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Misunderstanding and mistrust bedevil contracts

A catalogue of mistakes and misunderstandings is revealed today in a unique global study* of IT outsourcing deals that helps to explain why mistrust and tension so often bedevil dealings between clients and suppliers.

The study, by PA Consulting Group, claims to be the first to take a three-way approach, capturing the views of all parties in an outsourcing relationship – clients, suppliers and the lawyers who mediate between them.

The problems it reveals are both surprising and disappointing because IT outsourcing is hardly new – over the past 15 years many companies in North America and Europe have benefited hugely from handing over large parts of their IT operations to external service suppliers, whether based “onshore” or in countries such as India.

In this mature market, says PA, there is no excuse for an outsourcing deal to go wrong. But deals do fail, because buyers and suppliers of outsourcing are poles apart in understanding each other’s objectives.

Poor communication of objectives, it says, results in big differences between what clients want and what suppliers think they want. Meanwhile, clients are not treating the IT outsourcing process with enough respect, putting insufficient time and effort into planning.

“We did think at one stage of calling the report ‘Clients get the deal they deserve’ as some clients continue to make a number of basic but far-reaching errors,” says Fons Kuijpers, a member of PA’s management group.

By exploring the different perspectives of clients, suppliers and lawyers, the study says that misunderstandings are created when the relationship is built on undeclared assumptions. This creates a climate of mistrust that can cause serious problems.

For example, only a fifth of the suppliers in the survey felt clients effectively communicated their objectives, and two-thirds of clients thought that, with hindsight, they should have better verified their suppliers’ ability to deliver. Fewer than half the client respondents used due diligence when selecting a supplier.

Poor investment in three key areas, says PA, is inhibiting the evolution of IT outsourcing as a way to transform an organisation: the sourcing strategy is ill-conceived, creating a fault line between client and supplier; the programme is not tailored to the needs of the organisation; and the “retained organisation”, or internal team for managing the ongoing relationship with the supplier, is inadequate.

But Jonathan Cooper-Bagnall, another member of PA’s management group, points out that suppliers and lawyers have an important role in ensuring mistakes are avoided, as both will have been involved in many previous deals.

Some suppliers, he says, have compounded clients’ problems by insisting there is no need for a retained organisation, and suppliers do have a responsibility to extract the customer’s true intentions even if they are not articulated clearly.

An issue for all sides, says Mr Cooper-Bagnall, is how to capture the client’s original intent in a contract that inevitably imposes a number of legal obligations on participants. “It’s really challenging to do this,” he says.

■“Understanding misunderstanding; investing in successful outsourcing relationships”, is based on questionnaire replies from 315 private and public sector outsourcing customers worldwide, and interviews with 29 suppliers and 17 law firms. For a copy, e-mail sourcing@paconsulting.com

The panel and the subject for discussion

This discussion will be published in stages on ft.com, co-ordinating with coverage in the FT Digital Business supplement beginning on April 12. The discussion is based on issues emerging from PA’s recent global survey of attitudes to IT outsourcing, “Understanding and misunderstanding”, in which customers, outsourcing service suppliers and lawyers were interviewed. It is believed to be the first time all three sides have participated in the same study.

To mirror the study, PA invited customers, suppliers and lawyers to the panel discussion. Members of the panel were:

Clients: Ron Jarman, global head of procurement at Reuters; Ben Wishart, group IT director, Whitbread

Supplier: Ian Roy, business development director, Capgemini UK

Lawyer: David Hamlett, partner at Wragge & Co

PA: Jonathan Cooper-Bagnall and Fons Kuijpers, members of PA’s management group

FT: Andrew Baxter, senior writer, Special Reports Department

Link to - How to avoid making schoolboy errors
Debate focuses on who is responsible – clients, suppliers, lawyers or advisers – for a successful negotiation

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