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Beware of companies that do not want to provide a full customer list. It is unrealistic to assume that
all customers are satisfied, and it is important to know what percentage were unhappy and what
precipitated their dissatisfaction. It could have been caused by the client‟s lack of preparedness or
inability to accurately define its needs or by the vendor‟s inability to successfully meet the terms of
the contract. Remember the credo “no surprises.” This relationship is like a marriage and should not
be entered into unless both parties are prepared to weather all of the storms, and there will be storms.
Last, in some cases, outsourcing companies have made the poor decision to take equity positions in
the provider‟s company. A company must never forget what business it is in. The company is
outsourcing a function because it has determined the skill is not a core competency. Taking an equity
position in the vendor is similar to bringing that skill set back in-house. A company should focus on
its core competencies and not be distracted by ancillary activities.
Negotiating the Contract
There is a misconception in the industry that when a vendor like IBM presents a prospective customer
with a contract the terms of the agreement are not negotiable. This is not the case. Regardless of a
company‟s size, assuming the contract is of sufficient monetary value, any contract is negotiable. For
a contract to be legal, each side must have some level of bargaining power; otherwise it might be
considered a contract of adhesion, which is a legal term for a contract that might not be enforceable. A
“take it or leave it” contract without one of the parties having any realistic opportunity to bargain is
frequently considered a contract of adhesion.
Make sure that the contract includes the entire agreement between the parties. Most contracts are
integrated agreements, which means that they exclude all other written and oral agreements between
the parties. Therefore, everything must be in the contract. Be wary of handshake agreements.
Remember, the contract is what the parties fall back on when something goes wrong. So be sure to
cover your bases by considering everything that can go awry and making sure it is covered in the
contract.
Some of the items that should be included in the contract and will be discussed in more detail are:
• Duration.
• Price.
• Payment terms.
• Incentives and penalties.
• Cost overruns.
• Renewal terms.
• Performance guarantees.
• Response time.
• Transition services.
• Necessary technology.
• Necessary personnel and nonsolicitation of personnel.
• Intellectual property.
• Confidentiality.
• Ownership of any developed products.
• Personnel to be assigned by vendor.
• Warranties (implied and express).