8 Tips to Deal With Liability When Outsourcing to Multiple IT Vendors
Parceling out an IT services portfolio among a number of vendors is the new normal for IT outsourcing. However, these multi-sourcing arrangements are complicated -- if things go wrong there's no single provider to blame. Here are eight steps you can take to manage liability in a multi-sourced environment.
Fri, February 21, 2014
CIO — There's little question that multi-sourcing -- parceling out the IT services portfolio among a number of vendors -- is the new normal for IT outsourcing. But what happens when things go wrong and there's no proverbial single throat to choke?
"Multi-vendor outsourcing arrangements are more complicated because services can very rarely be performed in isolation from other services," says Lois Coatney, partner with outsourcing consultancy Information Services Group (ISG). "Because of this risk, providers will use commercial language to 'carve out' where they will not be held accountable."
"There are no market norms for these liability issues," says Shawn Helms, partner in the outsourcing and technology transactions practice of K&L Gates. "These are service providers that are fierce competitors and getting everyone to agree to the same exact terms is a herculean task that takes significant time and effort."
Even in the best circumstances, it can be a challenge to get companies who battle for business outside your four walls to work together within them. When there's a service delivery problem, things can get even trickier. You've got one vendor running network operations, another maintaining servers and mid-range equipment, and a third maintaining applications. When your business users can't access the tools they need to do their jobs, who's to blame?
"In theory, a multi-provider service delivery environment should not create additional complexities in terms of liability. The contracts -- entered into separately between the customer and each supplier -- should, if well constructed, clearly delineate the liabilities between the parties," says Mario Dottori, leader of the global sourcing practice in Pillsbury's Washington, D.C. office.
"In practice, however -- from an operational perspective -- the lines of responsibility and, hence, liability are often blurred." In addition, "investing in a more nuanced allocation of liabilities helps to align incentives and avoid conflict," says Brad Peterson, partner with Mayer Brown.
However, customers should take care not to nail their team of providers to the wall with onerous liability requirements. "If the customer insists on unreasonable liability terms, there is a strong likelihood that nothing ever gets done," Helms warns.
1. Clearly Define Roles and Responsibilities
"Liability arises from lack of clear lines of responsibility and accountability, particularly when one vendor's performance is dependent on another's," says Paul Roy, partner in the business and technology sourcing practice at Mayer Brown. "The most important risk is non-performance -- or cost or damage to the customer -- without clear lines of responsibility."