What do digital, automation and outsourcing have in common?

As we come back from holidays, we tend to reflect on what 2016 will bring, trends and upcoming changes on how buyers and service providers engage. Recently a lot has been said and written about two prominent trends: digital and automation. However little has been discussed about the commonalities between these prominent trends and the outsourcing industry.

Digital and automation are two of the most prominent trends influencing the outsourcing industry.

Below are some ideas and considerations organizations may wish to consider before placing emphasis on one versus the other:

  • The organization’s strategy sets the direction: Having a clear understanding of the organization’s strategy and goals will directly determine the linkage between digital, automation and outsourcing. As simplistic as it sounds, a balance between these can be hard to achieve. A good way to approach this is to think digital as the environment, automation as an enabler and outsourcing as a way to deliver services. As part of this approach, organizations will also require higher emphasis in other important pillars such as governance, risk and internal staff skills.
  • Digital is a reality organizations shall not ignore: Service providers are supporting the digital transformation by and large, as it does increase their portfolio of services and revenue. For organizations, the implications of a digital environment to services, if well implemented, tend to be positive. The biggest challenge lies on the organization’s community and clientele. For example, let’s think about the recent trends in retail banking and the opportunities digital will continue to bring with direct positive impact on operational costs. Other industries that may benefit from digital are insurance and telecom, as those have usually higher volume of services and effort associated with their service delivery models. A recent article released by The Economist magazine titled “Tech pundits’ tenuous but intriguing prognostications about 2016 and beyond” provided some mind bogging predictions, including the following: “By 2020, predicts IDC, a third of today’s IT companies will no longer exist in their current form, swallowed up in a wave of mergers and takeovers. And although demand for cloud computing will soar, many smaller contenders will fall by the wayside. Within five years the market will be dominated by perhaps half a dozen global giants, from American ones such as Amazon and Microsoft to Chinese ones like Alibaba.”
  • Automation is evolving rapidly: There is no doubt automation will continue to grow and evolve over the next few years. As service providers opt to automate vs. labor in, commodity services are already in high demand to be transformed through automation. In my latest CIO article I wrote about BPO being renamed as BPA – more can be found by clicking here. In a nutshell, the benefits associated with automated services can help organizations to realize value in a much faster and effective way – while services providers minimize their existing labor risks.        Another important factor to consider is that machines now can “learn to execute” with little guidance and oversight from humans. A very interesting article published by Shivon Zillis provided a very insightful picture of the current state of machine Intelligence across different industries:
    Machine Intelligence 2.0

    Shivon Zillis

    Machine Intelligence 2.0

  • Manage the organizational changes associated with these trends: It is common to see the excitement big transformational trends such as digital and automation bring to an organization. For those who live and breathe change, this might be heaven. For others, this can be a very stressful time in which future is somewhat unclear. As such, organizations should not underestimate the level of effort required to manage changes associated with these trends. The key here is to, from internal clients to service providers and the organizations clientele, monitor and manage changes appropriately so that the organization’s strategy can be adjusted accordingly.
  • The importance of governance and risk management should not be understated:With multi-sourcing becoming more evident and increased regulatory pressures, organizations will continue to need to invest heavily on appropriate governance and risk management practices. Notwithstanding the fact automation and digital are new trends, there is a bit of learning curve for both organizations and services providers taking place. The fact of the matter is that, when determining value for money, organizations should factor in the service providers ability to deliver services while complying with the set organizations’ governance and risk protocols for their relationship. At the same time, organizations shall be able to effectively assess their risk appetite, protocols and reputation so that the desired outcomes can be realized. What organizations should not compromise is their ability to comply with their respective regulatory requirements, as this can have a significant impact to the organizations’ reputation and bottom line.
  • The importance to invest on the organizations staff skills: While organizations invest to enable digital and automation, they should also invest on their internal staff skills and capabilities required to effectively manage and support their transformation. Many times there is a consent this should be considered a priority, however it usually tends to get lost – as it is hard to execute any type of business transformation. If we take into account the organization’s team as a critical element for success, it is imperative that internal staff have the right skills and knowledge to effectively execute their roles going forward. As much as learning while executing is possible, organizations should not place themselves in situations that could represent a higher than normal level of risks or with significant impacts to their clientele. 

The conclusion: 2016 is going to be an exciting year for the outsourcing industry, with great opportunities for buyers and services providers to collaborate and contribute on how to best enable their digital environment, use automation as an enabler to promote services and continue to use outsourcing as a way to obtain and deliver services. Stay put.

Source: CIO-What do digital, automation and outsourcing have in common?

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3 Myths About Outsourcing That Are Slowing You Down

Let’s discuss something that too often has had a negative connotation surrounding it—outsourcing. I really think this is an area that many MSPs are overlooking, as I argue in this post. Here are some of the most common myths about outsourcing and why you should consider this approach as you continue to grow and scale your business.

Myth #1: Poor Customer Service

This is probably the most common stigma about outsourcing. Many might have personally experienced less-than-stellar customer service from a company that’s not even using outsourced employees, and now hold a grudge. As competition continues to increase, this is an area in which quality needs to outpace quantity. Why does bad customer service still exist? The four biggest customer complaints are long hold times, unresolved issues, multiple transfers and unsympathetic reps. So, how can an MSP implement a solid customer service level through outsourcing to avoid these complaints?

Scale
Hiring and retaining talent is the most common struggle for MSPs. How can you grow your business when you can’t find and retain good people? Outsourcing helps by allowing you to take on additional customers without the fear of encountering some of the customer complaints mentioned in the previous paragraph. Working with a solid outsourcing vendor within the industry that understands the SMB space and the pain points of MSPs is the first step to getting an effective outsourcing plan in place. With the right vendor, your company will be staffed by reps who know and understand your managed IT services business.

Proper Knowledge Base and Broad Skill Sets
It costs six to seven times more to acquire a new customer than it does to retain an existing one. Outsourcing helps gain access to a wide knowledge base that allows issues to be resolved quickly and easily. Taking the time to build your own knowledge base is something that many MSPs can’t afford to do from a financial and time standpoint, especially when trying to build your customer base. For example, if a customer has an issue with a Mac operating system, and you don’t have a skilled tech, outsourcing is particularly helpful; it provides access to techs who have broad and/or specific skill sets that would be difficult to keep on staff.

Consistent Procedures
Outsourced companies generally have written and proven procedures that all employees follow. There are clear escalation guidelines and rules on how to handle specific situations. And when these procedures are enforced and followed, your client base experiences consistent customer service. You also don’t have human resources issues like hiring, firing and training practices.

True 24/7 Support
With outsourcing, you truly have access to constant support, which is something that can be taxing as a business owner who is trying to expand. Growing your business is one of the most important areas in which outsourcing can help, and according to Defaqto Research, “55 percent of customers would pay extra to guarantee better service.”
Myth #2: Outsourcing Is Pricey

Like the stigma of poor customer service, this is also a myth. Why? Because reducing your overall IT budget is still the number one reason for considering outsourcing. Most MSPs think outsourcing is more expensive, and they miss out on valuable cost-savings opportunities. Not only does outsourcing help you save money, it also helps to keep employees happy, which undoubtedly leads to company loyalty and longevity.

Hiring an outsourcing firm also allows techs to focus on proactive projects, rather than scramble to put out IT fires. If you have techs dedicated to Level 1 tasks, have your outsourcing company take those calls and put your best techs on project work that’s more satisfying to them, all while bringing in additional revenue and new customers.

Remember that the advantages of outsourcing go beyond the actual price. Examine, too, the cost of delivery of your services. When considering cost, it’s important to look at how much you are spending on tools and use the new outsourcing opportunity to work on more revenue-generating tasks. You also want to consider not only what it costs now, but also in 6-12 months from now.
Myth #3: Outsourcing Is Difficult to Manage

Externally, outsourcing allows you to spend more time working with customers that have proactive needs, while working to recruit new ones, and deepening your relationships. Internally, outsourcing gives employees the ability to gain and develop fundamental management skills by allowing them to manage the outsourced provider, thus enhancing their value and expertise. By giving employees management responsibilities and allowing them to work on projects of their choosing, this alleviates the number one issue that MSPs deal with—hiring and retaining good employees.

Remember that it’s OK to reveal any struggles you are experiencing in managing a help desk on your own with your vendor partners. By outsourcing, you save time on items such as metrics, reporting, structure and processes. This can all be done without the outsourcing provider completely replacing your help desk—they can simply enhance it, augment it and help identify what is not working as well as areas of improvement.

Don’t allow the myths of outsourcing to stand in the way of prosperous business growth as well as happier employees and customers.

Source: continuum.net-3 Myths About Outsourcing That Are Slowing You Down

Outsourcing spend declining for 2016, says research

IT outsourcing spend in Europe will continue its downward spiral this year, as cloud infrastructure purveyors gain a stronger foothold in the market and further push down mega deals, according to research.

During 2015, European IT outsourcing spend fell by eight per cent to £5.3bn, as the number of large infrastructure awards dropped sharply and value was lower on smaller deals overall, according to the ISG outsourcing index.

It said Europe is currently the world’s largest outsourcing market. Global IT outsourcing spend fell 12 per cent to £10.4bn.

John Keppel, partner and president of ISG, said unlike the American market, the likes of cloud infrastructure suppliers such as AWS have yet to win any big deals. “In 2016 we will start to see a much more significant uptake in Europe,” he said.

The company said that during 2015 the number of awards – as opposed to overall spend – was at an all-time high with 1,445 contracts signed globally, an increase of two per cent over 2014. Cloud, digital and automation are driving down average contract value and duration, it said.

Keppel said: “In America, AWS’s services revenue is something to be reckoned with, and not just AWS but lots of infrastructure cloud service providers,” he said. “Volume-wise, there is plenty of activity with digital projects and initiatives. All of these have a cloud computing component.”

He added: “One of the most interesting questions for the next decade will be how these classic infrastructure providers [respond].”

The number of IT outsourcing deals in Europe has grown exponentially during the last decade, up 88 per cent from £3.2bn in 2006. Accenture, Atos and BT were named the three ‘standout out’ outsourcers for the year in terms of revenue

Source: theregister-Outsourcing spend declining for 2016, says research

Offshoring IT services: Beyond the usual suspects

India is the prime location for offshoring IT – but it may not be the best fit for every business, and there are now many alternatives around the world.

India once again topped a list of best places to offshore IT and business process outsourcing (BPO) services but, as global delivery becomes the norm, organisations will increasingly look for other locations for a better balance.

An annual study from management consultancy AT Kearney revealed its top 55 locations, with India leading the way.

But organisations now have many more options, as their criteria for choosing a particular destination extends beyond cost. And it is now common for organisations to use several offshoring locations.
This has become known as “rightshoring”. It may be a buzzword coined by IT supplier marketing teams – but businesses now benefit from a mix of locations for different services, to maximise the advantages of outsourcing.

A UK business might have callcentre services delivered from a low-cost region in the UK, while its digital software development is undertaken in Ukraine – and application development in India. Then it might use a BPO supplier in sub-Saharan Africa to improve corporate responsibility.

Asia dominates the top 10 destinations for the delivery of IT and BPO services, according to AT Kearney.

India, China and Malaysia respectively comprise the top three – and neighbours Indonesia, Thailand and the Philippines follow at five, six and seven. Brazil broke up the Asian dominance at number four and was joined in the top 10 by South American denizens Mexico at eight, and Chile at nine. Poland was Europe’s sole representative at number 10.

The technology ecosystems of India

But despite the options available, India remains top of the pile – and talk of its decline, with suppliers only growing in single digits, are greatly exaggerated.

The old saying “you don’t get fired for buying IBM” could be relevant today if IBM was replaced by “in India”, such is the country’s association with IT and BPO services.

And this is unlikely to change any time soon, according to Peter Schumacher, director at business consultancy The Value Leadership Group. He said there are cities in India where global technology companies, multinational businesses, investors and academics, have converged to create ecosystems with IT advancement at the core.

He said Bangalore, Gurgaon, Pune and Hyderabad are now the places to go for IT brains, experience and capital – as well as research and development (R&D). He said setting up operations in these cities can yield a huge advantage, to companies of different sizes. “These cities have become the largest, most diversified ecosystems in the world. There is a lot of interaction and cross-pollination for businesses.”

To put this in context, he said the city of Bangalore receives more venture funding than the whole of Germany.

And it is not just huge global businesses that are accessing these ecosystems. Schumacher said India has the infrastructure and skills that can help companies start from zero and scale up to operations with thousands of staff. “Although some big companies have huge operations, most captive centres in these cities are small.”

The challenge other regions face in breaking India’s dominance is substantial, and could take many years. India overcame many hurdles – such as language problems, security fears and the lack of localised delivery options – to becoming an offshore centre many years ago. Other regions are a long way behind and do not have the ecosystems Indian cities offer.

Soviet legacy in Eastern Europe

But one region that is putting up a fight is Eastern Europe. Poland may be the only country in the top 10 – but there are other countries that have joined the fray, such as Moldova, Romania and Ukraine.

Sam Kingston, former UK head at IT services firm T-Systems, is now COO at Ukraine-based Ciklum.

Ciklum helps businesses find and recruit IT staff in Ukraine – which has a large software engineering skillset – and provides office space for customers at its operations in Ukraine, Belarus, Poland, Romania and Spain.

Kingston said Ciklum’s biggest market are the US, Denmark and Germany – with a growing UK business.

He said the former Soviet Union used Ukraine for space research and, as a result, has a legacy befitting the IT industry: “It spawned lots of mathematicians and computer scientists. You now have a population of young Ukrainians that are computer literate.”

He said this is not enough to make the country a leader in IT outsourcing, but companies in the Ukraine are adapting – as Indian companies did before them – by investing in delivery capabilities to meet customers’ needs.

IT skills in the Middle East

But other regions offer alternative skillsets, whether it’s a specialist language or a social conscience that is required.

Lesser known destinations for services in the AT Kearney list include: Kenya (39), Ghana (29), South Africa (48), Mauritius (30), Tunisia (38), Morocco (34) and Senegal (45) in Africa; and Jordan (35) and Israel (54) in the Middle East.

And there are countries in these regions that have yet to appear on the list. For example, Palestine might not necessarily spring to mind as an IT services destination, but it has a growing IT and BPO sector.

A partnership between Palestine, the UK and the US established Transcend Support in 2012 in Bethlehem. The founders wanted to access the high level of language and IT skills in Palestine to create a high-value BPO sector.

Initially a callcentre, the business has extended into software development and is currently moving to a 300-seat office. Clients come from Israel, Palestine, US and UK.

According to Jerry Marshall, director at Transcend Support, in Palestine there is a high standard of education, especially language and IT skills; it has good access to the Middle East region, including Israel; it is in a nearshore time zone for European clients; and it has low overheads.

There is also a broad range of programming and testing skills, including but not limited to .Net, PHP, Java, Android, Oracle, SQL Server, NoSQL, and MarkLogic.

Sourcing social responsibility in Africa

But it is not always just about helping a business meet financial or technological targets. Outsourcing has a social angle, and businesses often come in for criticism when IT outsourcing results in jobs going overseas – but few can complain if low-level IT and business process work goes to some of the world’s most deprived countries.

With the corporate conscience to think about, countries such as Zambia offer an option through “impact sourcing” – or socially responsible outsourcing, as it is also known. This type of outsourcing uses workers from poor and vulnerable communities to perform functions with lower and moderate skill requirements. The benefits for businesses include social responsibility, low costs and low attrition rates.

According to the philanthropic organisation the Rockefeller Foundation, by 2050, 400 million people under the age of 25 in Africa will need sustainable employment, if the continent continues on its current growth trajectory.
In 2013, The Rockefeller Foundation launched its Digital Jobs Africa (DJA) initiative, to create sustainable employment opportunities and skills training for African youth, with a focus on the IT sector. “Our goal is to positively impact one million lives in Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa, and ultimately, improve the social and economic well-being of entire families, communities, and nations,” said the foundation.

Promoting digital jobs in Africa, the organisation said: “The rise of the IT sector, as well as the adoption of business outsourcing practices that intentionally hire underemployed demographics such as youth, provide a clear opportunity to the right course.”

In Zambia, Impact Enterprises – which offers BPO – was set up to reduce unemployment. Zambia is an English-speaking southern African country of about 14 million people, where 59% of youth aged 20-24 are unemployed

Impact Enterprises provides services around lead generation, order management and data entry. It provides customised services for a client base comprising startups, front- and back-office operations, and research firms.

Projects currently require medium- to low-level skills, such as web research, invoice processing or social media moderation. “These are simple enough for us to progressively train our staff on, but are still high value for our clients,” said Dimitri Zakharov, founder of Impact Enterprises. “Beyond simply providing jobs, as a social enterprise we are committed to the professional development of our employees.”

So whether an organisation wants to engage itself in the IT ecosystem of a city like Bangalore, take advantage of the Soviet Union’s Space Race IT legacy, or improve its social responsibility credentials, global delivery has something for everyone.

 

Source: Computerweekly-Offshoring IT services: Beyond the usual suspects

Growing cyber agenda behind maturing outsourcing market in the Middle East, says expert

Awareness of the increasing risk of cyber attacks is prompting a growing number of organisations in the Middle East to enter into outsourcing agreements in relation to their telecoms networks and systems, an expert has said.

Diane Mullenex, a specialist in telecoms and IT contracts at Pinsent Masons, the law firm behind Out-Law.com, said the trend was reflected in new figures on the size of the outsourcing market across Europe, the Middle East and Africa (EMEA).
“The sourcing market in the Middle East is not as mature as in other parts of the world, owing in part to the fact that there has traditionally been a practice among organisations present in the region to carry out tasks internally or through special purpose vehicles with partner organisations rather than to outsource them,” Mullenex said. “However, there are two main factors that are beginning to shift attitudes towards outsourcing.”
“Firstly, the reduction in the price of oil has brought about price pressures in countries such as Saudi Arabia and forced local administrators to consider ways of making efficiency savings. Outsourcing is a generally accepted way of achieving this. In addition, across the region there are a growing number of public contracts, particularly in areas such as defence, which are being put out to tender as organisations seek to access the latest, most sophisticated and secure telecoms networks and communication systems in light of growing cyber risk they face.”
According to the latest outsourcing index published by the Information Services Group (ISG), the cost of outsourcing and the length of outsourcing contracts are generally falling globally as a result of the move towards greater use of cloud services, digital technology and automation.
ISG said “cloud, digital and automation drive down average award values and contract durations” and that this had been reflected in the fact that it had seen “the lowest annual mega-relationship activity in 10 years” in 2015.
According to ISG, there are 3,114 “active” outsourcing contracts with an annual value of at least €4 million across EMEA. It said the EMEA outsourcing market in 2015 was worth €57.9 billion, up from €35.8bn in 2006.
Although ISG charted a rise in both the volume and value of outsourcing agreements concluded in the final three months of 2015, it said that overall figures for the year showed the market had shrunk compared to 2014. Last year there were 601 outsourcing deals struck in EMEA, down 7% on 2014, and the total annual contract value of those deals was also down 8% on the previous year at €9.4bn.
There was a record high number of outsourcing contracts concluded in the UK in 2015, ISG said. However, it said the total annual value of those deals was down on 2014 figures.
Despite the weaker performance on 2014 levels, the total value of outsourcing contracts concluded in EMEA in 2015 accounted for nearly half of the total value of all outsourcing agreements struck in the world last year (€19bn), according to the ISG figures.
Across the globe, ISG reported a 12% reduction in the value of IT outsourcing contracts concluded in 2015. IT contracts expert Sarah Cameron of Pinsent Masons, the law firm behind Out-Law.com, said this reflects the “continuing shift to smaller deals” being seen in the market.
“Although there are some record counts, the annual contract value is still falling off,” Cameron said. “The bulk of this is down to the fall off in IT outsourcing because of the shift to cloud. This shows the continuing trend of digital transformation disrupting the traditional outsourcing market.”
“There has been a general reduction in recent times of so-called ‘megadeals’, however the ISG research charted the fact that some major deals struck in the latter months of 2015 helped boost EMEA market performance. However, these megadeals were not enough to buck the overall downward trend in the market,” she said.
According to ISG’s report, the average length of outsourcing contracts agreed in 2015 was three and a half years. In 2006, the average contractual period was five years. ISG’s figures also showed that the average annual value of outsourcing contracts put in place in 2015 was €13.1m, down from €19m in 2006. However, the number of outsourcing contracts agreed globally last year was, at 1,445, more than double the 741 deals recorded in 2006.

Source: Out-Law-Growing cyber agenda behind maturing outsourcing market in the Middle East, says expert

Global outsourcing industry finishes 2015 with a bang, says ISG

The Information Services Group (ISG) has published this past week the Outsourcing Index for Q4 of 2015 – a quarterly review of the latest sourcing industry data and trends.

The report unveils a strong last quarter performance for the global outsourcing industry, which hit a four-year high total annual contract value (ACV) this quarter, in spite of a disappointing 2015 overall performance.

The Index, which only accounts for outsourcing contracts worth $5m or more annually, shows that the global industry’s ACV for Q4 rose five percent to $7bn. The ISG attributes the positive result to the closing of nine megadeals valued at more than $100m since last September.

The strong performance of the industry in the last months of 2015 was not enough to reverse a weak first semester. In spite of a two percent increase in the number of contracts signed, up to a record 1445, 2015 saw a decline in the total ACV of the industry of more than eight percent to $23.7bn.

The ISG singled out the decline in the total value of ITO contracts by 12 percent or $2bn this past year as the leading cause for the year’s dismal performance. This decline is attributed to more and more companies moving their IT infrastructure to the cloud. The report also shows that apart from a handful of large deals, the trend is for contracts to be worth less and for an increase in the volume contracts.

According to John Keppel, president of ISG, “The data this quarter and this year confirm more enterprises are sourcing than ever before, and they’re paying less for those services, which encourages them to participate in the sourcing market even more”.

“They’re buying flexibility with cost variability, utilizing smaller deals more than ever as they revamp their processes around cloud, digitalization and automation. Outsourcing continues to have a strong value proposition as we exit 2015 and enter 2016”, he continues.

It is not the first year that the global outsourcing ACV has deteriorated; the industry has seen a consistent yearly decline of ACV over the past decade – between 2012 and 2015 alone the average ACV declined by 20 percent. Average contract duration has also decreased in recent years; between 2012 and 2015 contract duration fell by 15 per cent, coming up to 3.5 years in 2015.

Europe, the world’s largest outsourcing market, had a strong Q4 performance with ACV rising 17 percent to $3.9bn. However, similar to the global trend, ACV fell by eight percent to $11.7bn in 2015 overall after a dismal first semester performance.

As for the UK, the industry’s ACV for the region fell by 19 percent to its lowest since 2009. Similar to the rest of the world, contract volume reached a new high.

Source: SourcingFocus-Global outsourcing industry finishes 2015 with a bang, says ISG

Organisations should learn lessons on outsourcing from BT Cornwall case, says expert

Both customers and suppliers can learn lessons on outsourcing from a recent dispute ruled on by the High Court in London.

The judgment issued by Mr Justice Knowles specifically referred to deficiencies in the drafting and governance of an outsourcing deal between Cornwall Council and BT Cornwall.

The ruling highlights some of the dangers inherent in drafting imprecise termination provisions and how to approach the challenge of terminating all or parts of a long term and high value sourcing contract.

In March 2013 BT Cornwall and a consortium led by Cornwall Council agreed a reported 10 year £160m outsourcing contract which provided for a strategic partnership between the parties covering health, transport, communications and public safety services.
However last month the High Court gave the go-ahead to Cornwall Council to terminate that contract after finding that BT Cornwall was in material breach of the agreement. The court ruled that BT Cornwall had failed to deliver services to service levels set out in the outsourcing agreement.

According to the judgment the outsourcing arrangements got off to a bad start with BT Cornwall breaching a service level agreement due to a “backlog of work”. Cornwall Council and BT Cornwall worked to re-baseline the agreement and sought to agree some revised key performance indicators (KPIs).
However in June last year Cornwall Council wrote to BT Cornwall claiming that it had a right to terminate the outsourcing contract after taking issue with BT Cornwall’s performance of its contractual obligations. This prompted BT Cornwall to take the brave step of issuing legal proceedings in an effort to win an injunction preventing Cornwall Council from serving a termination notice.

It is understandable from BT Cornwall’s perspective why it would not want a threat of termination hanging over the agreement given the early investment it was making during a long term service contract. Suppliers often have to invest heavily in long term contracts in order to transition and transform services, thus making a loss in the early stages of the contract, in order to profit during the mid to later stages of the term. Suppliers also wish to recognise revenue under accounting standards and need to consider their insurance arrangements when threats of termination are made.
In considering the injunction application Mr Justice Knowles criticised the arrangements put in place to underpin the outsourcing. He stated that the outsourcing contract itself was “very hard to work with, including by reason of its impractical length, and the imprecision in some of its drafting.” He said that “its oversight and governance arrangements proved inadequate for all parties when things started to go wrong.”

The judge was also critical of the fact that BT Cornwall and Cornwall Council chose “not to call as witnesses senior people who had obviously material evidence to give”, and viewed dimly an email from a BT employee who had, in an email, encouraged one of his operations team to reduce the impact of KPI breaches through the “manipulation” of certain data. Mr Justice Knowles rejected claims that the message had been “a joke” and said instead that “it reflected both a recognition that things were serious and a preparedness to take inappropriate steps to avoid that”.
Lessons to take from the ruling

It is not easy to interpret from the judgment why the judge was so disturbed by the drafting of the agreement. Long term sourcing contracts of the value of this deal between Cornwall Council and BT Cornwall and involving a wide range of services are by their nature complex and long. Government standard form ICT contracts are good examples.
However, it is clear that neither Cornwall Council nor BT Cornwall was particularly well served by the service levels and KPIs which were set out in the agreement.
The service levels did not seem to have incentivised BT Cornwall to improve its performance and quickly led to the company concentrating its attempts on renegotiating the KPIs which it regarded as not “fit for purpose”. In addition, the judge found that one of the KPIs which Cornwall Council had claimed BT Cornwall had breached was in fact not agreed between the two parties.
Suppliers will be particularly concerned to avoid KPIs and service level breaches giving rise to express customer termination rights, without those termination rights being qualified by a contractually agreed remedy period in which those breaches can be corrected.

In this case BT Cornwall found itself in a completely unsatisfactory commercial and financial position as a result of the breach notice served by Cornwall Council at a relatively early stage of the agreement. Suppliers will wish to ensure that service level breaches provide a service credit remedy rather than an express termination right.
In the event that an express termination right is agreed, suppliers will want to give themselves a remedy period or at least some prescribed period during which the customer has the right to serve a termination notice following service of a material breach notice.
In a long term contract a termination right exercisable immediately is justified in circumstances such as a change of control and insolvency events. It is more questionable that a termination right should be exercisable immediately in the case of service level breach even when the breach is serious and repetitive, as was the case in the Cornwall Council/BT Cornwall contract.

Standard provisions requiring a party to serve a termination notice in a period, usually 30 days, from service of the material breach notice were not used in this agreement. It is usually in both parties’ interests to have a period of time to reach agreement following service of a material breach notice, rather than having to gamble on winning a trial before a judge.

In his judgment Mr Justice Knowles was critical of the governance of the Cornwall Council/BT Cornwall outsourcing arrangement. It is clear from the judgment that the provisions used in the agreement did not appear to put enough pressure on both Cornwall Council and BT Cornwall to reach agreement on their disputed issues. One would expect to see quite prescriptive, mandatory problem management and dispute resolution provisions, although this would perhaps not have helped with the concerns the judge raised about the length and complexity of the agreement in this case.

In outsourcing contracts there needs to be clear linkage between governance, service level breach, problem management, dispute resolution and termination provisions; they need to work in harmony and be clear. Customers and suppliers should ask: will the provisions help them reach agreement on issues which are bound to arise in a contract of this nature, or will they simply help one or other party position itself? There is a balance of risk in major outsourcing contracts and the provisions needs to reflect where the real risk in terms of service delivery lies.

Mr Justice Knowles’ comments about the ‘joke’ email should also serve as a reminder to organisations about the potential impact of communications where disputes have arisen.
In difficult situations where parties face issues which are difficult to resolve, email is often used to vent frustration and make inappropriate comments. Judges used to regard email as chatter and not attach the same evidential weight to email as say, an open letter between the parties sent at senior level. This is not the case any more and employees need to use email with considerable care when issues or disputes arise.

Source: out-law.com-Organisations should learn lessons on outsourcing from BT Cornwall case, says expert by Clive Seddon