Why do we create ungovernable deals?

Outsourcing deal documents fail to support governance for many reasons. Chief among them is that the deal paper is simply too complex. These documents go on for literally hundreds of pages, are full of arcane language and do not provide adequate information to permit a Customer to govern the relationship. In addition to complexity, the deal documents are often inflexible – requiring significant legal effort through amendment to reflect the growth or change in business.

The reader may wonder how a document can span hundreds of pages, yet still include insufficient information to permit quality governance. The answer is simply that the documents contain the wrong information – information that does not provide a basis for quality governance.

Lawyers, being a notoriously conservative lot, tend to layer documents with provisions that have “worked” in the past. The concept of having “worked” is a peculiar one, however, as few outsourcing deals ever make it to litigation – and even fewer are decided through the court system. It is difficult, therefore, to determine whether any of these provisions have “worked.” A complex indemnity provision, created many years ago, is deemed to have “worked” if it has been accepted by a supplier in the past. It often winds up with a life of its own, showing up in a law firm’s form contract year after year, with current attorneys reluctant or afraid to change it.

Consulting companies share in the responsibility for this, painstakingly describing every component of the services to be outsourced. Facially, this makes sense – after all, it is important to know what is outsourced. However, the actual process frequently changes between the analysis of the components and the actual transition to the outsourced relationship – and certainly will change during the course of the agreement. The detailed document may be obsolete by the time that transition begins.

Customers, more or less along for the ride, tolerate this approach. After all, it seems to make sense – and everybody spend months and millions on major outsourcing deals? However, this approach is neither necessary nor useful – and may represent a significant waste of customer resources.

How, then, can one develop an outsourcing deal using a more streamlined approach? The next installment will describe one key component to reducing complexity in outsourcing deals – therefore improving their governability.