Procedures to Mitigate Outsourcing Risk
9 October 2013
Matthew Flood

General Counsel, Support Services
Introduction



What are the risks of outsourcing?



Mitigation: Planning for success



Risk Mitigation: Specific Ac...
What is Outsourcing?
Why is this relevant?



£250m contract for 10,400 security staff



G4S unable to provide enough staff



4,700 membe...
Definition of Outsourcing


A "typical" definition:
"the process of transferring the responsibility for a specific
busine...
What does Balfour Beatty do in the outsourcing
space?



Energy services (WorkPlace)



Roads networks (Living Places)
...
Risks of Outsourcing
Why is this relevant?




£12 billion scheme to provide electronic patient records



Scrapped after 10 years



8

Na...
General risks


Vanity Projects



Lack of buy-in/understanding
●

●



At executive level
Generally by staff

Working ...
General risks: continued


Capability
●
●
●



Intellectual Property
●
●



10

Do they know what they’re doing?
Losing...
Is this more complex than you think?:
Balfour Beatty Living Places’ capabilities on roads











11

Highways ...
Mitigation: Planning for success
Why is this relevant?



$4billion deal for EDS to provide world’s largest intranet



700,000 users, 400,000 computers...
What makes it work?: Shared Values

14
What makes it work?: Shared Vision

15
What makes it work: Organisational Design

16
What makes it work:
Critical Success Factors
Game changing

Business
STRATEGIC

Partnership
‘Working
together’

Executive
...
What does success look like?




18

Success is where the
outsourcing delivers
better value than the
client could genera...
Preparing for success: Is there an ideal process?




Provides a process
clients/contractors
can use to work
together ef...
Risk Mitigation: Specific Actions
Why is this relevant?


G4S/Serco Prisoner Electronic Tagging Contracts



Alleged overcharging of up to £50 million pou...
Mitigation

BEFORE
Contracting: More Haste Less Speed


Rush to “get to contract”



Scope poorly defined, terms harsh/unmoving, schedules ...
Contracting Framework: Roles and Responsibilities


SCOPE!
●
●
●



Set out clearly what client does vs what supplier mu...
Contracting: Outsourcing life cycle


Beginning, middle and end



Leave enough time for the handover



Contract opera...
Contracting: Risk and Reward


Client risk or contractor risk?
●
●

Who is best placed to pay for it?
Do you REALLY want ...
Contracting: Policing Mechanics


KPIs



Service Credit regimes/Liquidated damages
●
●



Should this apply across all...
Mitigation

DURING
Mobilisation/Ongoing review


Planning is no good if actual implementation is poor



Transformational shift in culture
...
WorkSmart service management
Our Service Management framework has assured performance transparency
and enables collaborati...
WorkSmart service management

End-to-End

Performance reviews are held monthly with each Client, chaired by BBWS
Account M...
HEAVEN/HELL
4% efficiency
challenge to
tendered outputs
10% of 8 year
programme by
December
Subcontract
reinstatement
Impr...
Benchmarking



What criteria?



33

How often?

Outcome?
Insurance/Security


Consider what insurance policies required
●
●
●



Security
●
●

34

Who should insure (client/cont...
Mitigation

AFTER
Risks on retendering


Demobilisation can be expensive



Your current supplier is in the best position



Culture
●

...
Mitigation of risks


Intellectual property – who gets all the
handbooks, manuals, IT etc



Staff
●
●
●

TUPE – does it...
Why is this relevant?



Hanno outsources infantry to 20,000 mercenaries



Following contract losses and poor demobili...
Questions?
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Managing Third Party & Counterparty Relationship Risks

  1. 1. Procedures to Mitigate Outsourcing Risk 9 October 2013 Matthew Flood General Counsel, Support Services
  2. 2. Introduction   What are the risks of outsourcing?  Mitigation: Planning for success  Risk Mitigation: Specific Actions  2 What is outsourcing? Questions?
  3. 3. What is Outsourcing?
  4. 4. Why is this relevant?   £250m contract for 10,400 security staff  G4S unable to provide enough staff  4,700 members of the armed forces deployed  4 G4S London 2012 Olympic Games Security Contract Resignation of CEO
  5. 5. Definition of Outsourcing  A "typical" definition: "the process of transferring the responsibility for a specific business function from an employee group to a nonemployee group, which may or may not include the transfer of assets and personnel”  Means different things in different situations: ● ● ● 5 Contracting relationships Sub-contracting arrangements Alliances/partnerships
  6. 6. What does Balfour Beatty do in the outsourcing space?   Energy services (WorkPlace)  Roads networks (Living Places)  Gas/water networks (Gas & Water)  Business Process Outsourcing (WorkSmart/WorkPlace)  6 Facilities Management (WorkPlace) Total Outsourcing (WorkPlace)
  7. 7. Risks of Outsourcing
  8. 8. Why is this relevant?   £12 billion scheme to provide electronic patient records  Scrapped after 10 years  8 National Health Service – NHS National Programme for IT (NPfIT) Estimated overruns of £7.4billion, multiple supplier contracts terminated
  9. 9. General risks  Vanity Projects  Lack of buy-in/understanding ● ●  At executive level Generally by staff Working with contractors (especially overseas) ● ● ● Lack of cultural understanding Data protection Bribery/Ethical risks   9 Bespoke vs Generic system “Non-outsourcable” responsibility
  10. 10. General risks: continued  Capability ● ● ●  Intellectual Property ● ●  10 Do they know what they’re doing? Losing talent to the contractor? Can they take you for a ride? Benefit of developments? Selling your knowledge to other customers/competitors? Dependence
  11. 11. Is this more complex than you think?: Balfour Beatty Living Places’ capabilities on roads         11 Highways and Transportation Strategic management of highways and street lighting assets Network management Health and safety management and delivery Congestion reduction Programme management Project management Street-lighting design and maintenance           Road safety & travel planning Highways design and maintenance services Winter maintenance Emergency response Vehicle management and maintenance services Grounds maintenance services Construction Site supervision Sustainability Environmental services           Performance and risk management Change management Highway asset management CDM services Street-lighting design and maintenance Highways inspection Traffic control systems including traffic lights Planned & reactive maintenance Enquiries from the public Road space management             Traffic Management Act coordination Third Party claims management Tree management Drainage Lighting management Parking control Travel & information management Streetworks Network coordination Traffic monitoring Material testing Annual road user casualty reduction
  12. 12. Mitigation: Planning for success
  13. 13. Why is this relevant?   $4billion deal for EDS to provide world’s largest intranet  700,000 users, 400,000 computers in 620 locations  Project plagued by delays and controversy  $550 million in deferred costs written down in 2003  13 US Navy EDS IT Contract Now, whole site being “unbundled”
  14. 14. What makes it work?: Shared Values 14
  15. 15. What makes it work?: Shared Vision 15
  16. 16. What makes it work: Organisational Design 16
  17. 17. What makes it work: Critical Success Factors Game changing Business STRATEGIC Partnership ‘Working together’ Executive sponsorship 17 Data-based approach early identification of trends WorkSmart Shared Services Service Management framework Fielding the Right Team
  18. 18. What does success look like?   18 Success is where the outsourcing delivers better value than the client could generate doing the work itself And, this success can actually be measured
  19. 19. Preparing for success: Is there an ideal process?   Provides a process clients/contractors can use to work together effectively  19 BS11000 Collaborative Business Relationships Auditable
  20. 20. Risk Mitigation: Specific Actions
  21. 21. Why is this relevant?  G4S/Serco Prisoner Electronic Tagging Contracts  Alleged overcharging of up to £50 million pounds  Offenders had been released, were in prison or even deceased  Serious Fraud Office to investigate  Banning from government contracts? (c. 50% of Serco Revenues) 21
  22. 22. Mitigation BEFORE
  23. 23. Contracting: More Haste Less Speed  Rush to “get to contract”  Scope poorly defined, terms harsh/unmoving, schedules left “TBA”  Time not spent on: ● ● ● 23 current state; what is required; nor what success looks like.
  24. 24. Contracting Framework: Roles and Responsibilities  SCOPE! ● ● ●  Set out clearly what client does vs what supplier must do ● ● 24 Must be clear, consistent, If not included, will usually be a variation “Kitchen sink” language Client dependencies Outsourcing contracts fail where gap in understanding
  25. 25. Contracting: Outsourcing life cycle  Beginning, middle and end  Leave enough time for the handover  Contract operation ● improving metrics/efficiencies over the life cycle  Extension?  Termination/hand over mechanics ● ● ● 25 Termination for convenience? Transitional services? Break costs?
  26. 26. Contracting: Risk and Reward  Client risk or contractor risk? ● ● Who is best placed to pay for it? Do you REALLY want the contractor to take it?  Pain/Gain share mechanisms  Claims/investigations?  Specific risks ● ● 26 Bribery/data protection/HSE/personal injury etc Indemnities?
  27. 27. Contracting: Policing Mechanics  KPIs  Service Credit regimes/Liquidated damages ● ●  Should this apply across all KPIs? Exclusive remedy? Reporting requirements/Escalation Procedures ● ● Governance structure? Consistent data/data overload   27 Termination Rights (on default, change of control etc) Step In Rights
  28. 28. Mitigation DURING
  29. 29. Mobilisation/Ongoing review  Planning is no good if actual implementation is poor  Transformational shift in culture ● ● ● ● Safety Efficiency Redundancies? On-going employee engagement   29 Data in agreed form ready to be produced Contract summary
  30. 30. WorkSmart service management Our Service Management framework has assured performance transparency and enables collaboration with our clients ‘You cannot manage what you cannot measure’ WorkSmart Only Data based and Baselined metrics Bill Hewlett (co-founder of HP) Driving accountability and E2E improvement 30 End-to-End • We measure WorkSmart only and End-to-End performance metrics, and embed in Service Agreements
  31. 31. WorkSmart service management End-to-End Performance reviews are held monthly with each Client, chaired by BBWS Account Manager and incl. WorkSmart Only and End to End performance. • End-to-End achieved 66% GREEN SLA compliance (Mar) • AP invoices POT % + Level of aged Debt compared to baselined expected and minimums varies by OpCo • Payroll accuracy + Timeliness + Payslip distribution compared to baselines • % addressable spend going through SCM agreements + % of forecast benefit achieved + % rebates collected Insights: 31 • End-to-end comparative metrics are a catalyst for change • Stronger client relationships accelerate benefits and value-add
  32. 32. HEAVEN/HELL 4% efficiency challenge to tendered outputs 10% of 8 year programme by December Subcontract reinstatement Improve external stakeholder relationship WIP < 155 days <50mil Efficiency programme < 4% Staff churn Employee attrition Year 1 workload target & risk removal delivered IT systems delivering eg audits MI capability Employee Engagement survey Innovation – mains lining; asbestos insertion Relationship with local authority improved No Section 74 Contract KPIs delivered Robust MI/ contract measurement & environment All staff have objectives linked to Biz plan Customer Sat > 8.05 Developed sustainable manpower strategy that covers winter/ summer requirement Meet budget All BB employees Hit Zero harm target Accumen live NW GDSP & Data Fit for purpose tendered structure in place Year 2 programme in place Engaged workforce 62+ (79) D42 achieved Year two Design submitted Customer score 8.5 Restructure complete Paperless system Dateline Ops not delivering - programme adherence Succession planning – losing key talent April 2014 April 2015 Low Employee engagement results Exceed mains replacement target 7% efficiency to tender contract BMS non compliant Increase in staff numbers to manage inefficient processes/ systems HSE consultation cuts too deep – unsafe network Reputation on 3rd party reinstatement £££ 32 Property portfolio stable (optimal) Development plans not in place GDFO issues WIP >55m High customer complaints and enquiries S74 performance not improving Lack of confidence in the reinstatement process Poor relationship with stakeholders Stakeholder relationship not improved Transformation team/ projects delayed due to consultation 8+ look ahead work & design People issues – relationships; competence blocker on delivery; succession planning Open book supply chain orders Achieve Zero harm target H&S performance declines NWGA pack completion Front end focus not backend loaded New innovations process/ IT
  33. 33. Benchmarking   What criteria?  33 How often? Outcome?
  34. 34. Insurance/Security  Consider what insurance policies required ● ● ●  Security ● ● 34 Who should insure (client/contractor) For what (design, physical damage etc)? Ensure currency of coverage Bank guarantees/insurance bonds Parent company guarantees
  35. 35. Mitigation AFTER
  36. 36. Risks on retendering  Demobilisation can be expensive  Your current supplier is in the best position  Culture ●  Transition ● ● 36 People can take their eye off the ball Expect to pay twice Does the contract still work 5 years on?
  37. 37. Mitigation of risks  Intellectual property – who gets all the handbooks, manuals, IT etc  Staff ● ● ● TUPE – does it apply? It can help (OR NOT!) “Golden handcuffs”/bonuses? Non poaching/confidentiality clauses   37 Branding solutions Buy out the company?
  38. 38. Why is this relevant?   Hanno outsources infantry to 20,000 mercenaries  Following contract losses and poor demobilisation, Tunis seized by mercenary army  Previous manager, Hamilcar Barca, reinstated  38 The Truceless War, Carthage, 240 B.C. Resolves the matter out of court by killing them all
  39. 39. Questions?

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