Clause for Thought over That Deal; Suppliers and Buyers Face Minefield

By Duckers, John | The Birmingham Post (England), February 26, 1999 | Go to article overview

Clause for Thought over That Deal; Suppliers and Buyers Face Minefield


Duckers, John, The Birmingham Post (England)


An outsourcing time-bomb is ticking away, according to Mr Michael Arnold, head of IT law at Eversheds.

He warns that suppliers and buyers who do not form proper commercial agreements and consider the get-out clauses right at the beginning could find deals exploding in their faces."

Mr Arnold says the massive outsourcing deal between National Savings and Siemens Business Services - worth pounds 1 billion over 15 years - highlights the scale of what is now being considered.

He said: "National Savings is handing over mission critical systems to an outside organisation and essentially looking to Siemens to transform the business."

And he points to the acquisition of Axis Resources Holding by Hays for pounds 40.3 million eight months after Axis was spun off from Tomkins in a pounds 13 million management buyout as also indicating the financial buoyancy of the sector.

Mr Arnold said: "Organisations are handing over critical IT systems to a supplier - this may include the employment of the relevant IT staff as well as the ownership and management of the systems.

"In essence, companies are often relinquishing control over a core business function and this could spell trouble if both parties do not consider all the options at the start of the contract.

"The service provider must make sure they do not promise too much or treat the customer as a cash cow and the client must not view the deal as a way to hand over problems to someone else. Companies must make sure they retain enough control to carry out their function adequately and protect their organisation.

"The two organisations must form a comprehensive commercial agreement."

He suggests a contingency plan for late delivery with assignment of risk prepared; ensuring the system meets requirements and legal liability is clear if it does not; a base level of service and support must be guaranteed; the outsourcer needs to be legally able to run and manage software that was licensed to the company; and care and attention must be put into clarifying exit strategies, making sure simple things like the return of data is considered. …

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