Outsourcing

Steps

Solutions

Preparation phase: preliminary considerations and actions

Time:

  • 6 – 9 months

Determine your (out)sourcing strategy:

  • determine the goals you wish to achieve
  • determine the scope and nature of the services you wish to outsource
  • determine the interplay with your existing suppliers and how you intend to manage that
  • consider the effects on your organisation
    – constraints arising from the outsourcing maturity of your organisation (e.g. demand-supply organisation)
    – employment issues (works counsil consultation, transfer or redundancy of personnel)

Determine potential legal issues of the envisaged outsourcing:

  • check whether works counsil consultation is required
  • determine whether personnel may transfer as a result of the outsourcing
  • check whether existing licences related to the services to be outsourced permit transfer to a third party. Are there other agreements restricting the outsourcing abilities?
  • consider possible data protection issues
  • check whether the envisaged outsourcing is subject to regulatory/supervisory restrictions or requirements
  • check whether the outsourcing subject is subject to public procurement procedures

Determine the project team and project plan:

  • select a competent team to prepare, negotiate and execute the outsourcing contract
    – representing all capabilities required (internal and external sources)
    – with sufficient time to contribute (especially for preparation, contract negotiation and working sessions)
    – and a sponsor with sufficient power to settle conflicting interests
  • set up a project plan and a project manager
  • agree on a clear communication plan, both in relation to suppliers and in relation to employees

Solutions

Preparation phase: Determine negotiation strategy

  • If there is more than one supplier that is able to deliver the service you need, take advantage of the competition
  • If you need more information before being able to write a request for proposal, obtain such information from an outsourcing consultant, through a market consultation or through formal requests for information
  • If public procurement requirements need be complied with: design process to comply
  • Decide on the approach: specifying the output or (also) the input and processes and whether you will use the classical approach or best value procurement
  • In larger projects, we recommend conducting parallel or back-to-back negotiations with two down-selected suppliers. This will benefit the deal result, both in legal and commercial terms

Solutions

Approaching possible suppliers

Time:

  • 1 -2 weeks

Be clear about the process and ask whether the relevant supplier is willing to commit to the rules you set out as to:

  • confidentiality
  • use of supplier information by you
  • not communicating other than through the designated channels
  • you being able to change the process and free to decide with whom to contract or not (or specify the relevant restrictions, e.g. public procurement requirements)

Solutions

Market consultation or request for information

Time:

  • 1 – 2 months

(Whether this step is required highly depends on the extent to which the services are standardised; for standardised services consulting an outsourcing adviser is recommended)

  • Approach a selection of suppliers that may be able to deliver the services
  • Be clear about your objectives and consider paying for the advice you are requesting

Solutions

Request for proposal

Time:

  • 1 – 2 months
  • issue a request for proposal to the suppliers selected
  • the quality of the request for proposal determines the quality of the answers you will be receiving
  • provide the legal terms applicable to the services and request suppliers to respond comprehensively to what extent these terms are acceptable and if not, request the suppliers to provide alternative wording
  • make sure the RfP is complete and unambiguous, which enables a fair comparison of the different offers you receive. Clarity about the scope of the services to be outsourced and the price mechanism on which the supplier’s offer should be based are key
  • when using ‘best value procurement’ determine what tools you want to use to build in flexibility and prevent abuse of vendor lock-in
  • inform the works counsil on the policy intentions regarding outsourcing potentially leading to a consultation process when appropriate

Solutions

Contract and supplier analysis

Time:

  • 2 – 4 weeks

Analyse and compare the offers received. Focus in particular on the following topics:

  • whether the offer addresses the communicated goals adequately
  • service availability (time to go live / accessibility / customer data / disaster recovery and business continuity / no suspension or withholding of services / financial stability)
  • nature of obligations (effort or result?)
  • service levels (up time / capacity and scalability / problem response time and resolution time / support availability hours / sanctions (services credits) for service level failures)
  • process to restore quality (route cause analysis, remedial actions)
  • data (data security / data protection) / data integrity / back-ups / data ownership and use rights / data conversion in useable formats / return and destruction of data)
  • identification of risks and solutions to reduce them and mitigate their consequences
  • indemnifications (breach of confidentiality and data protection clauses, IP infringements) / liability issues
  • fees (what is in-scope and what out-of-scope; how to treat fees for new or out-of-scope services?)
  • measures to limit lock-in and mitigate its consequences
  • term and termination
  • appropriate exit provisions and exit assistance
  • flexibility (ability to adopt the service to changed needs or changes in applicable laws and regulations)
  • audit rights (in particular re security and privacy and for supervisory authorities in regulated industry sectors)

Depending on the quality and clarity of the offers clarifications of the request for proposals or working sessions will be the best way forward.

Solutions

Organise working sessions and conduct a due diligence with the down-selected supplier(s)

Time:

  • 1 – 3 months

Working sessions allow parties to get clarity on the scope and quality of services required, interfaces, technical solution, transition and transformation process, ways to deal with employee issues etc.

As part of the due diligence:

  • specifically verify whether the supplier comply with demands of supervisory authorities, for example specific requirements of the Dutch Central Bank and security requirements of the Dutch Data Protection Authority
  • require references of both current and former customers of the supplier, where possible for comparable scopes of services and customers

Solutions

Contract negotiations

Time:

  • 2 – 9 months

Depending on whether there are parallel negotiations or negotiations with only one supplier, allow two to three months or six to nine months. This phase may run in parallel with the working sessions and due diligence
Negotiate the legal terms with the supplier or, if applicable, the down-selected suppliers. Take into account the following considerations:

  • understand that the supplier and you have different interests. In order to optimize the success of the outsourcing, the contract should balance the interests of both parties concerned
  • make sure that all important legal issues (see sub 5 above) are addressed in the first mark-up
  • ensure that the service descriptions do not have any gaps to avoid disappointments. E.g. create a matrix of all means or output and all actions to be taken in respect thereof (from demand specification to destruction) with responsibilities allocated for each combination (e.g. who is responsible for ordering or paying for a particular resource)
  • spend sufficient time on determining the relevant service levels and service credits – involve the relevant business units
  • service levels should measure what is relevant for you. Consider linking service levels as well as penalties and rewards to output base key performance indicators, instead of to technical requirements
  • include a governance structure (frequency of meetings, topics, people involved, procedures)
  • in general, this is the appropriate and adequate time in which the consultation process with the works council starts and advice is requested

Solutions

Conditions for execution

Time:

  • 1 – 2 months

This phase may overlap with the negotiations

Prior to execution of the agreement with the supplier:

  • obtain advice from the works council (if required)
  • obtain approval from relevant supervisory authorities
  • e.g. financial institutions may need to inform the Dutch Central Bank about an envisaged outsourcing and its main characteristics

Solutions

Transition & transformation

Transition to the new supplier and the transformation to the future mode of operations require (prior) transfer of knowledge, assets, personnel and contracts and a “SMART” project plan

  • consider training of personnel and documentation (services manual) to be developed
  • agree on clear responsibilities for the transition and transformation projects
  • avoid “shared responsibility”
  • agree on specific milestones and for a no-go possibility should the project derail too much

Solutions

Contract and relationship management

Any cooperation requires continuous efforts from both parties. Make sure the contract provides for the framework, and:

  • perform a regular self-assessment / self-audit to ensure both the supplier and you are satisfied with the relationship and comply with the terms of the agreement and change behaviour or the agreement so that they fit
  • monitor changes in requirements, law and regulations that apply to the services
  • ensure that you continue to be able to execute a smooth transition/exit from the supplier to a third-party provider or back in-house; maintain an up-to-date exit plan (the more easily you can walk away, the more efforts the supplier will expend to make you happy and want to stay)

The aim of this solution is to give insight on the outsourcing process from the perspective of a customer. The total time required from the very start of preparations until start of the transition is likely to require between one to two years, depending on a number of factors, including the outsourcing maturity of the customer and the team available.

More information? Please contact Bart van Reeken.