The document discusses crisis in IT outsourcing contracts and how to solve and avoid them. It identifies six clues that typically indicate a crisis, such as unsatisfactory service quality and incomplete resource reports. If not addressed, these clues can deteriorate the relationship and make it difficult to achieve outsourcing benefits. To solve a crisis, both parties must admit the seriousness and discuss issues frankly with new negotiators. They should find fair solutions, improve processes, and define action plans. To avoid a crisis, parties should devote attention during contract negotiations to quality indicators, resource metrics, scope definitions, resource experience levels, and mechanisms for innovation.

1. Crisis in IT outsourcing contracts: how to solve it ...
and what you should have done earlier
Alfredo Saad - IT Sourcing Consultant
Have you liveda crisis inanIT outsourcing contract? What actions shouldbe takento solve it?Even more, what
could have beendone earlier to avoid it?
 Six clues to check for a crisis
At least 6 cluestypically moulda crisis in anIT outsourcingcontract. All ofthemevidence some kindof discomfort
inside the buyer organizationwhich has the perception that...
...the qualityof the services provided is unsatisfactory,
...the resources consumptionreports are incomplete and, still worse, error prone,
...some requestedservices are not executedallegedlybecause they would be out-of-scope,
...the amount andskill ofresourcesallocatedto the contract operations are insufficient
...the resources allocatedbythe provider are not aware ofthe buyer’s businesspriorities
...the provider action is always sluggishandreactive andnever come up withan innovative solution
Such clues, when not timelyaddressed, tendto deteriorate the relationship betweenparties, making it difficult,
little bylittle, the achievement ofthe potentialoutsourcing benefits.
Such deteriorationcan be identifiedthroughsome clear signals, made explicit bybothparties, such as:
o A feeling that eachpartyis trying to take undue advantage from the other party
o Emotional discussions at the wronghierarchical level inducing insurmountable personal conflicts
o Intolerant attitude during discussions about divergent visions around contract terms
o Difficulties to openlydiscuss andagree a solutionfor the problems found
o Inabilityto argue through the utilizationof solidfacts anddata
 Actions to solve the crisis
In an extreme situation, suchcrisisscenario canreachlevelswhichmayirrevocablyprevent its reversion, leadingto
a contract cancellation, which typicallyresults in a tiring and traumatic process for bothparties.
Crisis remediationmandatorilycompels bothparties to admit the seriousness of the scenario and to recognize that
the conflicting points must be discussed and solvedin a frankandfair way. Some actions typicallyadoptedare:
 The replacement ofthe previous interlocutors, exhaustedafter somanypersonal fights, byfreshlynew
experiencednegotiators, sponsored bythe adequate executive level of both parties.
 Their clear and objective mission can be summarizedas:

2. o to find fair solutions for the identified conflicting points, alsoeliminating anypast financial
misaligned viewpoints,
o to document the agreed criteria, aggregating them into the formal contract terms insucha way
that future divergent matters canbe solved rapidlyandwithno ambiguities
o to improve the qualitymeasurement mechanisms andalso the report on consumed service
volumes, formalizingthe agreedterms intothe contract, insuch a waythat accur,ate data turn
out to be the basis for future discussions and
o when applicable, to define actionplans to remedyall failures identified, with their respective
owners and deadlines, whose progressionwill be periodicallytracked byboth parties, including
the executive sponsors
 Along the process, the negotiators must be supported, whenneeded, by some experts (legal, financial,
etc) to discuss, franklyandopenly, some specific questions concerningtheir area ofexpertise.
 How to avoid the crisis
Actually, the actions proposedabove constitute a reactive actionto an undesirable scenario that alreadyexists.
However, some previous actions shouldhave beentaken to drasticallyminimize the probabilityof a crisis
occurrence.
To achieve it, full attentionmust be devotedduring the negotiation ofsome critical items of the contractualterms
and conditions, suchas:
 Qualityindicators effectivelyassociated to the most critical businessactivitiesof the buyer organization and
also a continuous improvement mechanismagreed inthe contract
o Contributionto the crisis, if ignored:the perception ofbadservices mayexist evenwhenthe agreed
Service Level Agreements are fullycompliedwith
 Clear andobjective resource consumption metrics which reflect the realrequested amount through the use of
automatedtools andreal-time reports, accessedbythe buyer organizationvia a web portal
o Contributionto the crisis, if ignored:perception ofundue or exaggerated invoicedvalues without any
reliable foundation
 Unambiguous definition ofservices which are within the scope (andinmanycases alsothose whichare out of
scope), withthe participationof key-users of the buyer organization
o Contributionto the crisis, if ignored: a vague scope definition generate anobvious conflict zone and
it alsomakesit difficult to manage user’s expectation
 Experience and skill level of the resources allocated to the contract, including, whenapplicable, proof of
market-recognized certification andalso the limits of use for subcontractors
o Contributionto the crisis, if ignored: effectivenessand qualityof service will be impairedif the
competence level of the provider teamis inadequate
 Mechanisms to encourage innovative solutions, to be continuously prospected andproposedbythe provider
and evaluatedbythe buyer organization, with beneficial consequencesfor bothparties
o Contributionto the crisis, if ignored:perception ofservices ineffectiveness due to the growing
misalignment betweenfixed and immutable services andbuyer’s business requirements, which
demand anincreasingagilityandflexibility