Declarations of Indepedence: 4 Tips for the 4th on How to Wind Down an Outsourcing--Without a Revolution

by Pillsbury Global Sourcing Practice

When in the course of commercial events, it becomes necessary for one client to dissolve the operational bonds that have connected it with its supplier, and to assume a new service delivery model. . .

As the outsourcing industry has matured, we have seen a greater incidence of clients looking to dissolve their outsourcing relationships. For some, this is the natural end of the relationship, for some, there is a change in strategy, and increasingly for some, there is dissatisfaction with the service being provided. Against this backdrop, we present four tips for a peaceful move to independence.

I. Read Your Agreement
A well-crafted outsourcing agreement will typically have contemplated the disengagement process for an outsourcing. To the extent each party understands the timelines and the rights (in particular rights to extend the expiration date and to receive transition assistance), much dispute can be avoided. If you understand what your contract provides and are able to develop your exit based on the rights provided in the contract, you will eliminate numerous battles and be able to focus on the path forward.

And while we are focused on exit rights, let this be a reminder that the negotiation of exit rights is often overlooked on the way in to an agreement. Ensuring continuity at the end is one of the most important contract elements you can be sure you will need. Unlike a marriage, one should not enter any outsourcing relationship without understanding and having confidence in an exit strategy. As you plan for the exit from your current relationship, it is a good time to focus on what is working and what is not so that you can use those learnings to optimize your successor relationship.

II. Plan (Ahead)
Once you understand your rights under your agreement, develop a plan that works within those rights. And always leave extra time--you will need it. Most transitions take longer than anticipated, and if you have a Damocles Sword of service disruption hanging, you will be forced to cut corners on both the transition activities and on establishing the new service delivery model.

III. Communicate with your Supplier
While a supplier may be disappointed to lose a client, most suppliers are generally trying to do the right thing by their clients. If you give your supplier ample notice, it can develop a plan with you to minimize stranded costs and optimize the transition. Even in a situation in which the supplier is financially responsible for stranded costs, if you help your supplier minimize those costs and align the exit to your timeline, your supplier will be much more inclined to work with you and will not be looking for other opportunities to slug you.

IV. Reputation Matters
Speaking of doing the right thing, suppliers operate in an environment where every action they take with you could affect their prospects for the next deal. This becomes a source of leverage for the customer trying to exit the relationship. No matter how disappointed the supplier is to lose a client, they also will not want a public display of bad behavior so that can be to the customer's benefit.

Of course, this also cuts both ways. If a customer behaves badly, it will develop a reputation in the industry and may have difficulty finding future partners and obtaining the best terms for its future initiatives.

Essentially, reputational risk can have a chilling effect on bad behavior for both parties. A savvy party can use this effectively to help keep the revolution down.

While ending an outsourcing relationship is never easy, regardless of the reason for the end, with understanding of each party's rights, proper planning, fair treatment, and a dose of reputational risk, it is possible to exit gracefully - with no fireworks!

Happy Fourth of July from SourcingSpeak.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Global Sourcing Practice | Attorney Advertising

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Pillsbury Global Sourcing Practice

Pillsbury Global Sourcing Practice on:

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