This article is the first in a four-part series that seeks to
provide organizations with useful checklists to key components of
outsourcing arrangements. One key component that does not often
receive the attention it deserves is the exit strategy. More often
than not, the pressures of realizing immediate cost savings in
outsourcing deals drive organizations to agree to termination or
repatriation assistance terms and conditions that may end up
eroding any savings realized upfront. Not only can termination and
repatriation terms and conditions guard against such erosion, they
can also provide significant leverage when negotiating outsourcing
renewals, as well as mitigate the risk of disputes over each
party's rights during repatriation.
When negotiating a new outsourcing agreement or renewing of an
old agreement, organizations should devise an exit strategy that
takes into consideration the following issues:
Based on the type of outsourcing, will repatriating the
services at the end of the relationship require significant effort
by the service provider? If so, consider negotiating the fees that
will be applicable for termination or repatriation assistance
services provided by the service provider. Also consider whether
any portion of such fees should be paid only upon successful
completion of such services.
At the end of the relationship, will you have access to the
information your organization will need to either: (a) perform the
services yourself; or (b) approach another service provider for the
services? If not, consider negotiating obligations of the service
provider to deliver the information you will need in order to do
so, such as the delivery of key systems documents, operational
manuals, process flows, or architectural diagrams.
At the end of the relationship, will you need rights to acquire
any licences or assets that the service provider has used or is
using to provide the outsourced services? If so, consider
negotiating provisions that provide for: (a) visibility into the
assets and licences used by the service provider to perform the
services; and (b) the right to acquire such assets and licences at
pre-determined values. For example, you may be able to negotiate
terms and conditions that provide for: (a) the return of assets
initially transferred to the service provider; (b) the right to
purchase assets at cost; (c) the right to purchase assets at
specified margins; or (d) the service provider's assistance in
procuring assets from relevant suppliers.
What is the likelihood that one or more key employees of the
service provider will become indispensable to the operations of the
outsourced portion of your business? If the likelihood is high,
consider negotiating the right to make employment offers to such
When will you need to invoke your rights to termination or
repatriation assistance services from the service provider?
Consider how far in advance you will need the supplier's
assistance before the contract is set to expire. Consider also
whether three to five years down the road, when you no longer have
in-house expertise, you will need the service provider's
assistance to articulate the services that you are receiving in a
request-for-proposal or request-for-information document in order
to compare apples to apples. You may need such assistance months in
advance of any renewal or new agreement discussions.
Although it is difficult to think about what will happen at the
end of the relationship, it is important to negotiate favourable
back-end terms and conditions while you still have leverage.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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