This document discusses managing the risks associated with replacing suppliers. It addresses several key themes: transitioning services smoothly from the incumbent to the new supplier; transforming services to improve them over time; properly managing the exiting supplier's departure; conducting due diligence to understand the existing environment; and carefully transferring things like subcontracts, licenses, employees, and systems. The document emphasizes that replacing a supplier requires thorough planning and coordination to minimize disruptions and ensure a successful transition.

1. Exiting and Replacement Suppliers –
Managing Transition Risk
Clive Davies
IFCLA June 2010
Copyright 2010 Fujitsu Services Limited

2. The Second and Third Generation
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3. Passing the Baton
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4. Themes
 Winner and Loser
 Transition
 Transformation
 Exit Management
 Due Diligence
 Transfer of sub contracts and licences
 Transfer of People
 Transfer of Systems
 Critical Success Factors
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5. Winner and Loser
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6. “If you can keep your head
when all about you Are losing
theirs and blaming it on you; If
you can trust yourself when all
men doubt you, But make
allowance for their doubting too;
. . . If you can meet with
Triumph and Disaster And treat
those two impostors just the
same . . . Yours is the Earth and
everything that's in it.”
Rudyard Kipling
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7. Transition
 Transition is the process by which an outsourcing service is
moved from an incumbent supplier to a new service provider
 The customer will wish this to happen as smoothly as possible
with minimal interruption to its services
 It will need to be planned carefully with all the critical activities
captured in a transition plan included in the contract with the
new supplier
 The extent to which the new service provider inherits any
commitments such as service levels will need to be negotiated
 The new service provider’s lack of familiarity with the services
suggest a grace period once it has taken over may be
appropriate
 The timing of the payment of the service charge to the new
service provider should be agreed and linked to acceptance
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8. Apple II e
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9. iPad
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10. Transformation
 Transformation is the process by which a new service provider
not only takes on an old service but also improves it
 It requires a clear understanding of what transformation
activities will take place
 The contract may contain commitments to savings which give
a measurable return to the customer
 This will again need to be timetabled and is likely to take place
over a longer time frame
 Agreeing new service levels and when they replace the
inherited ones is a critical factor
 An acceptance process coupled with a remedial plan in case
of failure should be included in the agreement
 One of the biggest challenges is roll out to a number of offices
 The service charge will also need to increase proportionately
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12. Exit Management
 The outgoing contract should contain an exit management
plan which has been kept up to date
 This will specify what the outgoing service provider has to do
in order to effect a seamless transfer
 It will also set out what charges may be paid for exit – which
acts as an effective incentive
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13. Data Room
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14. Due Diligence
 “The Contractor should be given the opportunity to carry out
due diligence prior to the award of contract. Hence, the
Authority should not provide any warranties as to the state of
affairs at the commencement of the Agreement.”
 So what does the Contractor need?
 Access to previous contracts
 Access to previous suppliers
 Knowledge about what the current environment is
 And how it can or cannot transfer
 Electronic due diligence room provides the answers
 But has to be properly populated
 Cf. Corporate transactions
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15. Transfer of Subcontracts and Licences
 Outgoing supplier must keep agreement register
 Recognise there are different forms of software licences
 Third party factor
 Form of assignment or novation
 Takes time – needs careful management and a joint approach
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16. •Transfer of People
 Acquired Rights Directive
 Common themes throughout Europe
 Employee rights on transfer of an undertaking
 Transfer of service in which employee is wholly or mainly
engaged counts
 Consultation
 Identification and management of contract risk
 Should address
 entry
 steady state
 exit
 Mutual indemnity regime
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17. Transfer of Systems
 Lift and shift
 Swing kit – transfer from old to smaller version in same
location
 Transfer data from old to new
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18. Critical Success Factors
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