Monday, June 28, 2010

K.I.S.S. and the Protesting at the G20

I warned you in my intro to this blog: while we usually address legal issues, from time to time we get to vent. And this is one of those times. If you prefer to stick to legal issues, please refer to Richard’s excellent post of Friday June 25.

As a person who came of age in the ‘70s, I can appreciate a good protest. Zero in on an issue, come up with a good chant or two, prepare some pithy placards, get as near to the site of the party you are protesting against as is legally permitted, and proceed to peacefully exercise your rights to free speech and congregation. Keep It Simple Stupid.

The protests surrounding the G20 are useless. There are too many issues vying for attention. The protesters’ lack cohesion as to what they actually want to accomplish. The protests are for the most part chaotic. And the apparently inevitable violence just detracts from the message, unless you are an anarchist in which case that is your only goal.

Further it is disingenuous for the "peaceful" protesters to blame a lack of police response for the violence that occurred in Toronto on Saturday when the rioters were being shielded by the crowd; and then declaim a more vigorous police response on Sunday, in which there was little or no bodily injury, as a violation of civil rights which Amnesty International needs to get involved in. Canada and its police forces are not perfect, but the protesting violence is the repugnant cause of any potential overreaction, not per se flaws in the Canadian protections of rights.

If as a protester you naively think (see below as to why you are being naive) that protesting at the G8 and/or G20 meetings will actually accomplish something, go back to basics. And don't let the "Black Bloc" hijack your protest.

And to the G8 and G20: if you really think it necessary to have these meetings when you have already prepared the communiqué about the “agreed principles” – which are rarely effectively acted upon by the participating nations - in advance of the actual meetings, have the frigging meetings in a remote location and stop disrupting urban centres.

End of rant.

Friday, June 25, 2010

Objectives vs. Ideals: The "Objectives Clause" in an Outsourcing Contract

More and more, outsourcing agreements include a section early on in the agreement about the objectives of the customer and the service provider in entering into the agreement. The provisions will typically do three things:

(i) state the parties’ objectives in entering into the agreement;

(ii) acknowledge that the objectives are not intended to create legal obligations for the parties; and

(iii) provide that, where there is any uncertainty concerning the meaning of specific provisions of the outsourcing agreement, the provisions are to be interpreted in light of the primary objectives of the parties in entering into the agreement.

The specific objectives identified in the section depend, of course, on the nature of the transaction. It is not unusual to see objectives such as:

• To achieve economies of scale through standardization and integration and in the delivery of services;

• To invest in leading edge information technology infrastructure, to remain current in today’s technology and to leverage future advances in technology;

• To reduce the customer’s operating costs; and

• To achieve regular, ongoing and meaningful improvement in the quality, accuracy and timeliness of the services.

Notwithstanding that “Objectives” clauses talk about the parties’ objectives and the parties’ intentions in entering into an outsourcing agreement, they seem, invariably, to be focussed on what the customer hopes to achieve from the transaction. It was always very hard, acting as counsel for a service provider, to get agreement to remove these types of Objectives clauses from the contract, regardless of how heavily weighted they were in favour of the customer. It characterized you as the devil’s advocate, suggesting that outsourcing agreements should not seek to implement leading edge technology, reduce operating costs or improve the quality of services. That was a difficult and foolhardy position to take, a set-up for ridicule (albeit politely expressed) and failure. The better option, in the circumstances, was to try to amend the clause so that it more accurately reflected the reality of the outsourcing transaction.

Against this backdrop, I want to touch on three types of potential amendments to Objectives clauses. The first one relates to the relationship aspect of outsourcing transactions. It is customary to describe outsourcing as a partnership, a relationship or a continuum, all as a way of distinguishing it from discrete, single event exchanges. If an outsourcing transaction is going to be a successful one, it will in no small part be because the parties have established a healthy relationship between themselves. This healthy relationship should certainly be an objective of both the customer and the service provider and it should be referred to in the Objectives clause. For example, in a 2007 outsourcing agreement entered into by the Province of British Columbia as part of its Alternative Service Delivery program (available at, the Province and the service provider acknowledged that the primary objectives and guiding principles of their contractual relationship included:

“to develop a long term and mutually beneficial business relationship
characterized by, among other things, mutual trust, respect and understanding of
each Party’s interests, mutual cooperation, good faith and flexibility to allow
for the addition or removal of services within the scope of the Services
described in (and in accordance with) this Agreement”.

The second area of focus should be to ensure that the Objectives clause actually reflects the customer reality. Very often, what we see in outsourcing agreements is not an “Objectives” clause but an “Ideals” provision – the description of the ideal outsourcing relationship. It is well and good to refer to leading edge technologies, high levels of innovation, extraordinary levels of service and other similar or equivalent distinguishing marks of top quartile outsourcing relationships – if that is what the customer wants, the ideals correspond to the objectives embodied in the RFP and the successful bidder was selected on that basis. Often though, the customer’s actual objectives are very different. The customer may be focussed on replacing outdated technology with something that won’t break, dramatically reducing costs, avoiding risk or potential disasters or simply staying out of the papers. That’s what should be reflected in the Objectives clause for those relationships.

Finally, if the Objectives clause is actually intended to set out the objectives, intentions and guiding principles of the parties, then it should also take account of the objectives of the service provider. There may be one or two service providers the objectives of whose business were solely focussed on leading edge technologies, high levels of innovation and extraordinary levels of service, but I am not sure they are still in business. Most service providers today are trying to use their expertise, insight and infrastructure to provide services efficiently to customers, to grow their business and to make a profit, i.e. the service provider’s objectives are:

• To perform the services efficiently and effectively;

• To avoid operational management of the services by the customer;

• To leverage the services to expand the service provider’s business, both in the specific area of the contract and in other sectors; and

• To increase its revenues and profit (in less service provider-centric terms, to establish a fair economic business arrangement for both parties)

Getting an alignment between the Objectives clause and the real objectives of the parties is more that an academic issue. It matters because the Objectives clause can be used throughout the term of the agreement and in a variety of ways. The clause may be used, as the introduction to this posting suggests, as a guide to interpreting specific provisions of the contract. If that happens, and the Objectives clause does not reflect the true intentions of both parties, then the result is unlikely to be fair to them. As well, objectives clauses are frequently used as part of the annual evaluation of the service provider’s performance. The objectives themselves may also show up in customer satisfaction surveys when the customer’s employees are asked to assess the service provider’s performance against the ostensible objectives for the agreement. If the objectives are not right, then it is also likely that the evaluations will be skewed. And, finally, the objectives clauses need to reflect the reality of the outsourcing transaction because, hopefully, the parties will read the clauses and try to establish a relationship that will achieve the objectives that have been agreed to by them.

If the outsourcing agreement is truly a partnership, and the Objectives clause reflects this partnership in a balanced way, then it should deal with the parties’ relationship, reflect the customer’s actual objectives in entering into the outsourcing and include the objectives of the service provider.

Monday, June 21, 2010

Are you really going to wear that?

No matter how it is structured, outsourcing is disruptive because it is a change.

Businesses are run by human beings, and most human beings are resistant to change, even if the change is for the better.

One of the interesting phenomena I noticed while working at a large technology services company - and with other service providers since then - was that RFP’s for services frequently contained verbiage about how the enterprise wanted to “transform”, “get to the next level”, “obtain leading edge technology” etc.

However, when provided with a proposal that did this, more often than not an enterprise balked, and would choose a proposal that in the end was significantly less innovative, but was more comfortable if it slightly nudged the status quo.

The successful service provider understands this and frames its proposal so that it balances the RFP’s rhetoric with the reality that change cannot be too drastic or they will not win the deal.

The party issuing the RFP needs to understand the level and pace of change it can actually accommodate, and tailor its assessments of proposals accordingly.

Sunday, June 6, 2010

Customer Service Levels – An Idea Whose Time has come

Service Levels are an important part of any outsourcing relationship. However they are usually only thought about in the context of the service provider. In this blog posting, first published on slaw at , I argue that the time has come to consider “customer service levels”. This is not my idea. I first heard of the idea from Harriet Velazquez of Velazquez Consulting Inc. who also refers to customer service levels as “two way service levels”.

These days, service levels are an integral part of outsourcing relationships. Reflecting the principle that “What gets measured, gets managed.” , the parties to an outsourcing relationship will establish specific metrics to be achieved by the supplier in performing services under the agreement, e.g. 99.99% server uptime in an infrastructure outsourcing or a call abandonment rate of less than 6% for help desk services. The service levels will be linked to penalties for failure to perform and termination rights in the event of consistent under-achievement. Suppliers may not love the idea of committing to service levels, but they recognize the benefits that come, to both parties, from having objective measure of performance and exact information on a regular basis about the level of performance actually provided. The result is that the customer and supplier no longer argue about whether the service levels ought to part of an outsourcing relationship. Instead they focus on “getting it right”: (i) selecting service levels that measure what is important in the relationship for the customer (outcomes, not interim measures of performance); (ii) defining appropriate targets and measurement methodologies; (iii) stating precisely how penalties will be calculated (100/225?); (iv) documenting the availability, if any, of earnbacks; and (v) specifying any concomitant rights of termination available to the customer.

The parties do not usually spend a lot of time talking about establishing service levels for the customer. The response to any suggestions that customer service levels be included is normally either that: (i) the customer’s only material responsibilities are to pay the supplier’s invoices; or (ii) the customer’s obligations cannot be quantified and objectively measured in the same manner as the obligations of the supplier can. This is regrettable, because there is a role for customer service levels in outsourcing relationships, especially in areas where the customer’s performance can have a significant impact on the supplier’s ability to fulfill its commitments under the contract.

Let’s consider a couple of examples of how customer service levels might be used in an outsourcing transaction. First, consider a transformational outsourcing arrangement with a government based on the implementation of a new technology solution across all government departments. In these circumstances, during the term of the agreement, the supplier may need to coordinate multiple site visits to hundreds or thousands of government offices to survey the premises, remove existing equipment, install the new solution, provide training and perform maintenance. To avoid disputes during the term about whether the technology was rolled out and maintained in a timely fashion or why the supplier did not obtain the timely and sufficient access to government premises originally contemplated, the customer and the supplier might establish a customer service level at the time they enter into the agreement. The service level would measure the service provider’s ability to gain access to government offices in accordance with the contract schedule with specific targets to be achieved, e.g. each month, the supplier will gain timely access to 95% of the premises according to a schedule for the month agreed to with the customer sixty days in advance. If performance against this service level were reported on a monthly basis, access issues could be identified early on in the relationship, providing the customer and the supplier with the opportunity to take remedial action at an early stage.

The second example is based on the fact that, in most outsourcing relationships, there are numerous areas where the supplier requires input, advice or direction from the customer. Under system development agreements, for example, there will be many items such as functional or technical specifications, document formats and test results produced by the supplier that require a response from the customer and in respect of which the supplier cannot proceed until that response is received. In these circumstances, the parties should think about establishing a customer service level that measures the responses received from the customer within specified review periods. The customer service level could be calculated, on a monthly basis, as the total days provided for review according to the contract divided by the total review days (with anything less than 100% indicating the customer is not responding within the required periods). Establishing such a service level will not solve any “deemed approval” issues but it will ensure that, when the parties come to discuss delay issues at governance during contract performance, they will have both well-defined expectations and concrete evidence of performance on which to base their discussions.

These examples illustrate that customer service levels can be used in an outsourcing relationship as a management tool for areas where the supplier’s ability to fulfill its obligations depends upon customer performance. The process of defining the service level will compel the parties to identify these interdependencies and to agree on what level of customer performance is acceptable. The implementation of the customer service level will focus the customer on fulfilling its obligations (remember the adage above about “what gets measured, gets managed”) and provide objective information during the course of the relationship about the level of performance actually achieved.

For this idea to work however, the parties will need to think about the same issues in respect of customer service levels as arise with respect to supplier service levels. This includes defining service levels that measure what is important in the relationship to the supplier’s ability to perform, selecting appropriate targets and ensuring the customer has the ability to measure its performance. It should also include a penalty mechanism that establishes consequences for the customer’s failure to perform. This may be a monetary amount, e.g. a quantification of the additional costs incurred by the supplier as a result of the customer’s substandard performance, but it need not be. The parties might agree, for example, that the customer’s failure to achieve a service level creates an earn back that can be used by supplier to excuse its failure to achieve a supplier service level or, alternatively, that, each time the customer fails to perform, the due date for payment of invoices is reduced by five days. The objective of the penalty mechanism is to establish consequences to substandard performance and it is open to the parties to agree as to what those consequences are.

The idea of customer service levels is not just “tit-for-tat”. Rather, they are and should be seen as a governance tool that can be used to improve the overall health of an outsourcing relationship. With that idea in mind, it is time to focus on defining the appropriate customer service levels, not reject the idea out of hand on the basis that however far partnership goes, it does not go that far.

Renewing your Outsourcing Agreement - Ensuring the Benefits are Shared

Jim Black, Vice-President IT Operations at MDS Inc., posted a discussion question on the Outsourcing Relationship Management Group of LinkedIn. Jim asked how one ensures the benefits of sole sourcing are realized by both customers and service providers. (Here is a link to the discussion:

Jim asked the question generally, so that it related to both new outsourcing deals and the renewal of an existing outsourcing relationship. I thought about the question more narrowly however, in the context of the renewal of an existing outsourcing relationship: how do customers who are thinking about renewing their outsourcing relationship with their current service provider ensure that the benefits of the renewal are enjoyed by both parties, not just the service provider. I replied to Jim on this question and wanted to share my thoughts here.

There are three general areas to think about.

First, customers need to determine what their objectives are for the renegotiation. In the same manner as customers will define their objectives in entering into an outsourcing arrangement, they should try to define what they hope to achieve from the renegotiation. Certainly there will be a cost component to the objectives but it will probably include more than that. It may include “fixing” some irritants or problem areas in the outsourcing relationship, implementing new technology, improving service levels and so on. Also in this category of thinking about objectives, it is worthwhile to try to determine what objectives the current service provider will have for the renegotiation. Knowing this may allow the customer to define aspects of the process or make compromises in areas that are important to the service provider but of little cost to the customer.

The second aspect of a renegotiation is to obtain some market data with respect to price, service levels, terms and conditions, etc. This information can be obtained from speaking with other companies, consulting with benchmarking organizations such as Gartner or exercising benchmarking, audit or other rights that exist under the current outsourcing agreement. Your legal counsel may have information about market terms and conditions. If you are using a third party intermediary such as TPI or Everest, in all likelihood they will also have market data that they are able to bring to bear. While there are a variety of sources, the important point is to obtain some sort of information. You will need the leverage.

The third aspect is to define an effective process for obtaining a realistic proposal from the existing service provider. What I have seen done in other circumstances is for the customer to establish a separate process with the existing service provider under which:

(i) the customer establishes some objectives that any renewal proposal must satisfy and communicates these objectives to the existing service provider;

(ii) the existing service provider is invited to make a sole source proposal – in effect a BAFO – around the renewal – the proposal must be responsive to the customer’s requirements, identify the benefits to the customer of accepting the proposal rather than issuing an RFP, providence evidence that the proposal is market, etc.;

(iii) the proposal of the existing service provider must be submitted on the basis that, if it is acceptable, the customer will attempt to negotiate a contract extension with the existing service provider. If the proposal is unacceptable or if the customer and the existing service provider are not able to reach agreement on the contract extension, then the customer will initiate an RFP process. The existing service provider will not be entitled to participate in the RFP process.

The customer needs to ensure that it starts this process significantly in advance of the expiration of the existing outsourcing agreement because this process can take some time. The customer does not want to be squeezed if there is not sufficient time. Therefore, if there is not enough time, the customer may be best to negotiate a short extension to the existing outsourcing agreement on the same terms and conditions so it has time to follow this process.

Friday, June 4, 2010

Outsourcing - Consultants’ Mandates

As promised (threatened) I am going to give my two cents worth on understanding and controlling your process consultant’s mandate. I am sure that if you do engage one of them to help with an outsourcing they will be only too happy to provide their opinion on what your lawyer’s mandate should be!

I think that you are best served if the process consultant you hire – be they an individual with industry experience or a team from a larger specialized firm – has actual experience in delivering outsourced services – i.e. at least one or two members of the team has worked for a period of time at a service provider actually delivering services. Such persons will have insight into what outsourcers can actually deliver, they can better evaluate what parts of a response/proposal are “fluffy” and require clarification, and they will have an industry feel for the situation. I am not saying that people that don’t have this experience cannot add significant value, but I think you get a very practical perspective and advantage if your advisor has actually been there done that.

That being said, it is still your business and your business plans that have to be fulfilled. Consultants work based on models. They analyze your situation and they then give advice based on models that they have studied and or created. Modeling can be good in that it provides framework and comparisons. Modeling and standardization are bad in that their focus is to force square pegs through round holes.

You need to review very carefully what your consultants advise, ask many questions as to how their proposed structure is going to accommodate the “must have” idiosyncrasies of your business that may not be apparent to third parties, and then get the proposed solution updated.

In other short, your consultants are advisors. You have to live with the results, so don’t abdicate decision making to them.

Wednesday, June 2, 2010

Third Time Lucky?

Hot off the press, and the darling of Canadian IT/IP legal bloggers and general media, is the dissection of the latest attempt to update Canada's copyright legislation - Bill C-32 Copyright Modernization Act.

General consensus is that it fixed some of the bigger problems with the last two failed attempts to bring Canadian copyright legislation into compliance with its international legal commitments. However there are still a number of sore spots that irk copyright specialists and the proponents of looser copyright laws, particularly surrounding digital rights management. Richard and I will talk to specifics in future posts.

In the meantime, another more pressing question: will the Government get it passed this time, or will we face another election before final reading?....