Is the legal sector embracing the tech revolution?

Dan Taylor, director of systems at Fletchers Solicitors, explains how the legal sector is opening its mind to the innovations tech has to offer.

At the start of 2017, the Law Society (guardians of the UK legal profession) published a report on the state of tech in the nation’s law firms. In his opening address, Robert Bourns, head of Law Society of England and Wales, expressed the belief that the reputation of lawyers as technological Luddites was undeserved and that the sector was “one with energy and ideas, ready to promote a revolution in how we deliver legal services.”

In the same report, however, research into the awareness of lawyers regarding a range of tech innovations revealed a slightly more realistic picture; a sector where innovation is being led by a select few, with the remainder following in their wake.

This is, perhaps, understandable and not too dissimilar to many other professional services, where the emphasis is on human judgement and skill – rather than efficiency and scalability.

However, what is clear is a growing appetite for innovation and an increasing realisation that technology isn’t replacing professional skill and judgement, but instead enhancing it by enabling lawyers to focus their energies to best the effect.

What tech is currently capturing the attention of lawyers?

The Law Society found that, at best, a quarter of lawyers are unaware of emerging technologies (in areas such as artificial intelligence), rising to 38 per cent, 64 per cent and 75 per cent for Big Data analysis, IBM Watson and RAVN respectively.

However, at the other end of the spectrum, the sectors’ innovators are focusing on a range of potential solutions, with artificial intelligence and natural language processing (NLP) being most closely followed by 14 per cent to 20 per cent of the most innovative firms. These areas of tech are narrowly ahead of other appealing solutions, such as Robotic Process Automation (RPA) and expert systems.

A key reason why these are being singled out and gaining the most attention is that they are seen to be most closely aligned to improving client services, making the administration of legal services smoother and quicker, while maximising the quality time with their lawyer.

The report also singles out the desire by firms to use tech to become more agile and stimulate growth. In particular, firms are looking to increase collaboration – with those both inside and outside the firm – and use technology to access new markets, particularly by better serving the needs of international clients.

What specific solutions are lawyers looking for?

In 2015, there were 600 legaltech start-ups offering new solutions to legal clients. Despite this, the report by the Law Society found that there is still suspicion over the extent to which these can currently replace tasks carried out by lawyers and their human assistants.

Instead, the interest appears to be focusing on the future development of ‘augmented workforces’, where computers and humans form a true partnership. Machines will be capable of following basic human-to-human social interactions and lawyers will possess more computer skills to better tailor and utilise technology to support their day-to-day work.

The role for AI

AI programs and solutions have the potential to be invaluable when it comes to coping with the increasing amounts of data that lawyers have to handle, making it easier and quicker to sift through and analyse large collections of documents. It can also be used to automate a number of time-consuming tasks, particularly when it comes to legal research.

Greater use of intelligent systems could allow lawyers to focus more of their time on more complex, high value tasks like the core legal analysis, driving efficiencies and helping lawyers to make quick and accurate decisions. Such systems also have the potential to reduce overhead costs and increase profits.

Optimising online legal services

Law firms have operated online for many years, but at the moment, many firms only offer a small selection of their services online. A large number of legal services offered online merely comprise of external links to communication services, such as Skype, or online forms to be completed for primary legal processes, such as conveyancing or probate matters. Very few legal firms offer “end to end” fully integrated online services, which have long been adopted in other sectors, such as insurance or financial services.

At some point, law firms need to acknowledge that the legal expertise that’s long been the preserve of lawyers is becoming more freely available to the public. Once this is accepted and embraced, law firms will need to start offering their services both in the traditional way in order to survive, while also offering a variety of different online-based options to allow the client more flexibility in how they purchase legal services.

Introducing intuitive management systems

As of yet, such an intuitive case management system isn’t currently available, even though the technology exists and we all use it. This would reduce the time spent on case management significantly and would free up more time to get through more of the core legal work. The development of such a system will surely dominate the market, and those law firms that adopt these systems would see huge efficiencies in productivity and cost savings.

The Law Society’s report reveals much about where tech and law with combine and thrive. Most notably, it is those areas where tech isn’t seeking to replace the human element, but instead to enhance it – augmenting rather than replacing the skills and judgment of lawyers to the advantage of their clients.

Source: itproportal-Is the legal sector embracing the tech revolution?

Are your Contracts Vulnerable and what to do about it.

How vulnerable are your contracts to failure? In the recent series of posts on contract retention, I showed you how to undertake a contract vulnerability analysis. In the post 6 steps to Improving Contract Retention I made reference to the STaRS Model from the book The First 90 Days by Michael Watkins. Using this model can provide you with an effective tool that will allow you to understand how vulnerable your contracts are, and what you need to do as a leader to grow these contracts or to re-energise them.

The book was originally written to assist leaders to make successful transitions into new roles. Like all good models, STaRS is a simple concept but deep in meaning and application.

There are effectively 3 layers to the model and I have therefore chosen to split this into a series of three consecutive posts. Which will cover

• The 4 stages of contract vulnerability
• The 3 strategies to Sustaining Success
• Matching the required leadership skills to contract vulnerability

This series of posts will set out the situation that you are likely to encounter when reviewing a contract and provide you with a means of understanding what is happening and what action you need to take to remediate the situation.


I first read the book at the time that I was moving from one job to another more senior role in another company. I wanted to use the book to help me set out a strategy for the first 90 days to understand the new business I was joining and my role in it. Michael Watkins’ premise in the book is that Executives in transition must gain a quick and deep understanding of their new organisation and adapt to that reality within the first 90 days.

Whilst there is a lot more to the book than just the STaRS model it became apparent to me that the model was applicable to Contract management. After all the business of a Service provider is a combination of a number of small businesses that we call contracts. Each contract must be run as a separate and distinct business and as such the premise of the model hold true.

The STaRS model lends itself to reviewing each individual contract as a business at different stages of development. No two contracts are the same and no one size fits all approach. So in order to avoid the problem Mark Twain paraphrased “if the only tool in your box is a hammer then every problem will look like a nail”. We need a framework for assessing the contract, which will allow you to tailor your strategy accordingly.

It is important to understand that long contracts tend to move along a predictable continuum, rarely are there catastrophic failures, which take a contract from a stable situation to termination. Rather there is a foreseeable transition process through which contracts pass on their way up or down the continuum towards success or failure. It is at those points that your strategy determines the fate of the contract.

Using the STaRS model you’ll be able to recognise the clear differences between the different situations and the strategy and skills that are required to bring about positive change.

The first thing to note from the model is that there are fundamentally five states of a contract including Shutdown. The termination of a contract needs no introduction or explanation and in most cases is a stage that we want to avoid. There may be a situation where you may want to exit from a contract but for the purposes of this model we will not dwell on this here

Firstly the model does three things it provides a largely predictable path, which all contracts will travel at some time in their life-cycle. Secondly, the model neatly categorizes the different stages of a contract into 4 clearly distinct phases, all of which have individual characteristics. Thirdly and possibly most importantly the model sets out 3 cycles, which describe the journey between the stages depending on whether you are succeeding or failing.

In all situations one wants to bring back the contract to the Sustaining Successplatform for it is only from this stage that the contract can grow.

The 4 STaRS stages are follows

  • Startup
  • Turnaround
  • accelerated growth (not really a stage and will be covered in the next post)
  • Realignment
  • Sustaining Success

1. Start-up

In the contract Start-up phase, the prevailing mood is one of excitement and enthusiasm as well as a degree of confusion. More often than not contracts are started following an accelerated timetable of mobilisation. This is a period of change for all parties, both our staff as well as the Client.

The leader’s job is to channel the energy into productive directions and to assemble all the capabilities resources and technology to get the contract off the ground.


The challenge is to build and implement the contract including the operating strategy and getting systems up and running from scratch. You will be responsible for recruiting and welding together a high performing team, whilst having only limited time and resources.

This will be a period where personalities are sizing up each other and all of this has to be accomplished without affecting the clients business and at the very least maintaining the service standards that were in place prior to your contract. The signature on the contract is still wet and you are still on probation. Failure to adopt and adapt at the Start-up phase will lead to termination before you have had a chance to progress.


Whilst you can get bogged down in the changes there are a number of opportunities available to you during this period. You’re in on the ground floor, you’re a fresh broom with the ability to sweep clean. You have the chance to impress and get things right from the beginning.

If you have managed to undertake your change management right your new team members will be energized with the possibilities on the contract. You will have a team of transferring employees who are looking forward to the challenge of being at the centre of your companies focus. This is a world of endless possibilities and there should be no rigid preconceptions of what is achievable.

2. Turnaround

In a Turnaround situation, your job is to save a contract from the next step which is termination. It is highly likely that the contract which is widely acknowledged to be in trouble. In an honest appraisal of the events, the group of people on the ground are likely not only to be aware of the situation, but they have known they are in trouble for some time.

We may be dealing with a team that has been like a rabbit in the headlights, paralysed, directionless and leaderless. Alternately there may even have been willful neglect, whereby everyone knew what was happening but nobody actually grabbed the bull by the horns and did anything to remediate the situation. In either situation, there were road signs along the way have been ignored and you will be dealing with a group of people who are close to despair.


The challenges will be to immediately re-energise a demoralized group of employees and crucial stakeholders. You’ll be called upon to make tough and effective decisions under time pressure.

They’re looking for a leader to take charge and provide light at the end of the tunnel. You will need to undertake resource intensive reconstruction work and need to make tough calls early.

In situations such as these, it is important that the leader goes deep enough with painful cuts and difficult personnel choices. It is crucial to the ongoing morale of the team that is left behind, that you cut once only and so you need to cut deep. You do not want to be in a situation where six months down the line you have to repeat the process. This leaves the team totally demoralized and not knowing whether those left behind are safe.


Whilst this is an unpleasant exercise to have to go through with what is necessary to survive.

In the case of willful neglect, it is likely that everyone recognises that change is necessary but nobody has had the courage to execute. In the case where the team is hapless and clueless, your job as the leader is to communicate the need for change. Whilst there will be casualties, if you have done this with empathy everyone will recognise that change is necessary and that those left behind will feel safe and empowered to deliver.

As a leader, your job is to ensure that the affected constituencies are offered significant external support. Not only is this the right thing to do it is important for the other team members that are left behind see you that they will not be left to fend for themselves.

3. Realignment

Where the vulnerability process identifies a contract that requires Realignment, this is akin to a minor procedure as opposed to the major transplant surgery required in a Turnaround situation.

As the model indicates, contracts that require the deep and painful process required by a Turnaround situation have almost certainly gone through the Realignment stage without anyone recognising the need for minor corrective action.


In a Realignment situation, your focus as the leader should be on re-energising a previously successful initiative that has drifted into trouble and now faces problems.

Unlike the Turnaround situation, it is unlikely that the team in place will recognise the signs and so the major obstacle that you will have to meet head on will be to pierce through a veil of denial that is preventing people from confronting the need to realign the contract. The challenge, therefore, will be to convince employees that often deeply engrained cultural and operational norms are no longer contributing to high performance and change is necessary.

Do not underestimate this situation. Whilst the size of the behavioural change may be less than a Turnaround situation the challenge will be in getting the team to recognise that change is required however small that may be. This will require careful negotiation and adroit skills at managing egos in being able to refocus the team.


The once successful contract will in all likelihood have significant pockets of strength upon which you can build. You are likely to have a client who is a significant ally and still has enough invested in the contract to see it succeed. The support of the client will be a significant rallying point for the people who need to be able to continue to see themselves as being successful.

4. Sustaining Success

In this situation the contract is humming along, performance is above expectation and you are likely to have significant wins under your belt. Confidence in you and your team is high. This, of course, is a great place to be as the leader. However, you need to be aware that the potential exists to slip into the Realignment stage. The preservation of the vitality of the contract and its relationships is your responsibility and you need to take it to the next level by growing the business.


Things are going well but you need to exercise caution, this is not the time to coast. Sustaining Success is the only platform from which you can grow the business. This means that the team will be required to do their day-to-day job in running the contract but in addition, run with up-selling and cross-selling initiatives. Beware, detraction from the day to day issues is a very real danger.

Unfortunately, it is a reality that clients will not entertain your advances in terms of additional scope or services if the day-to-day issues are being left unattended or worse still there are service failures. You, therefore, need to play a good defensive role before embarking on too many new initiatives and/or services. As a leader, your challenge will be to find ways to keep your team motivated and combat complacency as well as finding new directions for growth from an organisational and personal capacity.

With a team who feels that they are on top of their game, you may need to invent a challenge to stretch their capability and capacity and find a new direction for growth


Your previous successes will undoubtedly mean that you have a strong team is likely to be in place. This does not mean necessarily that day will be the right team to instigate new initiatives and supplementing the team with sales personnel for the up-selling and cross-selling initiatives may well be required.

The window of opportunity may be fleeting but growing the contract requires a continual balance with the daily operational needs. The foundations are undoubtedly in place that your people will need to be continually motivated to continue the history of success.


In your assessment of your contract’s vulnerability, it will fall into one of these categories. If you are in Sustaining Success well done, you have a platform from which to build. I will talk about the Growth Cycle in the next post but beware, this has its dangers too. If you are in Turnaround or Realignment you need to work at getting the contract back to the Sustaining Success platform. I will talk about the different strategies in the Recovery Cycle the Crisis Cycle in the next post as well.

Source: your Contracts Vulnerable and what to do about it.

IT outsourcing: What to do when your contract is about to end (whitepaper)

Outsourcing contracts worth billions are up for renewal in the next few years. In this special report, Computer Weekly examines how unprecedented change is complicating the CIO’s renewal decision.

Topics covered:

  • According to ISG, there are nearly 3,000 IT outsourcing contracts worth more than $5m a year around the world coming up for renewal in the next three years – representing a combined total value of over $270bn (£175bn). Among them are 1,400 deals in Europe, the Middle East and Africa (EMEA) worth more than $14bn altogether. Accenture, Atos, BT, Capgemini, HP, IBM and TCS all have a large number of contracts coming to the end of term.
  • When its major IT deal with IBM (previously PwC), Fujitsu and Concentrix came up for renewal after 13 years and £1.6bn spent, the Driver & Vehicle Licensing Agency (DVLA) undertook a two-year project to bring it all back in-house. The move in-house brought more than 300 staff to the DVLA from the suppliers, taking its total IT workforce to over 630. The insourcing is expected to save the government agency at least £225m over 10 years on top of £70m on procurement costs. The DVLA plans to become an agile IT organisation.
  • Significant technology change will have taken place since old contracts now approaching renewal were first signed. CIOs need to know how cloud computing, automation and artificial intelligence can help them meet the aims of the business, but they also need to be able to spot a fad. This, though, is easier said than done as businesses enter the new territory of digital business.
  • Finding the best location – or mix of them – for IT services has become a more complicated task in recent years because CIOs have more options. Suppliers all around the world now offer IT and business process delivery services, all of which have their own advantages.

Download the WhitePaper from: Computerweekly-IT outsourcing: What to do when your contract is about to end




EU Regulators Express Their Take On Safe Harbor Ruling

The Article 29 Working Party (WP29) issued on 16 October 2015 what it called a “robust, collective and common position” on the consequences of the recent decision of the European Court of Justice that declared Safe Harbor mechanism for transfers of personal data to the US invalid. The WP29 suggested that the EU and the US reach agreement before the end of January 2016 on an appropriate “political, legal and technical solution” for data transfers to the US.

The WP29’s statement follows in the aftermath of the European Court of Justice’s decision in Maximillian Schrems v Data Protection Commissioner. Our Legal alert of 7 October 2015 discussed the ramifications of this judgment and suggested EU model contracts as a temporary and Binding Corporate Rules (BCR) as a more permanent basis for structural data transfers between the EU, the US and elsewhere. The WP29’s statement confirms that both EU model contracts and Binding Corporate Rules can indeed continue to be used.

The WP29’s statement warns about the potential of coordinated enforcement by data protection authorities (DPAs) after the end of January 2016. This coordinated enforcement would likely initially focus on Safe Harbor based transfers. Because of the differences in individual statements of various national DPAs, the extent of actual enforcement will likely vary from country to country. The WP29’s statement further indicates that also the use of alternatives for Safe Harbor, such as model contracts and BCR discussed above, will become subject to more scrutiny and potential enforcement. When employing these instruments, it is therefore important to ensure that their use results in actual data privacy compliance and not just the signing of documents.

Given the broad scope of the WP29 post-Safe Harbor guidance, we advise corporates to map and assess the compliance of both their internal and external data transfers globally.

See also the full text of the statement by the WP29.

Highlights of the WP29’s conclusions

The question of massive and indiscriminate surveillance is a key element of the ECJ’s analysis. This surveillance is incompatible with the EU legal framework. Transfers to third countries where the powers of state authorities to access information go beyond what is necessary in a democratic society will not be considered as safe destinations for transfers
The WP29 is urgently calling on EU member states and European institutions to open discussions with US authorities in order to find political, legal and technical solutions enabling data transfers to the US with the assurance that fundamental rights will be respected. According to the WP29, an intergovernmental agreement providing stronger guarantees to EU data subjects, such as a new Safe Harbor agreement, can be part of a solution
Transfers that are still taking place under the current Safe Harbor framework after the ECJ’s judgment are unlawful. EU DPAs might investigate data transfers on a case-by-case basis, for instance on the basis of complaints or on their own initiative
If by the end of January 2016 no appropriate solution is agreed between EU and US authorities, the DPAs will take action, which may include coordinated enforcement action
The WP29 will continue to analyse the impact of the ECJ’s judgment on other transfer tools. The WP29’s statement makes clear that EU Model Contract Clauses and Binding Corporate Rules may continue to be used
According to the WP29’s statement, businesses should reflect on any potential risks they may be taking when transferring data and should consider putting legal and technical solutions in place in a timely manner to mitigate those risks and which also respect EU data protection laws.
Will EU DPAs give businesses a grace period to align their processes with the ECJ’s ruling?

The WP29’s statement indicates that until the end of January 2016 national DPAs may investigate and enforce any specific data transfers to the US or elsewhere based on any adequacy mechanisms. At least one European DPA (UK’s Information Commissioner) recognised that companies would need time to align their data transfers with law. On the other hand, the German DPA in Schleswig-Holstein has already suggested that companies which fall under its jurisdiction terminate contracts (also using EU Model Contract Clauses) for data transfers to the US. The Schleswig-Holstein DPA backs this guidance up by referring to potential enforcement actions.

Beyond Safe Harbor: real compliance is the key

Following the ECJ’s decision, we advised companies in our previous Legal Alert to analyse which of their personal data transfers are based on Safe Harbor. In doing so, a distinction can be made between:

data transfers through US based cloud and outsourcing providers, which can temporarily be based on the EU Model Contract Clauses, and
intra-group data transfers, which can be based on BCR or the EU Model Contract Clauses for simple intra-group transfers.
In addition to due diligence on data transfers based on Safe Harbor previously advised, we recommend that companies extend their efforts and assess material data flows to other non-adequate countries. More specifically, we recommend that companies:
analyse data flows to non-adequate countries, both intra-group and to third parties, and investigate the ways to bring those in line with data protection laws
elaborate short-term strategies for achieving compliant transfers on a case-by-case basis
review and regularly update data processing policies and practices to ensure that these policies are robustly implemented in practice.
The above adds agility if there are changes to the adequacy status of other data transfer mechanisms or adequate countries. And we recommend staying abreast of developments in this area, monitoring national DPAs relevant for your business operations and engaging in conversations with them in case of uncertainty.

Some additional background

The EU is currently working on a general data protection regulation (GDPR) that will harmonise data protection laws throughout the EU, have extra-territorial effect and introduce strong mechanisms for protecting personal data. The final text of the GDPR is expected to be adopted in 2015 and to come into force within 2 years. In anticipation of the GDPR, EU DPAs have been taking an increasingly active role in enforcing data protection law and pursuing violators.

The ECJ has followed this trend by a string of groundbreaking cases. In 2014, the ECJ invalidated the EU Data Retention Directive for massive and unjustified collection and storage of personal telecom data. The same year the ECJ extended European jurisdiction over Google Inc. and gave a new dimension to the right to be forgotten. Less than a month ago, in Weltimmo (C 230/14), the ECJ recognised a right – and a duty – of national DPAs to investigate claims of individuals regarding violation of their rights under data protection law regardless of the applicability of the national law. In Schrems, the national DPAs were reinstated in their authority to investigate and act on the claims on non-compliant data transfers outside the EU, even if there is an adequacy mechanism established by the European Commission.

Source: mondaqEU Regulators Express Their Take On Safe Harbor Ruling by Richard van Staden ten Brink, Geert Potjewijd and Wanne Pemmelaar

How to Address Tomorrow’s Outsourcing Management Issues Today

A recent article provided tips for effectively managing outsourced projects. The article addressed issues arising in geographically diverse and international outsourced projects, and focused on operational considerations to mitigate the issues. The adverse effect of many (if not all) of these issues can be avoided or reduced through mindful, strategic drafting and negotiating of outsourcing transaction documents.

Below are a few of the more prominent issues flagged in the article along with methods by which they can be preemptively addressed.

  • Help the outsourced party (or parties) understand your business and goals. This is a simple concept, but one that can be easily overlooked at the time of entering into an outsourcing arrangement. Beginning at the time of selection of an outsourcer and continuing through negotiations with that outsourcer, you should be mindful that the outsourcer fully understands your business, including your relevant processes, markets, customers, and people. In our experience, this tip becomes more important in situations where an outsourcer is entering a new market or a different segment of a market in which it was previously a mainstay. In these situations, disagreements during negotiations can result from an outsourcer’s view that “it has worked before, so it will work here,” assuming that terms that have been sufficient in their previous markets or segments will be sufficient for your business. If the outsourcer is able to better understand your business and its intricacies, particular issues arising from your business can be resolved and addressed in your outsourcing agreement.

  • Make sure everyone is working from the same playbook. Accuracy, overall effectiveness, and consistent application of the company’s requirements are benefits that result from following this best practice. Most would agree that it is important to develop detailed services descriptions and key performance indicators and/or service levels for your outsourcing agreement. However, an operations-level playbook should also be developed and maintained in connection with any large or otherwise complex outsourcing transaction. This playbook (often titled “Services Documentation” or “Operations Guide”) should address day-to-day interactions and methods of performing the services that are more granular than the services descriptions. The terms for developing and maintaining this playbook should be included in your outsourcing agreement, although the detailed and fluid nature of the playbook often justifies a mechanism to amend the playbook upon mutual agreement of select business leads rather than requiring a formal amendment to the outsourcing agreement.

  • Make sure everyone is working from the same files. Have good project management software and make sure all parties use it. Both of these practices should be considered when determining the software and technology requirements to be included in your outsourcing agreement. Your outsourcing agreement should clearly delineate (typically in an exhibit) the software and systems being provided by the company and those being provided by the outsourcer. You can also call out specific technology or systems to be used for certain processes within the services descriptions attached to the agreement. Often, the outsourcer is able to offer better software and technology solutions as part of their services offering. On the other hand, the company will often require the outsourcer to utilize its current software or systems for continuity purposes. By including software to address version control, document integrity, project management, and appropriate access to project data when developing this list of technology to be included in your outsourcing agreement, you are better positioned to reap the rewards of these practices.

  • “Sync up” regularly. It is important to maintain a fixed schedule with periodic “sync ups” between your company and the outsourcer to promote communication and accountability. This practice should be addressed with detailed governance provisions in your outsourcing agreement. Your agreement (or an exhibit to the agreement) should specify committee types, committee members, and the frequency of and topics to be addressed at meetings of those committees. Governance should not be limited to high-level executive committees. Operational committees and/or key operational roles from each side—each with defined roles and periodic required meetings—are equally important to a successful outsourcing relationship and should be addressed in the governance provisions of your agreement.

Source: to Address Tomorrow’s Outsourcing Management Issues Today

Incentivizing Performance in Cloud and Outsourcing Contracts: Key Points

Defining and incentivizing high-quality performance is often key to the structure of complex service or technology-oriented agreements. In this class of agreements, merely having a performance warranty that answers a yes or no question – in breach or not in breach − just doesn’t do the job. To augment those performance warranties, a common approach is to use a “service level agreement” (SLA). The SLA is a familiar and essential feature in information technology-oriented agreements, such as outsourcing, cloud computing, software-as-a-service and the like. When properly structured and negotiated, SLAs can be an effective tool for more nuanced vendor management than a performance warranty alone could afford. This article will catalog some of the best practices for structuring a service level agreement, and discuss elements enterprise corporate counsel can put to use in the IT and service contracts that come across their desk.

Specify Metrics. An initial task in developing an SLA is to specify the metrics that will be utilized. Metrics should meet three criteria. First, they must be objectively measurable without undue overhead or difficulty. While it may be desirable, for example, to measure how long a particular process takes in order to incentivize minimizing that time, if there isn’t a way to record when the process starts or stops, that just can’t be a useful measurement. Second, they should be truly reflective of performance quality. Third, they should be within the control of the party whose performance is being measured. The last point may seem obvious, but identifying circumstances in which a metric is affected by the actions of others is not always easy.

Consideration also must be given to the number of metrics that are going to be measured. Part of the objective of an SLA structure is to have a simple, efficient system for contract management. If the number of metrics imposed is too large, the benefits can be lost in the overhead of managing additional infrastructure and process, for example, to measure and monitor each one.
Establish Metric Categories. Typical service level agreements divide the metrics to be measured into two categories: those with financial consequences and those without financial consequences. Terminology varies widely. Often CPI (for “critical performance indicator”) is used for metrics with financial consequences and KPI (for “key performance indicator”) for those without. (Very confusingly, the term “SLA” is sometimes used to refer to both the CPI metrics and to the entire arrangement. This article uses “SLA” for the arrangement and “CPI” for a metric with financial consequences.) Another term, OLA (for “operating level agreement”) is also common and generally designates KPIs that are outside a formal contractual structure.

A metric under a service level agreement often will have a life cycle of different statuses, as a CPI or KPI. At the initiation of an agreement, both CPIs and KPIs are generally established. When new metrics are added later they typically begin as KPIs for some period before being moved to CPI status, and there is generally a process by which the customer can “promote” or “demote” metrics from one status to another.
Establish Measurement Systems. As noted, an effective CPI needs to be objectively measurable. The service level agreement should specify the manner in which the measurement is to be taken and which party has to bear the cost of maintaining that system and obtaining the periodic measurements. It is fine, for example, to say that an IT system will have a 10 millisecond response time to certain inputs, but most likely another piece of software needs to be licensed, implemented, deployed and maintained, all at some expense, in order to capture that information. In a complex environment with multiple metrics, a service level agreement typically also would provide for changes in measurement systems over time and for the addition of new systems when metrics change.
Set Metric Levels. In addition to defining the metrics to be measured, a service level agreement also specifies what values the vendor is charged with achieving for those metrics. Typically two (sometimes three) levels are specified, each with different financial consequences. Again terminology varies widely, but in general the three levels that are commonly addressed are “minimum,” “target” and “bonus” levels. What happens at each of these levels varies and is often the subject of negotiation. However, financial consequences usually result if performance is worse than the minimum level, or if performance is worse than the target level for multiple periods. If a “bonus” level is present – a point often seriously negotiated – it may entitle the vendor to additional compensation or to offset other performance failures.

In any event, in a service level agreement, a chart just listing these metric levels is never enough. The service level agreement needs to be written to specify how each of these items is to be calculated and what the specific financial consequences are to be. Some SLA formats use the convention of converting all metrics into a scale from 0 to 100 (or expressing them as percentages). As in complicated price formulas in a contract, the key here is providing detailed, step-by-step language so the intended calculation can be performed without disagreement.
Determine Financial Consequences. When a CPI is missed there are financial consequences. Often these are referred to as “penalties,” but careful lawyers will structure them as fee adjustments due to the legal principle that penalties in private contracts may not be enforceable by the courts. Typically, therefore, the financial adjustment is referred to as a “service credit.”

The variations on how service credits may be structured and allocated are as numerous as the types of arrangements to which service level agreements are applied, but a typical structure starts with an “at-risk amount” – a maximum dollar value that would be the most a vendor could lose in a given billing period for service-level failures. There is then some mechanism to allocate portions of that amount to individual CPIs, so the particular service credit amount for a given CPI miss is a fraction of the at-risk amount. Though often heavily negotiated, the overall at-risk amount typically is determined as a percentage of the amount being spent under the agreement.

Importantly, the fraction of the at-risk amount assigned to individual CPIs is often based on more than the total at-risk amount (for example, one-fifth of the at-risk amount assigned to each of 10 CPIs) with the at-risk amount acting as a cap on service credits if there are multiple breaches in a period.

When a service level agreement has a large number of CPIs and KPIs, it is common to use a point allocation system by which the customer can emphasize and de-emphasize different aspects of performance over the life cycle of the agreement or as vendor performance in different areas becomes more or less problematic. For example, if, in an outsourcing agreement, there were CPIs that measured transaction accuracy and installation time, the customer would be able to put a greater or lesser proportion of the at-risk amount in any reporting period on one activity or the other.
Decide How to Handle Infrequent Occurrences. One twist that often comes up in service level agreements is how to handle metrics that measure infrequently occurring events or events that may have a very low frequency in some measurement periods. For example, if a metric measured how often an IT vendor timely delivered large print jobs, but in some months there were only one or two large print jobs, then a single late delivery would drop the metric down to 50 percent or zero. Of course, if such a possibility is significant, it calls into question whether that metric should be used as a CPI. But if there is good reason to make it a CPI, it would not be uncommon to negotiate some form of contractual relief for the vendor. This may involve aggregating across measurement periods, aggregating with other metrics, or simply excusing the violation.
Avoid Agreements to Agree. In addition to setting what metrics are to be measured, the service level agreement needs to set the values that parties seek to achieve (the target and/or minimum values). While this should seem obvious, all too often the values are left as an “agreement to agree” later, after the contract is signed. Once the contract is signed, each party has strong contradictory incentives in how they would want to set those metrics, so it becomes very difficult to reach the necessary mutual agreement and for those metrics to serve the function of incentivizing quality performance.

In some instances there are compelling reasons to defer setting the metrics, for example, where the processes being measured will be established only after the contract is in place. In that scenario, it is not unusual to use a baselining process that establishes initial levels of the various metrics and then uses some formula from those to set the going-forward levels. The difficulty then becomes defining a baselining process that cannot be artificially manipulated in order to suppress or inflate the CPI metrics.
Define High Priority Items. Commonly, some subset of CPIs may be designated as higher priority or “critical” and have some additional sanction beyond the service credits associated with them. This might be an augmented amount of the service credit or some other remedy such as contract termination for cause.
Carefully Formulate Automatic Adjustments. Some agreements provide for changes in CPIs over time, often as a mechanism to incentivize continued increases in efficiency and better performance over time. This can be a formula that simply “raises the bar” on the target or minimum metric by some percentage each period, or a more complex formula that takes into account actual performance and requires the vendor to supply improvements over time. Another approach is to require a fee adjustment if the vendor consistently overperforms the required metrics.

All of these approaches require thoughtful analysis and work best when there is good historical data with which to evaluate trends. Both the vendor and the customer have opportunities to influence how these requirements are applied, by how the initial state is set and how the contract is performed over time.
Use Comprehensive Reporting. An often-overlooked feature of service level agreements is robust reporting and assuring that the measuring and monitoring systems and processes are designed to provide detailed and timely reporting. In a well-crafted service level agreement, reporting terms go beyond the technical aspects of obtaining and sharing data. They also include thoughtful processes, such as meetings and escalations, to address issues and perform appropriate root-cause analysis when a failure or a trend of failures occurs. The goal of SLAs generally is not to obtain or avoid the financial consequences, but rather to serve as a meaningful input to real-world actions to help the parties achieve the purposes of the agreement.
Tailor each SLA to its Services. While the 10 points above have been termed “best practices” in this article, not all the features outlined here will be appropriate in every context. A nine-figure corporate infrastructure IT outsourcing should certainly address each of these items, but a $100,000 social-networking cloud service might be overpowered by an SLA that heeded all the elements described above. Enterprise corporate counsel should be aware of these aspects of SLAs and fit the metric and incentive structure to an appropriate risk-and-benefit analysis of the services to be provided.

Source: Incentivizing Performance in Cloud and Outsourcing Contracts: Key Points

Outsourcing and bribery and corruption: a risky business?

When business conditions are tough, outsourcing can seem a good way to reduce costs to maintain margins. It may involve procuring goods or services locally or offshoring in countries with lower costs. The benefits of outsourcing are obvious. Less obvious are the risks, particularly when offshoring. 

A significant governance risk for companies that outsource overseas relates to bribery and corruption. Not only does distance make day to day oversight difficult, but different cultural assumptions may result in business practices happening at a local level that are risky at a global level.


There has been a global focus on enacting anti-bribery and corruption legislation since the 1997 ratification of the OECD convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The most well known examples are the US Foreign Corrupt Practices Act and the UK Bribery Act 2010. Lesser known are the equivalent anti-bribery and corruption provisions enacted in Australia in the Criminal Code (Cth).

Given the criminal liability risk (including imprisonment for individuals), the large monetary penalties available against companies, their officers and directors, and the potential for reputational damage, this is an area that directors of multinational and Australian companies with any offshore exposure cannot ignore.


Outsourcing offshore, particularly to emerging economies where there are likely to be significant costs savings, brings with it the risk of conduct by agents which may fall foul of anti bribery and corruption laws.

The Panalpina story neatly illustrates this point. A number of oil services companies outsourced aspects of their freight forwarding and customs clearance in Africa to Panalpina, a Swiss company. Panalpina and a range of its clients were investigated for violation of US Laws.

Despite arguing that they were facilitation payments, Panalpina was proven to have made improper payments to customs officials on behalf of its clients and, in 2010, Panalpina and a number of its clients, including Shell, were fined more than $US200 million between them.


Companies can sometimes avoid liability for the acts of their employees or agents if they can demonstrate they did not expressly or tacitly approve the conduct and/or they had adequate measures in place to prevent bribery and corruption by the company, its agents and associated entities. Such measures must include an appropriately risk based and robust, top led compliance program.

Clearly, outsourcing is not a way of removing the risk of doing business in countries where bribery and corruption is part of the local landscape, nor is it a risk-free way of minimising overheads.

Rather, it is important for companies to recognise that outsourcing offshore brings with it new risks which need to be addressed both in the procurement process (through adequate due diligence, risk assessment and contractual provisions) and more broadly in its corporate compliance program.

With the right advice and the right compliance measures the risks of outsourcing can be minimised and the benefits more safely enjoyed.

Source: Outsourcing and bribery and corruption: a risky business?

Outsourcing and bribery and corruption: a risky business?