Outsourcing contracts: what are the five key elements to pay attention to?

Many organisations today are looking to partially or completely outsource their IT environment to an external provider. According to Patrice Chéret, Dimension Data’s Managed Services and Cloud Business Development Manager, the critical point for the company is to establish a contract that provides clear description of the service to be delivered. A clear description is also needed for the governance model allowing the CIO to control and pilot.

Many organisations today are looking to partially or completely outsource their IT environment to an external provider. According to Patrice Chéret, Dimension Data’s Managed Services and Cloud Business Development Manager, the critical point for the company is to establish a contract that provides clear description of the service to be delivered. A clear description is also needed for the governance model allowing the CIO to control and pilot.

We have already managed more than 40 clients’ transitions to Managed Services models; from specific service outsourcing to full IT outsourcing. Based on our experience, the following key points must be taken into consideration:

1. Description of services – Be as precise as possible

The Services Description is the heart of the outsourcing contract. It must include all provided services. It must be seen as a multi-dimensional matrix including technical scope, service hours and service elements. For instance, you could have a server asset (technical scope) on which you are doing Incident Management (services element) on a 24/24h and 7/7d basis (service hours). This allows you to have a detailed and flexible approach describing the service the provider will deliver.

2. Avoid grey zones

Grey zones represent the major risk of an outsourcing contract. Grey zones mean that both the service provider and the client don’t manage a specific activity or asset which could result in increasing the risks.

To avoid the grey zones, it is extremely important to list all activities/assets that are not in the scope of the outsourcing contract. In addition, a grey zone list must be maintained during the transition in order to act who will handle each listed activity. The aim is to remove all points in this list as soon as possible.

3. Key Performance Indicators – The service objectives for the CIO

Do not fall into the trap of defining generic KPIs that would not represent the reality of the service to be delivered. The KPIs must represent the service objectives that the CIO has defined and for which the provider has committed to. In addition, KPIs must not be limited to criteria like availability measures (the well-known 99,99% availability) but must also integrate criteria based on the relationship with the provider to make the outsourcing contract an added-value for the entire business through reactivity, improvement, innovation.

4. Governance model – Outsourcing contract does not mean you lose control!

One important part of the outsourcing contract is the governance model that the Provider will put in place. The CIO must pay special attention to the proposed process to govern the service. It includes of course the services reporting but more than that, how to react in case of evolution of the services. Namely, you have to define the processes for scope evolution, services evolution, change in volumes (incidents, changes) and introduction of new technology. In addition, outsourcing contract does not mean you are blocked with the provider for all projects. The contract must cover the way of working when another provider is doing a project that must be integrated later in the contract scope.

5. A contract has a defined duration – Think about the exit plan

When the CIO is signing an outsourcing contract, it is because he is convinced that the provider is the right one. However, things can change with time and the company strategy can evolve. Therefore, from the establishment of the contract, the exit must be discussed. What are the elements that will be transferred back to the client? What are the knowledge transfers that will be provided in case of re-insourcing? What are the collaboration models to transfer to another provider? The exit plan must be an integrated part of the outsourcing contract.

According to us, these five points are the key elements to take into consideration when signing an outsourcing contract in order for the CIO to focus on the business strategic initiatives while keeping control of the IT environment.