Service Agreements - Outsourcing / Offshoring

One of the key to any outsourcing engagement is the contract between the parties involved in the execution of an engagement. There can be multiple parties involved in a contract. I have personally been involved in contracts involving 2 parties - the client and the vendor, 3 parties – Client, Client’s Partner company both working with the vendor, Client, Client’s client and vendor working with both; finally Client, and 2 vendors, and finally Client, vendor and vendor in turn working with multiple sub-contractors. There are in addition other models like Risk-share / Partnership model, etc., but the above would probably cover 80-90 percentage of the outsourcing engagement models (not considering general staff augmentation model.

Today, I want to high light the critical service agreements which need to be place before starting any engagement. There is always the tendency to start off on an engagement without an agreement in place, and this is one of the major areas of risks. It is in the interest of all the parties involved to have the agreement in place prior to starting work.

As per the contract framework, identify the buy side parties and the sell side parties. If your organization is going to be involved in multiple engagements, you may want to consider have a generic contract template, which has the basic engagement framework and can be modified to tailor to an engagement.
Ensure you are clearly articulating:
1. scope and out-of-scope tasks/responsibilities,
2. deliverables expected from the various parties involved
3. communication protocol
4. frequency of exchange
5. payment terms
6. timelines
7. milestones
8. review and sign-off dates
9. what would comprise a review, the expected number of review cycles
10. turnaround times
11. procurement lead times
12. list of reviewers and list of approvers (if the reviewers and approvers are going to be different)
13. escalation protocol in the case of a disagreement
14. formula, which would be applied to communicate cost impacts
15. team structure along with roles and responsibilities
16. assumptions
17. risks, nature of the risks and mitigation plans
18. termination clauses
19. extension clauses
20. performance clauses

Some sections may not apply to some parties, but it is critical that all involved parties work out an agreement on above lines and then get together to review and finalize.
It is also advisable to have a legal representative from your respective organizations, review the final versions of the contract and approve.

If the organizations have a Contract tracking system, then the signed copies of the contracts should be immediately uploaded to the Contract Tracking system for future reference, if needed.

Poorly written contracts, invariably leads to mismatch in expectations of the involved parties, and eventually results in impacting the relationships of the parties involved. It is therefore critical – Have the contracts in place FIRST.

The Globalization and The Social Issues

“If you can land a man on the moon, why can’t we solve problems of the ghetto?” This was a question raised by Richard R. Nelson in his book ‘The Moon and the Ghetto’.

Over the last decade, we have seen blistering growth on the Technology front, Infrastructure front and Transportation front, contributing to the Globalization phenomena. The BRICs (Brazil, Russia, India and China) are closely monitoring the global dynamics, working hard to remain globally competitive and be relevant as part of the globalization process.

When our society is able to make such rapid progress on one front, why is it that even in the 21st century we are so divided when it comes to issues of climate, hunger, poverty, borders, faith and religion? There is the Hindu - Muslim tension, Israeli - Palestine tension; there is the Middle East tension, tensions in Lebanon, the chaos in the African continent – Sudan, Ethiopia, the tension between North and South Korea, the terrorism in Pakisthan, Afganisthan, the Darfur genocide, and the poverty across the globe. If you look through the ‘Non-Globalization’ lenses, the situation looks very gloomy, and it dwarfs the achievements we write everyday about. Innocent people trying to make a living are dying each day, for no fault of theirs. Their only fault was they were born there. It is heart wrenching to see the suffering of the poor and helpless, who have nowhere to go and nowhere to hide – Palestine, Sudan, Pakistan, Afghanistan, Georgia and Iraq to name a few.

Why such stark contrast?

Richard Nelson puts it best as ‘….uneven performance across classes of wants’.

Also interesting against this backdrop is what C.K. Prahalad questions in his book ‘The Fortune at the Bottom of the Pyramid’ – ‘Why can’t we mobilize the investment capacity of large firms with the knowledge and commitment of NGOs and the communities that need help?’

The same may apply to the social and political issues, except that government needs to lean on the NGOs to garner the consensus of the local people to arrive at a resolution. Once the desire of the people is clearly understood, engaging in a dialog and arriving at an amicable solution should not be a challenge.

While it is great to see the progress we are making in one direction, let's not forget the issues on hand.