This article concludes our three-part series on the basics of offshore business process outsourcing (BPO). In Part I, we explored business trends and strategies in offshore BPO. In Part II, we discussed certain key legal considerations that arise in offshore BPO transactions. In Part III, we examine the ongoing relationship between a company and its outsourcing vendor after the offshore BPO transaction has been consummated.
You’re Finished … Now Get Started
You have just spent the last several weeks in a conference room (probably windowless) with about a dozen other people poring over hundreds of pages of documents, negotiating them top to bottom, tapping your internal subject matter experts in every corner of your organization. Congratulations, you have closed an offshore BPO deal.
Everything is done. Time to break out the champagne and throw that outsourcing contract in your desk drawer, right?
Not quite. Unlike other complex strategic deals that your company has closed (such as an acquisition or a major financing), an offshore BPO transaction is not actually complete at closing. The reality is that execution of the outsourcing contract merely marks the end of one phase and the beginning of another, more challenging one. Now that you have successfully commenced (or renewed) the outsourcing, it’s time to get to work managing your company’s relationship with its offshore outsourcing vendor.
Does Anyone Know What the Contract Says?
The first step to establishing a productive working relationship with the vendor is to make sure all the key stakeholders actually know what’s in the contract. By the time negotiations are complete, a small number of individuals from each party’s negotiating team will likely be well-versed in the contents of the outsourcing contract. The challenge is transferring this knowledge from the negotiating teams to the people on the ground running the day-to-day operations for your company and your vendor.
Soon after the outsourcing contract is signed, consider hosting an internal session among key stakeholders, operational personnel, and internal and external counsel to review aspects of the contract that are relevant to them. This can also work well as a joint session between your organization and the outsourcer’s staff. You may be shocked to learn the extent to which members of both organizations don’t know — or have differing views about — what the contract says.
The contract itself may evolve over time (see the “change” discussion below), as well as the teams who manage it. Regularly scheduled “deal health” meetings can keep everyone apprised of these changes. You will also probably want to have your people visit the vendor’s offshore site at regular intervals for operational and relationship stewardship activities. However, keep in mind these trips and other “governance” activities between your company and an India-based vendor could raise permanent establishment issues (see Part II of this series).
Building the Relationship through Dispute Resolution
It may seem counterintuitive, but enforcing your contractual rights and remedies from day one may help, not hurt, your relationship with your outsourcing vendor. This is not to say that your company should go out of its way to nitpick every minor slip-up by the vendor. But set the expectation early that your organization intends to get the full benefit of its bargain. This is, after all, a business relationship.
Companies often have an aversion to escalating disagreements with vendors to the dispute resolution process prescribed in the outsourcing contract, as if not admitting something is a “dispute” will prevent it from becoming one. Experience tells us that the occurrence of contractual disputes is not a matter of “if” but “when,” and the dispute resolution mechanisms in the contract (often internal escalation followed by arbitration) are built on that assumption. In other words, disputes don’t have to be viewed as catastrophic events, but as part of the ordinary course of business. And, when they get handed off to the appropriate people for resolution, the people on the ground can get back to what they do best: running their businesses.
Managing the Cost of Scope Creep with Change Control
Throughout the term of the outsourcing contract — and as early as the day after signing it — companies that have outsourced often find themselves reviewing proposals from their vendor for additional fees arising from purported changes in the scope of services. This is often referred to as “scope creep.” As discussed in Part I of this series, the first step to ensuring you get what you’re paying for is to define the scope of services as clearly as possible in the outsourcing contract or through some defined post-signing “blueprinting” process.
Unfortunately, even the most detailed service description and other contractual catch-alls, such as so-called “sweep” clauses, can leave room for scope creep. Your outsourcing contract should contain a change control process that describes the steps for proposing and negotiating changes, pricing parameters and a dispute resolution mechanism. It is important to demonstrate, early in the relationship, your adherence to the process. If the process doesn’t work, negotiate a new one, then stick to it.
Preparing for the Possibility of Transition and Attracting Prospective Suitors
It’s never too early to think about the process of transitioning to another outsourcing vendor. You don’t have to wait for the expiration or termination of the outsourcing contract to start the transition, if your contract permits you to do so. If the existing outsourcing contract has built-in flexibility to repatriate service towers at your convenience, then your company will be in a better position to avail itself of competitive bids at any time. And, as discussed in Part I of this series, having a second BPO vendor available to compete with your existing vendor can provide your company with negotiating leverage.