Waverley Blog

You may be faced with the daunting task of establishing an outsourcing contract with a new outsourcing vendor. Typically you are confronted with a few well established approaches to tackling this challenge. I’ll review the options you’ve likely considered, and offer a newer model that Waverley has been using for many years that we believe is a much better approach.

First, the big contract approach is to establish a multi-year legal structure that defines the areas you wish to outsource combined with various terms to enforce the goals you wish to derive from the relationship. This long-term commitment is highly lucrative for the major outsourcing vendors, but requires you to make remarkable insights into where the relationship will go, and how you must keep the vendor on track. This approach is similar to fixed bid contracts we’ve discussed before, which can be appropriate for some projects, but is often fraught with peril due to the uncertainty of future events and the unknown evolution of your vendor partnership. You want the best terms with your new vendor, but you need to ask yourself how much a huge contract investment and long-term commitment help you to build a truly win-win situation for the two of you.

Another approach is to establish detailed project specifications and contract the outsourcing vendor to execute on these precise plans. This also has many parallels to typical fixed bid projects, but fails to lay a foundation for the building of a relationship with the vendor. Are you just looking to satisfy the short-term needs of a specific project, or are you interested in building a real vendor partnership that can deliver value across many projects?

What you may really want is legal protection for critical issues like pricing and intellectual property, combined with a framework for both you and the vendor to grow to trust each other and build a foundation for long-term work. This approach uses a boilerplate Professional Services Agreement (PSA) combined with simple Statements of Work (SOW) for each project the vendor works on. The PSA makes no commitments on your part to engage the vendor for more than a month or two on termination. The vendor is constantly proving themselves to you each month through the quality of their work. You have the legal and price protection you’re looking for in the PSA, and each new project only requires a new SOW without PSA renegotiation. You start small and build a mutually beneficial relationship with the vendor from the very beginning. As you both grow to get comfortable working together, you can adapt the growing team to the areas that best fit your business. You’ll find the value in this arrangement is substantial.

As you can see, there is a much nimbler and adaptive approach available to you when establishing an outsourcing relationship and contract with a vendor. Use it with your next outsourcing partner for great results.

This entry was posted on Tuesday, January 26th, 2010 at 12:47 pm and is filed under Legal. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.