Prematurely terminating an outsourcing relationship is something you should really try to avoid at all costs.
Those are the words we typically tell to every single prospective client we speak to who are at their wit’s end with their strategic partner. Unfortunately, it is something that many people only realise when they are already neck-deep in the mire.
Quite simply, many people do not realise how painful it is to get out of an outsourcing agreement, early. It is a real mountain to climb. However, there are proven processes that can help to make that mountain a lot smaller. In addition, early termination and exit can usually be avoided for the betterment of both parties. How? Because there are mechanisms that can quickly improve performance and start to re-build trust in the relationship for the medium to long term.
Preparing to Exit Your Outsourcing Relationship? 2 Steps to Follow
Step 1: Sanity Check
With that in mind, the very first step in preparing to terminate an outsourcing contract is to ensure that termination really is the best option. We have just released a short self-diagnostic tool that can help you start to understand whether early termination is really a route you should consider.
Our outsourcing partnership termination diagnostic tool serves two purposes:
- A Sanity Check: are you absolutely, unequivocally certain that termination is the best and only option?
- A Checklist for Preparedness: if you are certain, do you have everything in place that you will need to give yourself the best possible chance of a positive outcome?
You will complete a series of short, but key, multiple choice questions, after which you will be presented with a summary of strengths and challenges in your considerations for termination. The answers will dictate the likelihood of successful contract termination (and by extension will indicate how viable an option it is).
If after taking the questionnaire you are still confident that termination is the best option, we recommend that you download our free white paper: 10 Steps to Getting Out of a Failed Outsourcing Relationship Safely and Quickly. In the remainder of this post I am going to focus on the section of that paper that focuses on gathering evidence for successful termination.
Step 2: Gather Your Evidence
The sanity check you carried out in Step 1 will be helpful in preparing a case for termination. After all, a smooth termination process will be a result of you compiling compelling evidence that your vendor has failed to achieve the business outcomes you expected (and contracted for, either explicitly or implicitly). The sanity check touches upon the foundational elements that will help you understand whether you have a case for early termination.
Gathering evidence in preparedness for contract termination is a five stage process (the page numbers relate to the white paper listed above):
- Gather the Basics: determine desired business outcomes from the termination and exit and compile a complete list of challenges that are affecting your business as a result of your partner’s poor performance. (Page 22)
- Validate Key Items in the Contract: was the contract formally agreed by all parties and are all relevant schedules referenced from within the contract? (Page 23)
- Quantify Your Costs and Losses: this can be everything from reduced operating margins, to customer complaints, to higher levels of refunds, to extra time worked in dealing with issues, and so on. (Page 23)
- Review the Contractual Obligations and Responsibilities: who was responsible for the key aspects of managing the contract? (Pages 23-24)
- Validate Your Partner’s Expert Responsibilities: did your partner represent itself as an expert, and if so, have they performed as an expert should? (Page 24)
Your partner’s expert responsibilities are a major factor to consider. The main point to note is that if during procurement you relied upon your vendor’s expert advice as to how it could improve service delivery and/or reduce service costs, the vendor has clear obligations towards you. Your partner could in reality have any number of obligations, not documented in the written contract that you are currently unaware of, such as:
- Ensuring that its service is fit for purpose to meet your expectations (its ‘expert responsibility’)
- Validating your requirements before commencing service delivery
- Validating what the consequential impact will be on your business outcomes of what it will not provide
- Ensuring that where it provides specific products, the warranty periods are fair and reasonable.
These undocumented contractual obligations are known as “implied” terms. In other words, they are usually legally binding if your vendor acts as an expert, whether or not their expert obligations are documented in the written contract. These implied terms have both statutory and case law supporting their relevance and cannot be contracted out of by your vendor. (See pages 21-22 of the paper.)
There is however a flip side to this — those times at which your partner may have gone above and beyond their responsibilities to help you. It is all too easy to only remember the times when a partner has performed badly, but it is unlikely that they have been a complete failure. Approach this evidence-gathering stage from an objective standpoint in order to ascertain the strength of your case.
Furthermore, you should assess how clear you were in communicating your desired outcomes at the pre-contract stage — did you give your vendor the best possible chance of succeeding?
Following the Process Through
In this post I have only scratched the surface of the process you should follow in order to ascertain the strength of your case for termination. If you are currently considering terminating your outsourcing relationship, then I suggest that you download our free Failed Outsourcing Relationship white paper in order to decide how you should progress.
If at any point you are doubtful of which direction to go in, please do not hesitate to contact us for an informal chat to discuss how other organisations have handled similar situations.
Photo Credit: Daniel*1977
