A complex contract, in and of itself, is not a bad thing. It can result in greater benefits for the outsourcing customer or may better address issues of pricing, performance and risk "Problems arise when complexity is adequately addressed, recognized or accounted for upfront and in the ongoing management of the outsourcing efforts," LePeak says.
The key is to make sure that the level of complexity in the legal documents is commensurate with the nature and goals of the outsourcing arrangement and not just the result of a once-burned buyer or overzealous counsel.
Typically, as services markets mature, best practices in contracting tend to cement themselves in the way of standardized pricing, performance assurance andÂ?particularlyÂ?defined terms. However, 27 percent of the attorneys polled reported little or no standardization in defined terms, which LePeak says also points to the fact that while outsourcing is maturing, it's also been expanding into uncharted territory in terms of scope, objectives, and geography.
The survey asked about the most contentious issue in outsourcing negotiations. The most challenging contractual terms to reach agreement on were , indemnities, step-in rights, pre-defined direct damages, and supplier financial riskÂ?all of which involve potential financial exposure to supplier or client. The most challenging commercial terms to come to consensus on were , , , transformation and Â?all of which involve service provider risk.
Arguments over terms related to transformation rated 17 percent higher than last year as more buyers are attempting to include transformation goals in their outsourcing engagements. "Transformation involves building into the contract terms, conditions, or measures for process transformation or for innovation or other nebulous but value-laden keywords," says LePeak. "The challenge is translating a somewhat conceptual idea like transformation into contracted terms and conditions and factoring in all the events and conditions that could impact transformation being achieved or not."