Settling Upon the Right Sort of Contract

There are standard terms that an effective contract should cover, but overall its emphasis should be on rewarding the supplier for quality of service rather than penalising them for failure to deliver. Many contract-related problems in outsourcing relationships stem from a failure to create a living document which is flexible and reflects the expectations of both the parties. Effective contract preparation provides a sound basis for productive outsourcing relationships. The contract should cover:

• terms of the agreement,
• minimum service levels,
• ownership and confidentiality of data,
• warranty,
• exhibits,
• transfer of assets and contracts,
• staff moves,
• termination clauses,
• incentives,
• disclaimers,
• bankruptcy,
• force majeure,
• performance measures,
• anticipating change.

It is also critical to have a clear contract specification defining the scope of the work, covering the following:

• inter-relationship between processes;
• what work is handed over by whom to whom and at what point;
• if work is completely new, invite the potential contractor to propose the services they would choose, thereby standardising the production of an imaginative solution.

Hence it is at this stage, as part of the due diligence process, that you may want to ask the following type of questions. (This is not an exhaustive list, but provides examples.)