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Outsourcing is still hot. A recent study shows that the Dutch IT outsourcing market will continue to grow. Nearly half of the respondents indicate that they will outsource at a higher pace in the next two years. This is currently the highest level in Europe. Plans to insource have halved, from 16% to 8%. The financial services sector predicts the most outsourcing growth: 64% of organizations plan to outsource more. The main reasons for outsourcing are: focusing on core activities, reducing IT costs, and improving IT support. By outsourcing, you can focus on what you are strong at and transfer supporting tasks, such as IT, to parties that are strong in those areas and have scale. Due to that scale, these parties can deliver more quality at lower costs. However, there are also companies that hesitate or want to slow down. This hesitation is understandable. IT outsourcing remains complex, also from a legal perspective.
Often, outsourcers lack a factual picture of the scope. What exactly do you want to outsource? This is, after all, the core of the outsourcing agreement. Without a factual picture of the scope, good negotiation on price and delivery time is not possible, which often leads to prolonged negotiations, ultimately resulting in a service provider being forced to build in too much margin due to the unclear scope.
Furthermore, it still regularly happens that not all disciplines and stakeholders (such as HR, finance, and legal) are involved in the process on time. This while every outsourcing depends on the teamwork delivered. For example, HR must indicate whether there is a transfer of undertaking, as a result of which employees automatically become employed by the service provider.
Insufficient attention to (the complexity of) applicable laws and regulations is one example of a legal pitfall in outsourcing. Insufficient attention to possible restrictions in license terms is another well-known legal pitfall. License terms of software suppliers often include restrictions that do not allow outsourcing. Acting in violation of these terms can be costly for companies.
Other pitfalls include:
When negotiating and recording agreements, trust and understanding of each other's position and interests are needed. For the outsourcing party, it is important that the services must be able to grow with its operations. Change procedures will therefore need to be agreed upon. Flexibility is also important for the service provider, as they must be able to adapt the agreed services to new technological developments. The outsourcing party must also realize during negotiations that they may be disappointed if they enter into a contract with little or no margin. The service provider will understandably seek (more) margin during the execution of the contract.
Prepare an outsourcing well and be alert to the pitfalls so that the benefits of outsourcing can be realized.
Do you have questions about successfully executing ICT projects? Contact Natascha van Duuren, partner & attorney at law IT, Privacy & Cybersecurity.
The content of this blog is part of "ICT Projects: a practical guide," a collection of articles on successfully executing an ICT project. Click here to download the practical guide.
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