Use your own outsourcing contracts, buyers urged

5 October 2012

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5 October 2012 | Paul Snell

Purchasers should always use their own drafted contracts, rather than a supplier’s, as the basis for an outsourcing agreement.

Speaking at the CIPS Annual Conference in London yesterday, Sam De Silva, partner and head of IT and outsourcing at law firm Manches, told buyers it is not in their interest to use a contract drawn up by a service provider.

“If you are contracting on the basis of a supplier’s outsourcing contracts, you are at a disadvantage. You are not on a level playing field,” he said. “Whenever you are going out to tender for outsourcing always use your own drafted contract, whether you use your own in-house legal counsel or external lawyers. These outsourcing service providers do it day-in, day-out. They will have a team of lawyers or external law firms who have drafted that contract to protect their interests. They won’t be protecting yours.”

But, he added, it is also futile to draw up a deal that overwhelmingly favours the purchaser. “Make it balanced and appropriately fair. There’s no point going out with a contract that transfers all the risk and responsibility to the service provider, because they are going to price for that. It won’t be in anyone’s interest,” he cautioned.

De Silva also advised the creation of a ‘contract guide’, which highlights important elements of the deal, be created at the same time to make it easier manage the deal in the long term. “I’ve got hundreds of examples where clients have negotiated these protections but they don’t use them because they don’t know they are there and because nobody bothers reading the contract,” he told the audience. “It’s not a replacement for the contract, or a substitute, but it indicates these are the protections, these are the key provisions, these are things you need to look out for, and that is really important for contract management.”

He warned buyers to try to avoid the addition of ‘post-contract verification’ to a deal, where suppliers want to review elements such as pricing after the contract has been signed.

“Avoid it if at all possible, but sometimes you can’t. And sometimes you have a challenge in justifying why the supplier can’t have one,” said De Silva. “For example, if you don’t give the supplier enough time to do due diligence. What else can the supplier do? Are they just going to take a gamble? They may but they will price for it so you’re not going to get value for money. Allow the supplier the time to do due diligence and build that into your procurement process.”

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