Plan to Outsource? Get a Lawyer

If you're considering multisourcing, you'd be smart to hire a lawyer first.

So you want to hire an outsourcer? First, hire a lawyer.

The field of outsourcing law, although far from new, is changing as legal, commercial and technology environments evolve. Some best practices have remained the same for years, while others have emerged only recently.

The current trend toward multisourcing—using multiple outsourcers—requires unique contractual provisions, according to William Bierce, a partner in the firm of Bierce & Kenerson (, which specializes in outsourcing law. "The most acute challenge is at the intersection of where one provider has to coordinate with another," said Bierce. Gaps could appear between different outsourcers implementing different business processes, he said.

Dan Mummery, a partner at Latham & Watkins in that firms Silicon Valley office, said the challenge is to get end-to-end accountability from multiple providers. Vendors often promise seamless delivery, Mummery said, but then "lawyers start asking what seamless really means."

The key issue between multiple vendors is typically problem resolution between the providers, said Mike Shockro, co-chair of Latham & Watkins technology practice. Shockro cited one contract in which, in case of a disagreement between the outsourcers, one provider was to be designated the prime contractor. The threat of losing direct customer contact was intended to keep the providers in line, he said.

Another set of pitfalls to watch lies in the emerging body of law geared to curtail offshore outsourcing. If you want to craft a deal, youll need to know if your plans touch on any of these laws. One piece of pending legislation, Senate Bill S.2312, sponsored by Hillary Clinton, D-N.Y., would prohibit offshore transfer of medical information unless onerous consent provisions are met, said Bierce. Those who wish to outsource medical-records tasks will have to think of approaches such as processing transactions in India and mirroring them in the United States, he said.

Shockro said that unexpected legislation can be considered a "force majeure," which is a legal term for an event outside the control of either party. Still, some legislation can be foreseen and ought to be prepared for, he said. Consequently, some vendors are including in contracts the option of using a U.S. backup facility just in case, he said.

Another area thats worth some attention is crafting exit terms and conditions. Since all outsourcing contracts eventually end, a sound exit strategy would be to provide the customer with the ability to control its destiny to the maximum extent, said Bierce. "You should plan for termination from Day One," he said.

Bierce said he likes to ensure the understanding that IT work completed under a given deal is portable. "If youre going to get proprietary solutions from outsourcers, you want to make sure you can keep using them after termination even if theyre used by a competitor," he said.

Shockro said his firm negotiated a substantial discount, which would apply if the customer were to be acquired. Sure enough, the customer was bought out by a company that had its own outsourcing deal. The provision saved about $10 million. "The chances of two companies having outsourcing deals are pretty good," he said.

Out and about

Human Resources BPO (business process outsourcing) took a turn toward consolidation last month when Exult agreed to be acquired by Hewitt Associates. The combined companies will be able to offer employee benefits, payroll, human resources IS, and recruiting and learning services, along with HR consulting expertise, said officials from the two companies. With the addition of Exult, Hewitt should approach $3 billion in revenues next year, they said. The new company will command 22 percent of the total HR BPO market, according to The Yankee Group. Shockro, of Latham & Watkins, said the deal demonstrates that the HR BPO market is heating up and that its now not uncommon to see BPO deals of $125 million. Previous deals tended to be much smaller, he said. ´

Stan Gibson can be reached at stan_

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