and any number of other things. He pointed out that the first response to that is frequently a vendor claiming SAS-70 compliance, but that this by itself is not enough given that some SAS70s will be very shallow, and may actually do nothing more than memorialize how poor the vendor's own internal controls are.

Finally -- The program concluded with a mock negotiation over a hypothetical outsourcing contract. One side of the room advised the buyer, the other side advised the seller. Rather than devolve into a food fight lobbed over the aisle, the audience negotiated together with their counterparts on the podium. Much emphasis was placed on concepts of actually making a deal that works rather than simply proving which side could beat up the other. We might never find out if this hypothetical company would succeed in this deal, but the panel certainly put it in a better position.

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