Plan an Outsourcing Deal’s End at Its Beginning

For whatever reason, you are terminating a contract with a key outsourcing vendor. Perhaps their prices are too high, or they failed to meet performance goals. You look over your contract and—surprise! Very little is said about what happens when the deal ends and you need to transition to a new vendor.

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Ending an Outsourcing Early

Contracts often do not address this critical issue in sufficient detail, making a difficult situation even worse. Instead of focusing on the new vendor, CIOs find themselves negotiating with both vendors to avoid a service interruption or other adverse effect on business.

The time to set the groundwork for a termination transition plan is when you negotiate the original contract. No one likes to do this—focusing on a relationship’s end before it starts is viewed as bad karma. But unless you do so, the vendor has no incentive to do more than the contract requires when it comes to transitioning out of a deal.

How can you mitigate this risk? Start by making sure your contract addresses the minimum requirements for a termination transition plan. The plan should provide a detailed rule book for doing this in an organized way.

To begin, the vendor should be contractually obligated to aid in the development of a transition plan. The vendor and customer should review and approve the plan as part of the initial contract or right after it begins. Basic requirements should be specified, such as requiring details of activities performed by the vendor, the customer and affected third parties, as well as a process allowing activities to be validated and updated during a transition.

Key issues include: ownership and return of data, documentation and intellectual property created or used to develop the services and knowledge transfer; determining whether a new vendor may obtain hardware, software, staff and business procedures used by the incumbent; and detailing the incumbent vendor’s obligation to perform the steady-state services during transition. All relationships have a beginning and an end. A well-designed contract ensures a successful exit for everyone.