Getting In and Getting Out: Practical Tips for Engaging and Disengaging from Technology & Business Process Outsourcings

Transcription

1 Getting In and Getting Out: Practical Tips for Engaging and Disengaging from Technology & Business Process Outsourcings Presentation for the Association of Corporate Counsel August 23, 2012 Charlotte, North Carolina Steve Gold, Rakesh Gopalan, Derek Roach,

2 Agenda Entering an outsourcing relationship Disengaging from an outsourcing relationship Questions/discussion McGuireWoods LLP 2

3 McGuireWoods LLP AmLaw 100 firm Over 900 lawyers Full scope legal services in 19 departments, encompassing nearly 100 practice groups 18 offices worldwide Ranked in top tier for client service by BTI Consulting Group, based on a survey of the Fortune 1000 McGuireWoods LLP 3

4 Technology & Outsourcing Practice Merger with Gordon & Glickson, leading information technology boutique February 2006 Full service firm resources, depth, support and stability Growth of G&G s tech practice from 15 to 30 lawyers Now located in all McGuireWoods regions Boutique talent, focus and expertise Technology & Outsourcing Team McGuireWoods LLP 4

5 Panelists Three senior practitioners from our Technology & Outsourcing Practice Group: Steve Gold, Partner, Chicago office Rakesh Gopalan, Senior Associate, Charlotte Office Derek Roach, Partner, Chicago office McGuireWoods LLP 5

6 Entering an Outsourcing Engagement Planning and preparation RFP process Negotiating the master agreement Outsourcing defined: the delegation, by long term contract, of a significant business activity to an unaffiliated third party, often accompanied by a transfer of personnel, assets, or contracts relating to the historical performance of that activity. McGuireWoods LLP 6

7 Planning Conventional best practices Know your objectives Understand relative priorities Obtain management/executive level buy in Outsourcing deal team Outsourcing communications plan Comprehensive preparatory due diligence McGuireWoods LLP 7

8 Planning in a Rough Economy Beware of the seduction of cost savings Cost savings versus what alternative Locking in the cost savings Cost savings reduced to a daily charge Don t shortchange preparation Adequate time Adequate team McGuireWoods LLP 8

9 The Outsourcing Deal Team Subject matter experts Finance Procurement Human resources Consultants Attorneys Executive sponsorship Run team McGuireWoods LLP 9

10 Internal Due Diligence Financial and operational analyses Create a baseline Scope of function as currently performed Identify all resources currently being used People Contracts Assets Determine current service levels Determine actual current cost McGuireWoods LLP 10

11 RFP Process Process matters Control the process Competition, competition, competition Time matters Enough time to prepare and respond Time cannot be condensed by wishing it were so Content matters Avoid We ll include that in the next round Include an internally reviewed outsourcing agreement McGuireWoods LLP 11

12 Components of Contract Documentation Master agreement Typical contract terms and conditions Much content in attachment documents Grouping the attachments Critical substantive terms Scope Service levels Pricing Listings Miscellaneous McGuireWoods LLP 12

13 Outsourcing Agreement Industry Norms Entrenched legacy model Unmanageably long Reliance on agreements to agree Highly complex or overly opaque pricing Must address two roles: Legal risk management Blueprint for activity McGuireWoods LLP 13

14 Cleaning the Barnacles Balance clarity and flexibility Focus on key features Price Service levels Scope (what needs to be done) Retain flexibility Meaningful governance processes Scope adjustments How scope is performed McGuireWoods LLP 14

15 Negotiations Maintain integration of components Use competition not tactics Manage and control the schedule Build relationships McGuireWoods LLP 15

16 Consider a Rigid Negotiation Process Schedule Number of: hours, days, rounds of negotiations Concurrent vs. consecutive negotiations Set it in stone Detailed process steps The importance of personality Buying into the process Advantages: Leverage Speed Control Resources Cost McGuireWoods LLP 16

17 Typical Negotiation Issues in the Terms and Conditions Sweeps clause: filling in the gaps of the scope description process Service management Savings clause: limits on vendor accountability Intellectual property Legal risk management (warranties, indemnities, limits of liability, compliance with law) Termination rights McGuireWoods LLP 17

18 From engaging to disengaging McGuireWoods LLP 18

19 An Often Overlooked Element: All Outsourcings End It s part of the lifecycle of the deal Overlook it at your peril Must plan and contract for it Disengagement defined: A process of release from something that holds fast, connects, or entangles, for example, a contractual relationship. McGuireWoods LLP 19

20 Fundamental Elements: The Lifecycle of an Outsourcing Engagement Planning Phase Contracting Phase Transition Phase Transformation Phase (maybe) Operating Phase Disengagement Phase McGuireWoods LLP 20

21 Termination of Your Outsourcing Agreement Expiration Termination for: Convenience Change of control Divestitures Financial hardship of your vendor Cause McGuireWoods LLP 21

22 Key Phases in the Transition Out End of Operating Phase - Manage the outsourcing to disengagement Contractual controls Financial incentives Disengagement Phase Planning Executing McGuireWoods LLP 22

23 Fundamental Shift in Posture with the Outsourcing Vendor Outsourced assets/personnel now with vendor Vendor s attitude not trying to win business, trying to maximize profit Vendor looking for next deal (maybe not with you) McGuireWoods LLP 23

24 Contractual Protections to Manage the Parties Change in Position Contract provisions Financial incentives Included From the Start! McGuireWoods LLP 24

25 Some Elemental Contractual Protections Governance Dispute resolution Service levels Restrictions on personnel churn No suspension or termination of services Financial reporting Defined disengagement services McGuireWoods LLP 25

26 Financial Incentives Service credits/earnbacks Targeted uncapped liability Exit fees Timing of payments McGuireWoods LLP 26

27 Preparing for Disengagement More preparation increases likelihood of success Planning starts before you enter into your current agreement and continues during the operational phase Early preparation while the relationship is good will save heartache at disengagement Advantages: No surprises for current vendor Buy-in now reduces arguments later McGuireWoods LLP 27

28 Disengagement Needs What do you need to move on? Clear understanding of your current environment Cooperation, commitment and a plan from the vendor Understanding of your transition approach Knowledge transfer and access to vendor personnel Continuity of assets, contracts and IP Bake these into the contract from the start McGuireWoods LLP 28

29 Disengagement/Re-Sourcing Start early well before the next vendor is engaged Overlapping life cycles Planning Phase Contracting Phase Transition Phase Transformation Phase (maybe) Operating Phase Disengagement Phase McGuireWoods LLP 29

30 Disengagement/Re-Sourcing Include your current vendor? Re-architect your outsourcing? Bifurcate some types of services and/or towers into separate offerings? Higher stakes, less net Lessons learned from your current outsourcing Work it out? Devil you know Transition costs McGuireWoods LLP 30

31 Technology & Outsourcing Practice Group Advising businesses on best practices for planning of outsourcings is just one of the areas supported by the McGuireWoods Technology & Outsourcing Practice Group. This practice group is part of the firm s integrated focus on business transactions driven by technology. For more information, your McGuireWoods contact, or any of our senior practitioners: Steve Gold, sgold@mcguirewoods.com Rakesh Gopalan, rgopalan@mcguirewoods.com Derek Roach, droach@mcguirewoods.com McGuireWoods LLP McGuireWoods LLP 31