A Z of Outsourcing

The A to Z of Outsourcing
Welcome to Alsbridges A to Z of Outsourcing.

Outsourcing has, for one reason or another, attracted a
huge amount of attention over the past few years. The basic
idea is of course very simple - reap the benefits of having a
specialist do the job at a lower cost. However, setting up
the right deal can be complex and there is a bewildering
array of jargon.
As a result, we at Alsbridge decided to write this little guide
to help anyone involved in outsourcing understand what the
main terminology actually means. It isnt intended to be an
exhaustive manual on how to outsource but it should help
you understand what the common terms and concepts
mean and what they are for. And if you dont know your
ARCs from your Earnback, this booklet is definitely for you.
Weve tried to be as comprehensive as we can without
ending up with an encyclopedia, and we think weve
covered the main areas. However if theres anything you
would like to know which isnt included, or which isnt clear
then do give us a call, wed be delighted to hear from you.
Happy reading!
Peter Scott
Alsbridge plc
Alsbridge The A to Z of Outsourcing 1
Alsbridge plc
Attrition
Well, what did you expect us to start with? Alsbridge is the leading independent
advisor on outsourcing, shared services and benchmarking. As functional
experts in IT, F&A, HR and Procurement, we help clients identify and implement
the right sourcing strategy with one simple focus Results.
High rates of Attrition of Supplier staff (i.e. staff turnover) are often cited as one of
the main challenges in making outsourcing deals work. These rates will almost
certainly be higher than clients have experienced for their in house operations
and will often be 20% to 30% per annum or more. All the more reason to simplify
and codify processes to make it as easy as possible for the Supplier to train and
replace their staff as Attrition takes place (but see also Key Staff).
We have won numerous awards over the years, most recently being rated #1
Worlds Best Outsourcing Advisor by the IAOP (International Association of
Outsourcing Professionals) an achievement that we are proud of.
One other point - we are completely unique amongst the advisor community in
not having financial relationships with outsourcing Suppliers in any shape or
form - we dont do consulting work for them, we dont sell them research and
we dont audit them. So we are completely unbiased.
We are completely unique amongst the advisor community

in not having financial relationships with outsourcing
Suppliers in any shape or form
ARCs/RRCs
These acronyms stand for Additional Resource Cost and Reduced Resource
Cost. If you ever have to say them (and surprisingly, you might), you would say
Arks and Rooks (if you see what we mean, but most Suppliers will understand).
Were not sure where this terminology came from but it seems to be fairly
standard in the outsourcing industry.
Audit Access
Every company which is outsourcing needs to think carefully about the access
rights to the Suppliers delivery centre required for carrying out audits or other
checks and reviews. For example, if you have outsourced Finance & Accounting
you will need to ensure access for your external and internal auditors. You may
wish to ensure access to check compliance with company polices, company
procedures, quality standards and legislative requirements. You may also want to
ensure that reported performance is backed up by evidence. Some companies
will want access to check that the Supplier is complying with their policies
regarding (for example) not using child labour. Finally, you may require the service
to be benchmarked by a third party (see Benchmarking).
In general this wont be a problem - sticking points mainly arise if the Supplier
believes the rights are going to be onerous and interfere with the service or if
there is the possibility of one of their competitors gaining access to their
premises - but you do need to identify all of your likely requirements and agree
them with the Supplier.
AVAT
As the names imply (i.e. Additional Resource Cost etc, not Arks and Rooks)
they refer to resources being added or taken away from a deal. There is an
important concept here - an important aspect of outsourcing deals that people
sometimes overlook is that they are unlikely to stay the same over the contract
term. There will inevitably be some changes that will affect the resources that
the Supplier deploys on the deal and hence the price to the client. One way
forward (not to be recommended, but it happens) is for the client to trust
entirely to Change Control as regards any change in the cost. Better, however,
to agree a table of charges (for whatever pricing unit is relevant) that will be
applied when resources need to be added or taken away and thats essentially
what ARCs and RRCs are.
However, in practice it may not be as straightforward as it sounds. For example,
some Suppliers have been known to charge a higher amount for adding a
resource than for taking it away, on the basis that when a resource is added
overhead is added but when it is taken away the overhead isnt necessarily
removed as well. As you can imagine, this could lead to all sorts of strange
anomalies if the deal is particularly dynamic, so beware..!
We have applied decades of accumulated experience on outsourcing and shared

services to develop a diagnostic process which gets to the heart of the issue
how to create and sustain value through sourcing. This is our starting marker,
and it is call the Alsbridge Value Analysis Tool (AVAT).
Applied at any stage of the sourcing lifecycle, the AVAT process focuses on the
10 key levers of value generation, and assesses where the client is. It identifies
strengths, weaknesses and gaps, so together we can understand where best to
focus our effort.
The output of AVAT is a weighted analysis of the current status, which helps the
team to develop plans which will focus on the areas where most value can be
delivered.
The AVAT process delivers:
An objective and holistic analysis of current status, enabling clients to focus on
the key issues
Rapid engagement of key stakeholders
A foundation for maximising value through sourcing
ARD (see TUPE)
BAFO
BAFO stands for Best And Final Offer, and is a regular feature of processes to
select a Supplier. It is generally used when there are a number of Suppliers still
in a process and the client wishes to Downselect to one. The Suppliers would
be requested to submit their BAFO, bearing in mind that the process is still
competitive, which gives them a chance to refine their bid in whatever way they
see fit and normally this includes reducing the price.
There are two points to note here. The first is that, if you do not intend to have a
BAFO stage, you should say so in the RFP. This is because Suppliers will
otherwise most likely put some padding in so that they can take it out at the
BAFO stage. Secondly, once you have passed the BAFO stage you shouldnt
ask for another one! A BAFO should be a BAFO
Bargaining Power
It is important that a client assess their relative Bargaining Power at all steps
during the procurement process. Obviously this is at its maximum when the
deal is still competitive and Suppliers are competing to get the deal. It is
particularly good when Suppliers know that the Downselect to one preferred
Supplier is close and that concessions on certain issues may lead directly to
being selected. (Of course, it is essential to document the key agreements
which have influenced the choice of Supplier to make sure these are reflected
in the Contract later on).
It is important that a client assess their relative Bargaining

Power at all steps during the procurement process
Once the preferred Supplier has been chosen, the clients Bargaining Power
goes down significantly but one way to mitigate this is to have a visible Supplier
in reserve. Suppliers know that negotiations do break down and there are
numerous examples of a client changing to the reserve Supplier, so it is a real
incentive to be constructive.
Baseline
The Baseline is the actual cost and service before outsourcing. It is important to
spend sufficient time establishing the baseline because if you dont, you wont
know whether outsourcing is delivering benefits or not and whether the
Supplier is doing a good job or not. The Baseline is also the foundation of the
Business Case.
Strangely enough, some companies dont put much effort into defining the
baseline, then they find they dont have much ammunition if disputes arise with
the Supplier later on about Service Levels and whether they are better or worse
than before. It is definitely advisable to nail the Baseline down!
A clear baseline is important dont take short cuts!

BATNA
BATNA stands for Best Alternative To A Negotiated Agreement, a concept first
defined by academics which often plays an important part in negotiating an
outsourcing contract, whether the parties realise it or not. A negotiating strategy
will be strengthened if the BATNA concept is deployed.
It is important to note that a BATNA is not the so-called bottom line i.e. the
most you will give or the minimum you are prepared to receive. It is actually
your insurance policy against not reaching a negotiated agreement in an
acceptable timeframe. For example, if a client is negotiating an outsourcing
deal the BATNA might be to keep the work in house or to work with another
Supplier. When you have a strong BATNA you have a more powerful position
because you have access to an attractive alternative that you could resort to if
an acceptable agreement is not achieved.
Benchmarking
Benchmarking is a common feature of outsourcing contracts. It is intended to
assure the client that the deal remains competitive by conferring the right to
compare aspects of an outsourcing deal every so often against a specified
norm. The outcome may then lead to certain adjustments in performance
and/or price. For example, there might be a comparison of cost or performance
against best practice in a particular industry. Although this seems reasonable
and simple enough, in practice there will almost certainly be a lot of discussion
and debate with the Supplier for two main reasons.
The first is the approach to the Benchmarking exercise and in particular the way
in which a true apples with apples comparison can be achieved. To be fair,
this can be difficult, especially with business process Benchmarking, and if it
isnt really possible then the exercise can raise more questions than it answers.
The second is the consequence of the Benchmarking exercise i.e. to what
extent the process has teeth, in particular whether it will lead to automatic
price adjustments. Clearly, the sharper the teeth the more carefully the Supplier
will look at the benchmarking approach and methodology. In some cases, the
approach ends up being so constrained by the need for very specific
comparability as to be almost impracticable.
Clearly, the sharper the teeth the more carefully the

Supplier will look at the benchmarking approach
and methodology
Alsbridge has a wide range of business process and IT benchmarks which we
would be happy to discuss with you.
Business Case
The Business Case is a key part of any outsourcing initiative. However,
although most companies prepare a Business Case to support the outsourcing
initiative at the outset, many dont follow through and revisit it post
implementation to see if the anticipated benefits have actually been achieved.
There are a number of key elements of any Business Case, including the Baseline,
redundancy/severance costs, Transition costs, service delivery costs, Connectivity
and third party costs such as Advisors (Alsbridge!) and Lawyers. If you set out the
Baseline, and then compare that to the cost of the outsourcing deal, you will get
an incremental cost profile which you can analyse in whatever way you wish. In
practice, most companies focus on Payback.
The Alsbridge Business Case Benchmarking Tool is a nifty tool enabling clients
to benchmark the financials within their business case against other
comparable deals. Ask us about it.
Business Continuity Plan
Alsbridge is the only advisor which

does not take fees from outsourcing
suppliers: not for research,
consultancy or audits
It is essential for the Supplier to demonstrate that there is an effective Business

Continuity Plan in place, should the worst happen. By the way, this is not the
same thing as a Disaster Recovery Plan (which is actually a subset of the
business continuity planning process).
It is obvious, but worth pointing out, that the plan should reflect what service
the Supplier absolutely has to provide as a minimum if there should be an
incident. Depending on the nature of the outsourcing deal, this may be a small
subset of the normal service.
A Business Continuity Plan should be practical and cost effective (relative to the
size of your company). Clients and Suppliers will need to consider the services
the Supplier provides and the impact of these not being provided within given
timeframes, the impact of mass Supplier staff absence (e.g. due to swine flu,
bird flu or man flu) and the impact of the delivery sites not being available or
accessible. It is also important to ensure that the plan and the associated
toolkit should be readily available offsite.
Business Process Outsourcing (BPO)

As the name implies, BPO means having a Supplier run at least part of a
business process for a client. Depending on the process, this can be done
using either the clients or the Suppliers systems.
There are many examples we could quote for process outsourcing, ranging
from generic support processes (such as Finance, HR/Payroll and Procurement)
to industry vertical processes (for example claims processing and mortgage
processing in the financial sector) to call/client contact centres.
Change Control Procedure

It was von Clausewicz who said that no plan survives an encounter with the
enemy, and although its not quite within the spirit of outsourcing to describe the
Supplier as the enemy the basic point is still valid - no matter what you do or how
much time you spend during the contracting phase to define and to pin things
down, something will change that no one ever thought of. Change over the life of
any outsourcing deal is more or less guaranteed, be it scope, service, volumes,
business acquisitions, disposals - the list is almost endless. As a result, every
contract needs a Change Control Procedure. This is normally common sense usually the client notifies the Supplier of a change (or the other way round), the
Supplier assesses and quantifies the impact of the change, and the two sides
discuss and (hopefully) agree.
It is important to note that this is a framework rather than an if this then that
set of rules for predefining the impact of a change. If rules are deemed
necessary within a contract they will normally be within the pricing section.
The Alsbridge Charter has changed the way

sourcing relationships are built through our focus
on collaboration, innovation and sustainability
No matter what you do or how much time you spend

during the contracting phase to define and to pin things
down, something will change that no one ever thought of
Finally, if major changes are expected but cannot be predefined it is worth
setting out and quantifying illustrative Scenarios in the contract, which will help
to set expectations as to what the impact of the change will be.
Client - We will:
Dedicate quality time, and take
decisions promptly
Be open and honest about the
baseline costs and services
Be realistic about future service
improvements and how they are
created and delivered
Recognise the economics and
expect a fair rate for the services
Recognise the negotiating
process requires flexibility from
all parties
Charter
The Charter is a unique feature of the way Alsbridge works. We believe
passionately that fair and sustainable deals are the best way to create value for
all sides and the Charter sets out the necessary ground rules for the three
parties involved - the client, the Supplier and Advisors, including Lawyers.
It is worth noting why we developed this Charter. We did it because we wanted
to codify the behaviours which we believe lead to sustainable deals and by
implication conversely those behaviours that are likely to lead to unsuccessful
deals. These include unnecessarily onerous bidding processes, making deals
too much of a commodity purchase, focusing too much on price and not
recognising that the Supplier needs to make a commercial return.
We developed the Alsbridge Charter to codify the behaviours

which we believe lead to sustainable deals
Alsbridge Charter for fair

and sustainable deals
based on partnership and trust
in the contracting process
Alsbridge & Lawyers - We will:
Suppliers - We will:
Enable full, collaborative and

non-restricted interaction
between all parties
Promote a fast, efficient and
effective process without
excessive tender documentation
Encourage the supplier to
co-design the solution
Not waste the supplier's time
Promote interest based not
adversarial negotiations
Not promise what we will not

contract for
Be clear and complete about the
service and pricing
IInvolve delivery staff early and put
the solution before the deal
Ensure deal economics are
aligned and sustainable
Recognise the negotiating
process needs give and take
Cloud Computing
The next big thing? Or a fancy term for what people have been doing for years?
Whatever your point of view, its interesting to consider its impact on
outsourcing. Basically the Cloud is the internet and Cloud Computing means
leveraging the power of the internet so that it becomes irrelevant where / how
something is physically carried out.
The simplest example is probably that of data centres. A traditional approach to
outsourcing data centres would be for a Supplier to take over and manage a
clients existing facilities. Cloud Computing, at the other end of the scale,
means that the service of data storage and access is provided without the
client knowing (or caring) where or how the data is stored.
Clearly this raises issues, for example regarding data protection and
confidentiality. But if the experts are to be believed Cloud Computing will have a
major impact on how outsourcing services are delivered. The results of our
industry wide 2009 CloudSourcing survey can be requested free of charge if you
are interested in learning more.
Alsbridge US CEO Ben Trowbridge has even written a book on the subject
Entitled Cloud Sourcing the Corporation his book provides a visionary
perspective on the evolving cloud services market and acts as a primer for IT and
sourcing executives leading their corporations on the journey toward the cloud.
Train your team on cloud sourcing by ordering the book today at
www.cloudsourcing100.com.
Confidentiality
Contract
Clients are becoming increasingly concerned about Confidentiality and its close
relative, Data Protection. Most outsourcing contracts contain provisions for
Confidentiality and often Supplier staff must sign non disclosure agreements
(NDAs) to ensure sensitive information is not disclosed to a third party.
As there is a legal relationship between the Supplier and the client there has to
be a Contract, and every outsourcing deal has one (some better than others).
The Contract usually consists of the Terms and Conditions (Ts and Cs) and the
Schedules.The Ts and Cs are basically the underlying principles of the deal,
which are unlikely to change (such as the Limit of Liability) and the Schedules
cover the more transactional data that may well change, such as service Scope
or service levels.
Some clients take this further and negotiate agreements with Suppliers to
prevent staff from working on deals for direct competitors within a certain
period of time, to restrict physical access to a clients delivery centre area or
even (in extreme cases) to prevent competitors from having operations in the
same delivery centre.
Connectivity (Networks)
This usually means the way in which the clients systems can be accessed in
the Suppliers delivery centre. These days, most Suppliers have strong
communications networks and so Connectivity in itself is rarely an issue.
However, there are still questions to resolve, such as where the connection will
be (clients end, Suppliers end or somewhere else), whether the connection will
be a leased line, VPN (virtual private network) or some other approach, whether
the Supplier will be inside or outside the clients firewall, what the bandwidth
and speed needs to be, what resilience and redundancy is required, security,
service management
Networks are a specialised area, even within the IT world.
Make sure you have an expert on your side who

understands what to ask for and how to get it in discussions
with the Supplier. It can be a costly exercise to resolve
connectivity issues retrospectively
Continuous Improvement
(Lean, Six Sigma...and even Lean Six Sigma)
There are differing schools of thought as to the role and purpose of the
Contract. For example, some clients want to spend huge amounts of time and
effort on drafting a Contract and go into every conceivable circumstance in
great detail before it is signed and Transition commences. At the other end of
the scale are those who see it as a necessary evil and are happy just to
document the bare minimum on signature with all the details left to be sorted
out later.
Dont forget, in an outsourcing deal your partners problem

is your problem too! At Alsbridge, we believe that (to
paraphrase Eisenhower), it is the process of contracting
rather than the contract which is important
You will also hear a lot of people say that, if the Contract ever has to be
consulted, then the deal has a major problem (which seems a rather sweeping
statement, given the length of time Contracts run for and the inevitable turnover
of staff on both sides over that timeframe).
By the way, it should be noted that, whereas some views on what the Contract
should contain are held as a matter of principle from the outset, others
(particularly the minimalist approach) are sometimes retro fitted for convenience
onto the circumstances in which clients find themselves!
Many outsourcing deals have an element of Continuous Improvement, usually

defined in terms of efficiency improvements and/or cost reduction over time.
Depending on the deal, this can be anything from a vague intention for the
parties to work together to identify improvements to a commitment built into
the Glide Path. If it is the latter, then the client needs to understand all of the
assumptions that the Supplier is making as to how the improvements will be
achieved and what the client might have to change or do, for example increase
compliance with processes. Sometimes clients are surprised at what is
expected of them because they forget that most worthwhile improvements
involve looking at processes end to end rather than just the part that the
Supplier looks after.
Of course, the fact that a Supplier has signed a Contract doesnt mean that
they wont come back and ask to change something at a later date. Dont
forget, in an outsourcing deal your partners problem is your problem too!
All Suppliers have their own particular approaches to Continuous Improvement,

such as Lean, and Six Sigma.
Contract Benchmarking
At Alsbridge, we believe that (to paraphrase Eisenhower), it is the process of

contracting rather than the Contract which is important. As such, preparing a
Contract represents a very important step in the process of the client and the
Supplier understanding each other and how the deal will work. This doesnt
mean that you need to go to the nth degree of detail but it does mean that you
need to treat it as more than a legal nicety. Contracting really is far too
important to be left to the Lawyers!
Although each deal is different there is a high degree of commonality between

outsourcing Contracts and as a result it is possible to obtain really valuable
results through benchmarking them.
Alsbridge has a Contract Benchmarking Tool based on our extensive database
of outsourcing contracts and we use it on most client engagements. It tells
clients where they stand on a wide range of criteria, including pricing, Exit
Provisions, whether the Contract is client or Supplier favourable, and so on.
As prevention is better than cure it is best to get the right terms from the outset
and, based on this tool, we are also able to advise on current market norms
either before or during Contract negotiations.
Let us know if youd like to find out more about our Contract Benchmarking Tool.
Contract Management
Along with Process Owners and the Retained Organisation, Contract
Management is probably one of the areas in outsourcing that quite often does
not get sufficient attention and as a result the deal may suffer. The fact is that,
depending on the size of the deal, contract management is often a full time job
if it is to be done well, and too often it is done on a part time basis alongside
many other responsibilities.
The Contract Manager has a number of obvious and routine responsibilities,
such as monitoring service and ensuring the client pays the right amount for
that service. However, good Contract Management is more about the spirit of
the relationship rather than the letter of the Contract. A good Contract Manager
should be aiming to achieve a partnership with the Supplier so that problems
and issues are solved jointly rather than adopting an us and them attitude and
beating them up whenever things go wrong. The Contract Manager should also
be active within the client (along with the Process Owners) in ensuring
compliance and appropriate behaviours in dealing with the Supplier.
If done properly, this is easily a full time role for many deals.
Contract Mapping
This is an innovative technique Alsbridge developed to enable a clients
requirements to be accurately reflected in the contract. It was developed
because the alternative usually paging through and marking up a Contract
template-risks missing important requirements, is usually not in a logical order
and above all is extremely boring!
Alsbridges Contract Mapping approach works like this. We have divided the key
areas of a Contract into thirteen headings, each of which corresponds to a key
operational aspect, for example Where will the service be provided from? and
What will the termination rights be? Under each heading are a range of
subsidiary questions, which in turn branch off into others.
These questions ensure that the client thinks through each area very carefully,
rather than just taking the provisions of a previous Contract, which may miss
something important.
Contract Mapping takes place in a workshop and a lawyer notes down the
requirements as expressed by the client, which are then incorporated into
the contract. We use mind mapping software to support the whole exercise in
order to make it as visual as possible, which also helps understanding (and
makes the whole thing really quite interesting!)
Please let us know if you would like a demonstration of our innovative Contract
Mapping Tool.
Contract User Guide

Virtually no Contract is written in a way that non-lawyers (i.e. most people
actually involved in the day to day running of a deal) can easily understand.
The order may not appear the most logical, it can be difficult to find things, and
when you do find them you need to read the clause several times before you
understand what its getting at. When you consider that the people running the
deal quite often had nothing to do with the drafting of the Contract its not
surprising that things dont work the way they were supposed to.
All Alsbridge advised outsourcing deals have a Contract

User Guide which explains the practicalities of the contract
in simple, straightforward language
As a result, all Alsbridge advised outsourcing deals have a Contract User Guide
which explains the practicalities of the Contract in simple, straightforward
language and with as many diagrams as possible (its surprising how much of a
Contract can be turned into pictures!)
Controls (see also Data Protection)

Concern over controls, and in particular losing control over the controls, is
fairly common for clients entering into outsourcing deals, especially in areas
such as F&A. And it is important to note that the essence of outsourcing is that
the client should recognise that they are buying a service from a Supplier, rather
than buying a set of activities from a group of people who were previously
employed by them but are now employed by someone else.
The client will not be able to manage the Supplier staff as they previously did
their own staff and nor should they, otherwise they will not get the full benefit of
the expertise they are paying for.
Having said that, there are a number of ways in which internal control can be
maintained and indeed strengthened. At the simplest level, clients internal and
external auditors will be able to gain full access to the Suppliers delivery
locations to carry out whatever testing or checking is deemed appropriate. This
right of access is commonly written into the contract.
Secondly, clients will be able to define their internal control framework to the
Supplier and have the Supplier implement them. Their level of compliance
could be built into the Service Level Agreement and could be tested by clients
internal auditors.
Thirdly, there are certifications that the Supplier can provide which are sufficient
to demonstrate SOX compliance (see Sarbanes Oxley).
There are certifications that the Supplier can provide which

are sufficient to demonstrate SOX compliance
Finally, it is worth noting that companies can almost always find a satisfactory
solution to this issue and outsourcing Suppliers are usually very accommodating.
Alsbridge ranked #1 Outsourcing

Advisor in the World by IAOP
Currency Adjustment
In many deals the currency in which the Supplier incurs costs is not the same
as the currency in which the client would like to be billed. If the Suppliers
Delivery Centre is in India, and the client wants to be billed in Euros, then
clearly over time there is going to be a foreign exchange risk for someone. As
a default, most Suppliers will want the client to take most if not all of the risk that is to say, in our example they would be happy to bill in Euros but that
would simply be Rupees converted into Euros at the billing date. And, if the
Supplier does take the currency risk they will certainly build in a risk factor that
the client will pay for, one way or another. So the clients choice is, do I take the
risk myself (and have complete transparency and control), do I ask the Supplier
to take it (and have certainty, but no transparency or control) or do we share it?
Data Protection
Data Protection is an increasingly important topic and it is vital to get it right at
all times, especially when personal data is involved, such as salaries or credit
data. The consequences of non-compliance can be very serious, on the
companys reputation as well as any legal sanctions that may be imposed.
From a UK perspective the Data Protection Act 1998 spells out the legal
obligations and there is also EU legislation to consider. It is really important to
think through what data is going to be held and where it is going to be held, to
ensure compliance. Can UK personal data be held in India? Or in the USA?
Well, it depends
And provisions have a habit of changing, not always to make life easier, so it is
vital that companies obtain up to date legal advice.
Deadband
A Deadband is a term generally encountered with respect to Pricing models.
It refers to the band either side of a point where the price doesnt change.
For example, a client might agree with a Supplier that they will pay a certain
amount for 1 million transactions, if the volume of transactions goes up or down
by 5% the price wont change - and hence this is the deadband. Its purpose
is to recognise the fact that a Supplier wont incur more cost if (in this example)
volumes go up by 5% and wont be able to decrease their cost if volumes go
down by 5%, so for this range the price stays the same.
Delivery Centre (Delivery Model)

Choosing the right Delivery Centre strategy can be difficult. There are so
many choices available now. Should you go onshore (i.e. own country reassuring for lots of reasons but wheres the business case?), nearshore
(usually Central/Eastern Europe - similar cultural background but how long will
it remain lower cost?) or offshore (India/Philippines/China - certainly low cost
but do they understand us and can we get the languages?)
It is increasingly common to have a two centre model, one of which is offshore
(to get the low cost) and the other is near-shore (usually to deal with more
sophisticated language requirements).
Suppliers occasionally resort to jargon to describe their approach, for example

by using terms such as this shore or that shore. It all means much the same
thing - getting the right model to suit the circumstances.
Suppliers occasionally resort to jargon to describe their

approach, for example by using terms such as this shore
or that shore. It all means much the same thing - getting
the right model to suit the circumstances
Disaster Recovery
Disaster Recovery is an important aspect of Business Continuity Planning. It
means what it says how does a Supplier recover service delivery from a
disaster, such as a flood, hurricane or a fire? Disaster Recovery needs to be
completely consistent with the requirements of the Business Continuity Plan.
Dont forget, in many outsourcing deals, because of the confidentiality involved,

the Supplier has to work entirely on the basis of data supplied to them by the
client for quite a long way through the process. It is ultimately in everyones
interests that the Supplier has the chance to validate the data and confirm that
they will stand behind the deal.
Earnback
Earnback is a concept which is used in connection with Service Credit regimes.
Basically the supplier can Earnback Service Credits incurred if they perform
at or above a defined level for a defined period of time.
The thinking here is that anyone can make a mistake and Suppliers should be
encouraged to improve performance, not merely punished if they fall short.
Some clients like the idea of Earnback, others hate it

Entire Agreement
It is essential to understand what Disaster Recovery plans the Supplier is

proposing as standard within the Contract. For example, for a BPO deal is it a
cold facility (which is the usual option - this is an empty space that can be used
by a limited percentage of the Suppliers staff), a warm facility (the same space
kitted out with desktops etc) or a hot facility (highly unlikely a complete,
staffed replication of the delivery centre offsite). And of course each of these
has cost implications.
Dispute Resolution
Disputes (or at the very least, disagreements) are almost inevitable at some
point, no matter how good the relationship between client and Supplier, so it is
important to have a good Dispute Resolution and escalation process.
Normally there is an escalation route specified in the Contract, which works its
way up the Governance structure and then to the client and Supplier senior
management. If this should fail (and it is quite rare for things to get this far) it is
essential to agree what the next step is, so as to avoid going to litigation which is
the least desirable way to resolve a dispute. There are normally two options - go
to mediation (someone else tries to facilitate an agreement) or go to arbitration
(someone else decides on the outcome and the parties then implement it).
Downselect
This refers to the process whereby the number of potential Suppliers in a
competitive process is reduced e.g. Supplier X and Supplier Y have been
Downselected, (quite how this is better than just saying selected is lost in the
mists of time).
Due Diligence
The contract covering an outsourcing deal will generally be the Entire

Agreement. This means that there is no other agreement between the parties
other than what is stated in the Contract. So no matter what the client and the
Supplier promised to do in meetings or documented in notes or presentations,
if its not in the Contract, its not agreed.
Exclusivity
Suppliers will often ask for Exclusivity regarding the services they provide to a
client. For example, they might request Exclusivity over services in Scope in a
particular territory or region. However, in general clients shouldnt grant
Exclusivity unless they see a particular advantage in doing so or have traded it for
something they would like more. The reason is that Exclusivity could limit a
clients room for manoeuvre if things change in the future, for example if there is a
major acquisition and the client wishes to use another Supplier for some reason.
Exit Assistance
It often comes as a surprise to those negotiating an outsourcing Contract for
the first time that at least as much time appears to be spent on discussing what
has to happen to get out of the deal as what benefits it will deliver. However this
is only good risk management and it is imperative not to get stuck in a deal you
cannot get out of. As a result, a key feature of most deals is the Exit Assistance
schedule. This sets out the assistance that the Supplier must provide and the
rates they can charge to support the client in exiting the deal, either to bring the
work back in house or to move to another Supplier.
This is usually documented quite comprehensively in a Contract Schedule.
Exit Provision (see Termination)
Due Diligence usually means the process by which the Supplier validates the data
supplied to them by the client, for example assets, number and capabilities of staff
whatever is relevant. The client should normally insist that the Supplier carry out
the exercise to their (i.e. the Suppliers) complete satisfaction prior to contract
signature to avoid any possibility of unpleasant surprises later on. For example,
the risk of the Supplier wanting to increase the price because they claim the data
they received was wrong in some respect.
Our Methodology FastSource
Phase 1 Evaluate
Phase 2 Implement
Phase 3 Evolve
Research & Training
Design
Service Agreement Mgt
Identify Need & Interest

Investigate Options
Stakeholder Assessment
Risk Analysis
Education Sessions
Coach & Support
Processes & Service Levels

Technology
Organization
Change Mgt & Communication
Review
Coach
Deliver
Insource
Transition
Operations
Governance
Knowledge Transfer
Work-shadowing
Service Management
Technology Acceptance
People Transfer RRTR
Build
Facilities
Technology
Policies & Procedures
Feasibility
Develop Strategic Options
Define Solution
Define Operating Models
Define Commercial Models
Confirm Potential Suppliers
Service Agreement
Health Check
Governance
Services & Cost
Risk
Governance
Establish Structure
Define
Deliver
Service Management
Charging Structure
Change & Issue Management
Strategy
Confirm Scope &
Operating Model
Define Current State
Confirm Commercial Model
Business Case
Transition Approach
Stakeholder Assessment
RFI
Contract Management
Design
Review
Coach
Deliver
Processes & Service Levels

Systems
Organization
Change Mgt & Communications
Supplier Selection
RFP Development
Evaluation & Selection
Negotiate Contract
Deal Parameters & BATNA
Due Diligence
Contact Award
Outsource
Transition
Health Check
Operations
Governance
Knowledge Transfer
Work- shadowing
Service Management
Technology Implementation
People Transfer RRTR
Facilities
Program
Management
Governance
Project
Management
Risk
Management
Governance
Services & Cost
Risk
Governance
Establish Structure
Define
Deliver
Change
Management
Quality
Assurance
FastSource
FastSource is Alsbridges sourcing methodology and an overview is set out on the
previous page.
strikes, acts of God e.g. earthquakes, floods, epidemics etc For example, if
the Supplier cannot deliver the service because of flood (and all agreed
Business Continuity and Disaster Plans have either worked or have been
prevented from working by the flood) then the client cannot sue the Supplier. But
on the other hand, they dont have to pay for the service they dont get either!
Its fairly self-explanatory, as good methodologies should be, and reflects our
belief that any approach to sourcing needs to be flexible and pragmatic. One size
most definitely does not fit all!
FTE
Contact us to find out more about how FastSource works in practice.
FTE is a very common piece of outsourcing jargon and means Full Time
Equivalent. Two people working 50% of their time would be one FTE.
F&A Outsourcing (FAO)
Gainsharing
The scope of F&A Outsourcing (FAO) can include some or all of the following:
accounts payable, accounts receivable (including collections), credit
management and reporting and accounting (including ledger maintenance,
fixed asset accounting and the closing process).
Many outsourcing deals have a form of Gainshare. It simply means sharing

defined benefits between the client and the Supplier in an agreed way. This is
usually a benefit which is over and above Continuous Improvement, as the
latter already should be built into the Contract, and is designed to encourage
the Supplier to identify improvements in excess of the Glidepath by ensuring
that they share in the benefits. There would be no incentive if that simply
resulted in lower revenue for the Supplier.
In general Suppliers carry out FAO using the clients existing systems but
provide enabling technology where required such as scanning, workflow and
productivity tools.
There are many examples of FAO, probably well over 150 in Europe alone
and there are estimated to be over 50,000 Supplier FTEs working on FAO
deals worldwide.
Gainsharing is one of those concepts that can either be very simple, in which
case it may well be of little use, or it can be extremely complicated in which
case no one can understand it. But the secret is to make it sensible and
equitable so that it acts as an incentive for both parties.
Financial Engineering
Glidepath
At its simplest, an outsourcing deal often involves a significant payment to a

Supplier for Transition (sometimes offset by a payment from a Supplier for assets)
followed by a net benefit as the lower cost delivery kicks in. This provides scope
for Financial Engineering whereby a Supplier can leverage its balance sheet to
help the client. For example, the Supplier can smooth the Transition costs over
the lifetime of the deal, so as to avoid the large early outflow. The Supplier could
also be flexible around the size and timing of payments for assets.
The term Glidepath refers to the gradual reduction in cost to a client over the
term of a deal (so called because thats what it looks like if you draw a graph of
cost over time). The Glidepath will probably be underpinned by all sorts of
assumptions concerning the respective roles and responsibilities of the client
and the Supplier, for example increasing client compliance with processes or
even the implementation or upgrade of technology.
However, it is important to note that this essentially involves borrowing money

from a Supplier rather than a bank and as a result the funding costs are likely to be
significantly higher. Nevertheless, if cash is an issue, then Financial Engineering
can be an attractive proposition, but there is no such thing as a free lunch.
If cash is an issue, then Financial Engineering can be

an attractive proposition, but there is no such thing as a
free lunch
There are of course deals where the payment is the other way, for example
where a Supplier is buying a clients existing processing centre or IT assets,
and again there is significant scope for Financial Engineering.
Force Majeure
Force Majeure is a common concept in commercial contracts and outsourcing
contracts are no different. It basically means that if an extraordinary event
happens, for which neither party is responsible and which prevents either or
both parties from fulfilling part or all of their obligations, then neither party has
liability for non-performance. This includes includes events such as wars,
Remember, there is no secret sauce in outsourcing!

Sometimes Suppliers come up with Glidepaths that the client thinks may be too
aggressive, or the improvements anticipated just cant be understood. In such
circumstances it is vital that the Glidepath isnt just accepted as a black box,
because if the client doesnt see how it can be done the chances are that it cant
be done. Remember, there is no secret sauce in outsourcing!
Governance
Governance means the entire mechanism by which an outsourcing deal is
managed and controlled. Sometimes it is taken to mean only the three tiers of
meetings (usually day to day, monthly and six monthly) between the client and
the Supplier that take place to monitor performance, set strategy and sort out
issues, but we believe this is too narrow a definition.
Governance should also include reporting mechanisms, including Service Level
Agreement reporting, formal and informal feedback between the client and the
Supplier, the relationship between the Retained Organisation and the Supplier,
and the relationship between the wider client stakeholder community. It is only
by taking this wider view that the outsourcing deal can be managed effectively
and governance should always be a key point of focus.
Heads of Terms (see Term Sheet)

HR Outsourcing (HRO)
The scope of HR Outsourcing (HRO) can include some or (more rarely) all of the
following: payroll, payroll administration, recruitment, training and training
administration, HR administration and records maintenance, administration of
the appraisal and development process, administration of remuneration
reviews, benefits administration and helpdesks associated with all of these.
The leading HRO Suppliers all provide systems platforms which include
features such as self service.
There are many examples of payroll outsourcing and many companies have
outsourced elements of the other areas listed too, but there are far fewer
examples of comprehensive HRO with one Supplier.
Indemnities (also see Warranties: theyre not the same

thing, but can sometimes be confused)
Outsourcing Contracts generally contain quite a few references to Indemnities.
The basic idea is that, if something specific described in the Contract happens (i.e.
a bad thing), then one party will compensate the other so an Indemnity is a form
of compensation and is the term to describe a voluntary agreement between
parties to compensate each other (as opposed to compensation legally
enforceable through other forms of legal redress, which is called damages).
A common example of an Indemnity is described under Personnel Provisions.
If client staff do not or cannot transfer to an outsourcing Supplier (often because
the work is transferring overseas), there is a risk that the staff may sue for unfair
dismissal. In these circumstances the client will often agree to indemnify the
Supplier against any costs that may fall on them through this action, for example
if employees decide to pursue the Supplier as well as the client.
Its much the same as for the Currency Adjustment - if the Supplier takes the
full inflation risk and builds it into the price then they will also build in a risk
factor that the client will have to pay for, one way or another. So the clients
choice is, do I take the risk myself (and have complete transparency and
control), do I ask the Supplier to take it (and have certainty, but no transparency
or control) or do we share it? Its up to you to decide
Insourcing
Not surprisingly, this is the reverse of outsourcing. It might occur at the end of a
deal, partway through a deal which hasnt been a success or because business
circumstances have changed and the deal is no longer viable for the client and/or
the Supplier, for example because business volumes have fallen dramatically.
Insourcing is by no means unknown but it is still the exception rather than the rule.
Intellectual Property Rights

Pay attention at the back, this could be important! This booklet is not the place
for a comprehensive treatise on IPR in contracts people (mainly lawyers) build
careers on this. However, it is important to keep in mind what the practical
impacts can be, and there are a number to be aware of.
Time spent on Intellectual Property might seem

interminable but could turn out later to be well spent
If you bring IP to a deal, for example a piece of software that you have
developed for a particular application, and the Supplier becomes familiar with it
and uses it on your deal, you wouldnt want them to copy it and use it on their
other deals would you?
Or the Supplier might introduce their IP and would want to protect themselves
against you running off with it without paying for it. Then, during the deal, you
and the Supplier might co-develop IP who will own that?
Industrialisation
Industrialisation or automation is fairly self-explanatory - it basically refers to
taking people out of the process and replacing them with technology of one
kind or another. Clients would generally expect Suppliers to approach them
with opportunities to do this which can then be assessed and the funding
mechanism agreed.
Inflation Adjustment
Every Supplier suffers cost inflation in their Delivery Centre over time thats a
fact of life. As a result, the Supplier default position is to include an Inflation
Adjustment mechanism in the Contract, whereby the base price is inflated
every year based on agreed indices. So far so good. However, at the risk of
over generalising, most low cost delivery locations have higher inflation rates
than the higher cost client locations. So will the client be worse off inflationwise than they would have been if they hadnt outsourced? Other things being
equal (such as exchange rates, which probably wont be), clients run the risk of
the cost increasing in real terms over the life of the deal.
So it is important for the client to think carefully about what they want to
achieve as far as the Inflation Adjustment goes, and whether/how they want to
share this with the Supplier.
And, how do you make sure that you dont get locked into a Supplier if they
develop IP that you rely on heavily but they wont give you (or anyone else) a
licence to use it, if you should want to move elsewhere?
So there are practical implications after all! Its one of those areas where you
might wonder at the time whether its worth what seem to be interminable
discussions, but could turn out later on to be time well spent.
Intermediates (see Third Party Advisors)

Innovation
Beyond cost, process or technological Innovation is one of the main reasons
why companies outsource. This could be anything from process automation
and simplification through to a new systems platform.
However, when deals underperform, lack of Innovation is often cited as a
common factor. There are a number of reasons for this, and one of the most
common is that the client expects Innovation to happen with little or no input
from their side. What then tends to happen is that the Supplier has no one to
engage with, thinks the client isnt really interested and (perhaps not surprisingly)
doesnt do much. There are ways of helping to ensure Innovation in a deal.

Contact us to find out how.
Innovation, like so much in outsourcing, has to be focused

on and worked at by both sides, otherwise it wont happen
Invoicing
Which client company or companies does the Supplier send their invoice to? This
simple question sounds like a detail but actually it has wide implications. It also
tends to be one of those issues that people pay little attention to until late on in
the deal negotiation process, at which point it has the potential to cause delays.
Alsbridge
Telling it like it is.
No agenda. No cheerleading. Just Results.
The basic point is that the Supplier has to invoice the client. But how?
One invoice from the Supplier to the client, that the client then recharges
internally? Or, if the client has multiple entities, quite possibly in different
geographies, does the Supplier invoice each one separately? This can
provide endless scope for debating the issue (tax, accounting, treasury,
foreign exchange, legal implications) while the Supplier waits for an answer.
In general Suppliers prefer to invoice centrally but really they dont care that
much, they just want to be sure they will get paid on time.
IT Outsourcing
IT is by far the commonest function within a business to outsource and these
days there are few companies that havent outsourced something, whether it be
desktop support, applications management, data centres, networks, or
applications development. IT outsourcing has been around for many years, has
a wide range of Suppliers and is probably closest to a commodity in many
aspects than most other types of outsourcing.
Joint Ventures
Joint Ventures in outsourcing had their heyday about 10 years ago. Large
companies looking at outsourcing felt that they should share somehow in the
capital value of their deal as well as gain revenue savings and other benefits.
The argument ran, we are a big client and the Supplier can exploit our name
recognition, and experience gained in serving us, in selling similar outsourcing
services to others. So why should we give that away? How can we share in it?
There were a number of Joint Ventures, for example the Shell/Ernst & Young JV
for F&A outsourcing known as Tasco. However, as Joint Ventures are wont to
do over time, most of them have disappeared and have been bought out by
one party or the other. Experience shows that the basic problem is the age old
issue of managing a business when the two owners have differing priorities.
Nevertheless, there is a Supplier which has been successful in operating Joint
Ventures in specific circumstances.
Jurisdiction
Every outsourcing deal has a Jurisdiction, i.e. the nationality of the legal system
governing the Contract. This is not just a legal technicality it can have a
significant impact on the provisions in the Contract. For example, under English
law a contractual penalty has to be a genuine estimate of the damage suffered if
one party does not fulfil its obligations, whereas in other countries it may not.
This is one of those areas where it is definitely best to take advice.
Key Staff
The Supplier will deploy Key Staff on a deal that the client will want to keep in
place for as long as required or as long as possible, so as to have the best
possible chance of success and not be bothered by high staff Attrition. As a
result, the Contract will name these individuals and will state under what
conditions they can be moved off the account, for example if they leave the
Suppliers employment, or with the clients prior agreement. (There is actually
one standard form of Contract wording which very generously allows the
Supplier to stand down key staff if they die, presumably because the Supplier
wouldnt be able to charge for them).
But on the other hand good Language skills can be important in (for example)
cash collection, because it is essential to understand not only the words but
also the nuances.
It is also worth noting that more and more deals are seeking to de-skill
Language capability by (for example) teaching staff a limited reading vocabulary
and retaining a small pool of more skilled Language capability to use if required.
One final point - it is often surprising how Suppliers are able to overcome
seemingly difficult Language challenges with a little imagination.
Knowledge Process Outsourcing
Lawyers
Knowledge Process Outsourcing (KPO) is BPOs precocious little brother (or

sister). Whereas BPO is a term generally used to cover transactional
outsourcing, KPO covers higher value added activities where knowledge-based
rather than transactional-based capability is the selling point (not that being in a
low cost location doesnt help, of course). So typical examples of activities
included under KPO would include market research, company analysis or
clinical trials. And its a growing business.
Legal input is essential for the contracting process, be it external or in-house.

Some clients have very experienced in-house lawyers who are able to deal
with the whole process themselves, but many do not and use external
Lawyers for (at the very least) a review of the contract.
Knowledge Cascade (see Transition)
At this point we could list all the Lawyers in the outsourcing arena we can think
of, but of course we would then offend those we havent listed, so we arent
going to do that. We can let you know who specialises in outsourcing work if
you are interested.
KPIs (see Service Level Agreement)

Knowledge Transfer (see Transition)
Labour Arbitrage
A fancy term for the main driver behind most offshoring and BPO the
difference in labour costs between the current location of operation and the
new location. Labour Arbitrage can and does take place between locations in
the same country, of course, as well as between countries.
Languages
For many outsourcing deals Suppliers need some form of Language capability,
even if it is just basic English. However for some deals, especially those that
involve extensive contact with client staff, customers or Suppliers, clients will want
deeper Language skills and may even want to define exactly what they need.
By the way, it is worth noting that a lot of the language skills on an outsourcing
deal delivered offshore are going to be provided by non-native speakers.
This may come as a surprise to some clients, who have been used to recruiting
foreign nationals in places like London or Brussels, but thats the way it is.
It is worth noting that a lot of the language skills on an

outsourcing deal delivered offshore are going to be provided
by non-native speakers. This may come as a surprise to
some clients
Having said this, outsourcing is a major opportunity for companies to
re-evaluate exactly what they need and to make changes. For example, clients
might take the view that only English need be spoken, where a range of
Languages was used previously.
Alsbridges view is that Lawyers should be involved as early as possible in the

process so as to avoid problems misunderstandings and backtracking later on.
Letter of Intent
On some deals the Supplier will ask the client to pay for specific work carried out
before the full Contract is signed, for example work on Transition that has to be
brought forward due to time pressures.
In this case a document known as a Letter of Intent will cover the work i.e. the
work is done at the rates in (or likely to be in ) the draft Contract because the intent
is to agree a deal.
Otherwise, standalone work of the kind being undertaken could well be at different
(higher) rates. It is also possible that a Supplier might ask a client to sign a
Letter of Intent even if there is no specific work to cover, just to formalise the
intention to agree a deal. This may have no real legal force but might give the
Supplier comfort that the client is focused on reaching a conclusion.
Liability
A key part of any outsourcing negotiation is to agree the Liability of the parties if
something should go wrong - the what if scenarios. By the way, this may all
sound very negative but it is actually an essential part of both risk management
and deepening the clients understanding of the deal.
What happens if the Supplier doesnt file our tax returns on time and we incur a
fine? What happens if the Supplier doesnt pay our staff on time and they all
walk out? What happens if they dont pay our suppliers and they stop
delivering? What happens if the Supplier accidentally introduces a virus into our
system and everything crashes?
For Suppliers, liability is one of the deal breaking parameters, if

you push them outside their parameters they will walk away
client with that Supplier, at any time. Quite how the client is able to ensure that
this is always the case is unclear, but at least they can say that their deal is the
best one they could have got. Apparently.
The fact is that all of this could happen (and more), and therefore we need to
consider it, but dont forget it could all happen now, when you still do all the
work yourself!
Multisourcing
For Suppliers, liability is one of the deal breaking parameters. They have their
rules and they have to stick to them - no matter how much they want the deal,
if you push them outside these parameters they will walk away.
As with most aspects of outsourcing deals there are commonly accepted market
norms and this is definitely an area where good advice can save a lot of time.
Lift and Shift

Lift and Shift is the simplest approach to outsourcing. Sometimes (possibly
unkindly) referred to as your mess for less, it simply means that the Supplier
will replicate exactly what you do now but will do it cheaper, often in a low cost
location but possibly also through achieving economies of scale. They may also
throw in some undefined process improvement over time too.
Theres nothing at all wrong with lift and shift - though some Suppliers can give
the impression its a little beneath them these days, but actually it all depends
on what the client wants.
Theres nothing wrong with lift and shift - though some

Suppliers can give the impression its a little beneath them
these days
Multisourcing is a term to describe the use of a number of outsourcing Suppliers,

rather than just one.The basic assumption underpinning multisourcing is that it is
better to go best of breed, spread risk and have several Suppliers vying for your
business rather than just having one large Supplier who may start off well but
whose performance may deteriorate.
The main challenge of Multisourcing is ensuring that the Suppliers work together
to achieve a common service objective for the client, without the client having to
spend a lot of time and effort on Contract Management. An increasingly
common approach is to use Vendor Cooperation Agreements which set out the
obligations and ground rules for how Suppliers will work together.
Negotiating Strategy
Some clients seem to forget (or it never occurs to them) that they are
negotiating a deal with people from the Supplier who negotiate for a living and
who want the best outcome for their company. Suppliers are mostly first class
negotiators and organise themselves to achieve a particular outcome clients
need to do the same or face having a deal which doesnt work in their best
interests. This certainly isnt to say that Suppliers are unfair or underhand in any
way, just that they are running a business.
This is really just Negotiating 101 but if you arent ready or dont recognise the
techniques you may miss out.
If you arent ready or dont recognise the techniques for

successful negotiation you may miss out
Material Breach
Nearshore
Material Breach is effectively the nuclear button for both parties - if the other
side commits a Material Breach, its usually grounds for immediate Termination
(plus lots of other nasties, such as the Supplier bearing the exit costs, if they
have committed the Material Breach).
Term used to describe delivery location in Central/Eastern Europe for European

clients (or Central America for US clients).
What actually constitutes Material Breach depends to a certain extent on what

jurisdiction governs the contract. In English law there is no definition as it is
assumed both parties will know what it is when they see it and that a court will
recognise it as such. Nonetheless, it is common in a Contract to see certain
circumstances pre-defined as material breach, for example persistent failure to
meet agreed service levels, so that both parties know where they stand.
In other Jurisdictions, such as Continental Europe, there is often much
more defined in law regarding Material Breach and local legal advice is
therefore essential.
Migration (see Transition)
Offshore
Term used to describe India/Philippines/China (outside Europe, anyway) for
European clients.
Onshore
Term used to describe delivery centre location in the clients own country.
Operating Level Agreement (see Service Level Agreement)

Outsourceability
Terrible word which describes whether or not a particular activity can be
outsourced (as distinct from whether it should be outsourced). At Alsbridge we
have five rules which provide a framework for decision making, such as
whether the activity is rules based, whether it can be documented and whether
it involves business judgement or not. Call us to get the other two
Most Favoured Client

Occasionally, a very large or important client will be able to negotiate a clause
with a Supplier so that they automatically get the best terms and service of any
Payback
Not solely an outsourcing term, this refers to one of the main (if not THE main)
criteria that companies use to determine whether or not the Business Case for
outsourcing stacks up. Every company will set its own approach to Payback
(e.g. including/excluding employee severance costs) and their own hurdle rates
(e.g. it has to be better than 3 years). However, there are certain rules of thumb
regarding Payback which are market norms.
And of course there may well be different pricing mechanisms for Transition as
opposed to service delivery.
This can be a tricky area with possible unforeseen consequences if you get it
wrong and Suppliers are experts in this field. Best to take specialist advice.
(By the way, if you are looking for the way to calculate Payback, best to consult
a business book or advisor!)
Pricing can be a tricky area with possible unforeseen

consequences if you get it wrong Suppliers are experts in
this field
Payroll Outsourcing (see HR Outsourcing)
Procurement Outsourcing
Personnel Provisions
Procurement Outsourcing means having a Supplier procure goods and services

(usually indirect i.e. not for resale) for their client. The services typically fall into
two types:
People and staff issues are a feature of almost every outsourcing deal in one
way or another, and it is an area where specialist help is usually required, for
example where Acquired Rights Directive (ARD) or Transfer of Undertakings
(Protection of Employment) (TUPE) issues are concerned. Some key issues that
often crop up are as follows:
Will staff transfer to the Supplier under TUPE or equivalent regulations

(basically, do staff have the right to transfer to the Supplier on the same
terms and conditions)
What consultation process is required by law?
What if the client staff sue the client for unfair dismissal?
Who is responsible for any redundancy costs, for example after staff have
transferred and are then made redundant?
What if the Supplier staff sue the Supplier for unfair dismissal when the
Contract ends?
One point to bear in mind is that the Supplier will have carefully worked out
their Business Case and they wont want unexpected transfers of staff from a
client paying higher salaries to upset it. As a result, client staff may have to be
made redundant rather than transfer. If this leads to claims against the client,
the client will have to indemnify the Supplier against any cost or Liability.
Likewise, when the Contract terminates, it is normal for the Supplier to
indemnify the client against any claims.
Pricing (Charges)
The pricing mechanism is one of the key commercial Schedules in a contract.
There are many different possibilities for the basis of the Pricing mechanism
for example fixed price, capped FTE based, target cost, transaction based
and different combinations are possible too. So which to choose? The key is to
be clear on the circumstances of the deal, what you are trying to achieve and
what risks you are prepared to take. So for example a fixed price mechanism
might be suitable for a simple Lift and Shift but at the other end of the scale a
target cost mechanism with a built in Glidepath might be better for a deal where
transformation is expected to be a feature.
category management / sourcing

systems and technology support to the procurement process
The Business Case is predicated on two assumptions:
the Supplier can achieve better deals than the client, either through better
practices, procurement nous or purchasing power
the process is more efficient and cost effective, either through the use of
technology or lower cost staff
Procurement Outsourcing is less widespread than say F&A or IT outsourcing

but can still deliver good Business Cases.
Process Owners
Process Owners should be a key feature of all outsourcing deals. The term refers
to the role of managing an end to end process and is client side (although the
Supplier may have a mirror role). Key features of the role include identifying
business changes in the client and assessing the implications for the Supplier, as
well as driving and coordinating process improvements.
Most underperforming deals we come across do not have

Process Owners! Be warned
Qualification Process
When Suppliers are asked to bid for a piece of work they need to decide whether
it makes business sense for them to spend time and money doing so, and this is
known as the Qualification Process. The criteria will include obvious parameters
such as the size of the deal, whether there is an incumbent or anyone else with
an inside track, the nature of the deal (e.g. Lift and Shift or Transformational),
strength of existing relationships, and less obvious ones such as how busy they
are on other deals at the time. Clients are sometimes surprised when Suppliers
decide not to bid but they try to maximise their chances of winning over their
portfolio of opportunities and they cant go for everything.
References
Every potential client should take up References for their preferred Supplier but
dont expect this to be particularly revealing as regards Supplier capabilities no Supplier would knowingly provide a bad reference (would anybody?).
However, in our experience, Reference calls or visits inevitably lead to
knowledge sharing and this is always valuable.
An advisor like Alsbridge can often arrange off the record references (see
User Groups).
Renegotiation
Renegotiation is generally associated with a contract coming to the end of its
term but in fact it can of course take place at any time, if both parties agree.
As regards end of term Renegotiation, the key thing for the client is to keep
options open. This means starting the renegotiation process in sufficient time
so that moving to another Supplier is possible and that the incumbent Supplier
knows that it is a feasible option (a BATNA, in fact). In addition, it would
definitely be worth doing some market testing using Alsbridge, as we have
access to latest capabilities and costs.
Request for Information (RFI)

A client would issue an RFI at the beginning of an outsourcing procurement
process in order to understand and to assess the capabilities of the Suppliers in
the market. In many cases, advisors like Alsbridge avoid the need for clients to
issue RFIs as they should already have much of the data available.
Some clients make the mistake of asking for cost data in an RFI; if this is given,
it will be so caveated as to be fairly meaningless and possibly even misleading.
Request for Proposal (RFP)

An RFP is a key step for an outsourcing deal because it sets the tone and
approach for virtually the whole of the procurement process which follows.
There is a lot of information which needs to be in an RFP, far too much to list in
this document, but the key attributes should be as follows:
Alsbridge is the only firm in the

Sunday Times FastTrack100 to also
receive an outstanding Three Star
status in the Sunday Times Best
Companies to Work For list
Ask what it is that you need to know, not every question you can think of
Provide the information that the Suppliers need, not everything that you can find
to give them
Try to keep it as short and concise as possible, no more than 40-50 pages for
the main document.
A long RFP is a lazy RFP and helps no one!

An RFP will also include other documents, such as a draft Contract or at the
very least Heads of Terms.
Some people think the RFP should set out the solution in detail so as to get
absolutely comparable bids from Suppliers. In our view, this is usually the wrong
thing to do. For a start, it runs the risk of constraining the Suppliers in their
responses so that the client does not get the full benefit of their experience.
We believe the RFP should set out the clients requirement of service, not the
design of the solution. The lack of precise comparability for pricing purposes
between bids is a small price to pay when set against the higher quality that
usually results (and can usually be adjusted for anyway).
A long RFP is a lazy RFP and helps no one! Some people

think the RFP should set out the solution in detail so as to
get absolutely comparable bids from Suppliers. In our view,
this is usually the wrong thing to do
Retained Organisation
The Retained Organisation is really the key to success in many outsourcing deals.
On the presumption that you wont have chosen an incompetent Supplier, and
that they wont set out to a bad job, the missing link in ensuring the success of the
deal is the clients Retained Organisation.
It isnt complicated or difficult to get the retained organisation design right but its
surprising how many companies dont. Some of the key features are as follows:
Expect there to be exceptions, errors and mismatches to sort out processes wont work perfectly, no matter how well designed
Accept that the Supplier will have to ask questions that you think they should
know the answer to
Actively manage processes only the client can really take an end to end
view and putting Process Owners in place is key;
Make sure the rest of the business is absolutely clear on how to work with
the Supplier
Face up to the fact that your business will change and thus so will the
services required from the supplier.
The most common shortcoming is that clients take far too aggressive a view of
what can be outsourced and then get frustrated when they either cant get rid
of the temps they recruit to shore up the deal or find backlogs building up at
their end.
which provides a reputable auditors opinion as to whether controls were

operating effectively in the period under review.
It is worth noting that, although the situation might appear a little melodramatic,
companies can always find a satisfactory solution to this issue and BPO
providers are very accommodating.
We have examples of most approaches to ensuring maintenance of internal
control but we mainly find that clients are satisfied with a SAS 70 Type II certificate
from a Big Four auditor, together with access rights for their internal auditors.
And no CFO has (yet) gone to jail for an outsourcing Suppliers screwups
Scenario Modelling
It is obviously not possible to think of and allow for everything that could
happen during the contract term, nor is it possible to agree if this then that
rules for all changes. However it is important to define significant Scenarios,
such as the acquisition or sale of a major business, and work through with the
Supplier what the impact on Pricing would be. These Scenarios are then
appended to the Contract and, whilst they dont have legal force, they set
expectations as to what the impact of major changes will be and help to flush
out any misunderstandings or lack of alignment in expectations.
Schedules
The Schedules to the Contract cover the more transactional data that may well
change, such as service Scope or Service Levels.
The point of having schedules separate from the main body of the Contract is
mainly for efficiency, as they can be updated and changed without having to
draw up a new Contract every time. In general, the majority of the work on
drawing up a Contract takes place on the detail of the Schedules (and there is
usually a lot of detail to go through). This often goes on in parallel to the work
on the main body (also known as terms and conditions).
Scope (In/Out Analysis)

The old saying is that experience cant be taught, it can only be learned and
this often applies to making Retained Organisations work.
RRCs (See ARCs)

Reverse Service Level Agreement (see Service Level
Agreement)
Sarbanes Oxley (SOX)
SOX compliance is essential for many companies and although they can delegate
responsibility for the service outsourced they cant delegate accountability.
Basically, if the Supplier gets it wrong on SOX compliance, its the clients CFO
who goes to jail not the Suppliers.
But fortunately there are a number of ways of ensuring that the Supplier is
compliant.These include the client sending in their own external or internal
auditors or having the Supplier provide a certificate, known as a SAS 70 Type II,
Although it sounds obvious, a clear and comprehensive description of the Scope

is fundamental to the success of an outsourcing deal. However, getting it right is
not so obvious.
Alsbridge has templates for scopes covering a wide range

of outsourcing deals
At its simplest, the Scope description lists the activities within a given process
and whether they will be performed by the Supplier or the client. It is important
to supply sufficient detail to ensure avoidance of doubt on roles and
responsibilities and it is better to be explicit than implicit; for example, areas
that are often missed (and hence can create difficulties later on) are around
issue resolution and error rectification and it is critical to decide early on who is
going to be responsible (see also Retained Organisation).
Alsbridge has templates for scopes covering a wide range of outsourcing deals.
Selection Process
The best and most scientific way to select a Supplier from a shortlist is to
define a set of criteria and rate each Supplier against them. The criteria will
cover areas such as Business Case, Transition capability, delivery capability
and cultural fit and within each of these there will be numerous individual items
to score. The criteria (or at least a summarised version) should also be set out
in the RFP so that the Suppliers know what is expected of them. By the way, it
is worth noting that it is difficult, if not impossible, to commoditise bids so that
they are equally comparable, as some people might think . It is also often not
desirable because it can have the effect of stifling innovation and creativity. (see
also Request for Proposal)
Service Credits
Service Credits are a discount the client gets when the service in a particular
area falls below a certain level. It is important from a legal perspective (certainly
under English law) not to regard them as damages or as compensation which
reflects any loss suffered. In fact, in many deals the client will be able to receive
Service Credits and also claim damages if things go badly wrong.
As you can imagine, Service Credits are usually a subject of much discussion
during Contract negotiations. In simple terms the client is seeking to ensure he
will have the Suppliers attention when things go wrong and the Supplier is
seeking to minimise his exposure and opportunities to fail.
Service Credit regimes usually have some common features, such as a
maximum percentage at risk per annum and per month.
Simplicity is key, however; some Service Credit regimes need the brainpower of
Stephen Hawking to understand them.
In addition, in some cases the Supplier may have the right to Earnback the
Service Credit if their performance in subsequent months is at or above a
certain level, The thinking here is that anyone can make a mistake and
Suppliers should be encouraged, not punished.
It is also worth pointing out that Service Credits are a right to a discount, but
the client has no obligation to claim it. There are deals where the client could
claim Service Credits but chooses not to because they feel it would be
unhelpful to the relationship.
There is a school of thought which believes that Service Credits are unhelpful
and encourage the wrong behaviours i.e. blame and finger pointing rather than
partnership for a common set of goals. In fact, some very mature deals, where
there is a longstanding relationship between the client and the Supplier, do not
have Service Credit regimes because there is a high degree of trust on both
sides. However this is unusual and in general new deals have them.
Service Level Agreement (Operating Level Agreement,

Reverse Service Level Agreement)
Service Level Agreements (commonly abbreviated to SLAs) are a standard (not
to say essential) feature of all outsourcing deals. At their simplest, they describe
the service that the Supplier is supposed to provide and the level to which they
are supposed to provide it, as measured by a Key Performance Indicator (KPI).
However, many are quite a lot more complex than this and also set out target
service levels (i.e. what the service should be at a specific point in the future)
and/or minimum service levels (the level below which the service shouldnt fall
under any circumstances).
It is very important to remember that the SLA is measuring

services, not activities
It is very important to remember that the SLA is measuring services, not
activities. It is very tempting for clients to define services at too detailed a level,
which means that the Supplier becomes nervous that they are going to micromanage. However, this is usually because of lack of experience on the clients
part. On the other hand, left to their own devices Suppliers tend to undershoot
as regards level of detail in an SLA which can also lead to problems later on.
The fact is that many SLAs start out too long and are shortened as the client
gains experience and confidence with the deal (but thats fine, its all part of a
learning process).
Shortcomings in SLAs, and how to design the perfect SLA, are the subjects of
hundreds of articles. A key point to remember is that, whatever else you are
trying to do with an SLA, you are trying to measure a Suppliers performance so
that you know whether you are getting what you expected for the price you are
paying, just like you would any other Supplier. As a result, the SLA must identify
clearly those parts of the process that the Supplier is responsible for, even if
you also want to measure end to end process performance (which is very likely
a joint responsibility).
However, given that any process involves client inputs as well as Supplier service,
it is important to define and measure these too. They are known as Operating
Level Agreements (OLAs) or Reverse Service Level Agreements. In fact, the
Supplier will most likely insist on it because, if they are underperforming in a
particular area they will want to check that it is not because of some shortfall in
the clients obligations.
It is normally the Suppliers responsibility to measure and report on SLAs and
OLAs and most have a range of tools for doing this.
Service Providers (see Suppliers)

Sole Source
Sole Source refers to a situation where one Supplier is selected as a preferred
partner for detailed solution design and Contract negotiation, without having
been through a full and formal RFP/bid process. However, there should have
been an evaluation of Supplier capabilities and references.
It is important to ensure that there is a structured process in place for Sole

Source, otherwise the client may find that they either spend too long or drift
into a deal they dont really want. Ideally, the client should still issue an RFP and
should receive a formal bid document from the Supplier. However, the client will
provide the Supplier with as much support as they need in preparing their bid,
which is of course quite different to a traditional procurement process.
Supplier has subcontracted, because the client generally chooses a Supplier

because of their delivery capability, as opposed to their Subcontractors.
The main advantage of a Sole Source process is that it allows the client much
closer contact with the Supplier than would be the case under a competitive
process, where equal access has to be granted on the grounds of fairness, as a
result Sole Source is very suitable where there is a requirement for co-design of
complex solutions. Other things being equal, it is also more efficient and faster
than the traditional process because no time is wasted on evaluating bids that
will not be pursued.
Suppliers (aka Service Providers/Vendors)
The disadvantage of a Sole Source process is that it is more difficult to exert

competitive pressure on the Supplier, but Alsbridge can provide the surrogate
competition by advising the client on market norms.
Alsbridge can provide the surrogate competition on sole

source deals by advising the client on market norms
Some companies could not use a Sole Source process even if they wanted to,
because of their procurement rules. And it is anathema to many procurement
functions. But in our experience, all in all a Sole Source process means a more
rigorous examination of a Supplier, its capabilities and the solution than a
traditional process and has a lot to recommend it.
Step In
Step In is a concept commonly found in Contracts but which in practice is
rarely invoked. At its simplest, Step In means that if the Supplier is seriously
underperforming on all or part of the service the client can Step In to take it
over. Obviously this is a process which cannot be invoked lightly as there are
many implications - for example, as there is by definition no service the
Supplier cant charge - and as a result there will usually be specific tests to be
satisfied. In addition, the Supplier may well insist that their competitors cannot
do the stepping in.
There are a whole series of practical questions about Step In that usually go
unanswered (such as, why would a group of people who are unfamiliar with the
work do a better job than the Suppliers people who have tried and failed?)
whilst the Contract negotiations take place.
Be prepared to spend far more time and energy negotiating this clause than
you may think it is worth, but in the unlikely case that the deal goes badly
wrong you may well be grateful you have it.
Subcontractors
This may also extend to the use of agency staff on a deal. The client will
probably want the Supplier to deliver most of the service, not the temp agency
down the road.
The generic term for the organisation delivering the service. The simplest thing
would be to list all the Suppliers we can think of, but of course we would then
offend those we havent listed, so we arent going to do that. In any case,
Alsbridge can provide a list of the best Suppliers for any given situation.
Alsbridge can provide a list of the best Suppliers for any

given situation
These days, for any given process or set of processes (Tower), there are likely
to be several capable Suppliers, which was not necessarily the case five or six
years ago. The market has grown very rapidly over the past few years and so
has the number of Suppliers.
There are a number of ways of categorising Suppliers, for example:
Their range of service e.g. Those with a strong consulting capabilty versus
pure play outsourcers
Their background and origin e.g. Indian Suppliers versus European/American
Focus by outsourcing Tower, e.g. full range of ITO and BPO versus just BPO
To save a lot of time in deciding the Suppliers that are most likely to meet your
needs, contact us.
Term
The Term or Contract Term is simply the length of time the contract is applicable
for. The clock usually starts when the contract is signed (occasionally from
completion of Transition). In general, contract Terms are getting shorter. For
example, Finance & Accounting deals used to be for seven years, and some still
are, but five years is probably more common now.
It is quite common for contracts to state that the contract term is say seven
years with a break point for the client at five (or that the term is five years but
the client can extend on the same terms for a further two).
Term Sheet
A Term Sheet is a document which sets out the principles (or terms) that the
client (or occasionally the Supplier) will require in the Contract, and it will
probably form part of the RFP. The advantage of a Term Sheet is that it should
be fairly easy to put together and is relatively easy to read. The downside is that
it probably wont go into all the detail (for example, carve outs for limits of
Liability) which can cause problems later on.
Many Suppliers will use Subcontractors for part of the service. This may be fairly
simple (for example, document scanning) or more substantial (for example,
validating expense claims). The main thing is that the client is aware of what the
A summarised Term Sheet is sometimes called Heads of Terms. The other way
of communicating terms to the Supplier is to send out a draft Contract. This
can be quite a lot of work but is probably worth it if time allows, as it should
leave fewer points for debate later on.
Termination
It may seem odd to spend much time considering Termination when
(presumably) that isnt the intention when clients enter into a deal, but
circumstances change and time on this issue is time well spent.
Certain Termination rights are inherent in every contract, such as Material
Breach, but there are a range of other rights that the client can negotiate, such
as Termination for convenience. This means that the client can terminate the
Contract for no reason as long as sufficient notice is given. Sometimes
compensation is payable to the Supplier, sometimes not depending on what
can be negotiated. However in virtually all cases the client can expect to pay
so-called stranded or trailing costs to the Supplier to cover their costs of
Termination, for example redundancy and redeployment costs of personnel,
sunk IT costs and space costs.
The importance that clients attach to Termination for convenience, and their
willingness to trade low exit barriers in this area, should be directly proportional
to their assessment of the likelihood of needing to exercise it.
Of course the issue of Termination gets more complex when partial Termination
is considered and Suppliers may well want to retain a minimum contract value.
Third Party Advisors (Intermediates)

Many deals now have expert Third Party Advisors, or Intermediates, to advise on
the market, how to select and contract with a Supplier, how to undertake the
Transition and how to manage the Contract.
The best Advisors position themselves sensitively, not standing between the
client and the Supplier, and see their objective as the development of a
sustainable and fair deal rather than nailing the Supplier down to the lowest
possible price.
It is perfectly possible to agree a deal without the benefit of an Advisor. However,
a good Advisor should be able to demonstrate a clear payback in terms of speed
to a deal and the resulting quality.
Alsbridge has been consistently

recognised for its expertise, winning over
30 industry awards to date
Alsbridge is the leading advisor!
A good Advisor should be able to demonstrate a clear

payback in terms of speed to a deal and the resulting quality
Tower
A Tower is simply a term sometimes used to describe a function or a process
e.g. an Accounts Payable Tower or a desktop Tower. Deals involving several
processes or functions are sometimes called multitower.
Transformational Deal
Transformational outsourcing is where a client wants the Supplier to achieve
significant performance or process improvements (for example through new or
standardised technology), as opposed to merely carrying out the same work
more cheaply (see Lift and Shift). In reality, Transformational deals are still the
exception rather than the rule and as yet the market shows no real sign of this
changing. This is not to say that deals do not require some element of
performance or process improvement, because most do, but it is really a
question of extent and the exact borderline between a normal and
Transformational deal can be difficult to define.
There is one other characteristic of a Transformational Deal, which is that they
can be notoriously difficult to contract for. This is for three main reasons:
The benefits can be difficult to describe and to quantify (e.g. the benefits of
employee self service, or the benefits of better access to information);
There are many dependencies between the Supplier and the client, probably
more than in a more mainstream deal, and as a result there are many more
what ifs to be explored)
Pricing the deal can be very difficult and change is likely to be a fact of life,
so a robust Change procedure is key (see also Scenarios).
Transition (Migration, Workshadowing, Knowledge Transfer,

Knowledge Cascade)
Transition (sometimes known as Migration) is the process whereby the Supplier
learns the work and transfers it to the future delivery centre and resources.
There are essentially five main elements to Transition:
The Supplier has to train their staff on the work to be performed and the
services to be provided. The exact approach varies from Supplier to Supplier,
but will include:
- documenting the work currently being carried out, or validating the clients
documentation
- designing the interfaces and hand offs between the Suppliers delivery
centre and the clients Retained Organisation
- Workshadowing (essentially, sitting alongside) the clients staff by the
Suppliers delivery staff
- Knowledge Cascade by the Suppliers staff who have gained knowledge
on-site to their colleagues in the delivery location who will also be working
on the deal. The extent of the Knowledge Cascade depends of course on
the number of people who will deliver the deal - the more people, the more
scope there is for this kind of leveraged approach
The Supplier has to set up the delivery centre(s) to deliver the service. This
will involve everything from fitting out the facility to buying hardware to
recruiting staff
The Supplier and the client have to work together to design and to set up the
enablers to ensure delivery of the service from a remote location. This will
certainly involve IT Connectivity, which is not usually an issue, and
implementation of workflow technology, which can be a little more problematic.
Suppliers have their own solutions that they can deploy but they will be very
happy to work with a clients solution if they already have one in use
The Supplier has to design and set up the performance monitoring and SLA
reporting mechanisms
The client has to design and implement the Retained Organisation as well as
deal with a plethora of people and change-related issues
It is often said that Transition is make or break for most deals.

Whilst a good Transition does not necessarily avoid issues
later on, a bad Transition will almost certainly ensure them
In addition, the client will have to manage the people issues associated with
implementing the deal, which could cover TUPE and/or a redundancy
programme, as well as the retention of Key Staff until Transition is complete and
the outsourced operation has stabilised. The client also needs to ensure that
financial benefits are realised as the service is transitioned.
It is often said that Transition is make or break for most deals.Whilst a good
transition does not necessarily avoid issues later on, a bad transition will almost
certainly ensure them. At Alsbridge we offer a complete solution to guide clients
through the Transition process.
TUPE
TUPE (or to give it its full name, Transfer of Undertakings (Protection of
Employment) Regulations), is a common issue in outsourcing deals where staff
transfer from the client to the Supplier. Basically, staff have to be hired on the
same terms and conditions as they were on previously. But it also means that
under certain circumstances staff can require to be transferred to the Supplier,
along with their jobs.
Clearly the provisions of TUPE (and its European Directive, the Acquired Rights
Directive or ARD), can have wide ranging implications for the outsourcing
process, business case and compliance with legal obligations. This is an area
of law which changes regularly and therefore up to date advice is essential.
User Groups
User Groups are an excellent way for clients to share experiences and to learn
from others in the same position. Alsbridge runs five user groups for F&A, IT, HR,
Financial Sector and Payroll. Each has 40 to 50 members, who either have
outsourced or have a strong interest in doing so, and meets about once a quarter.
There are also dedicated areas on our website for members.
User Groups are an excellent way for clients to share

experiences and to learn from others in the same position.
Alsbridge runs five user groups
Let us know if you are interested in joining and we will arrange for you to join
the group. Membership is free and meeting agendas are governed entirely by
the members.
VAT
Dont forget about VAT! It may be an important factor in decision making. For
example, in some industries VAT is not reclaimable (eg financial services) so if your
Supplier is going to charge VAT, this will be a real cost. Or an overseas Supplier
may charge you their local VAT can you reclaim it? The devil is in the detail
Vendors (see Suppliers)

Vendor Cooperation Agreement
Workshadowing (see Transition)

Xenophobia
(Perhaps thats a little extreme, but we needed an X). What we mean is the
feeling that outsourcing to overseas Delivery Centres somehow carries risks
that offshore captives or onshore Delivery Centres do not have. This is mostly
untrue. If you set up your own captive overseas (or even onshore) you will
probably need to recruit most of the team from scratch, find and fit out a facility,
set up the technology...but if you outsource this is done for you by a team that
has probably done it many times before. And because it is more efficient to set
up it will probably be cheaper, even including the Suppliers margin and there
is probably less risk.
Vendor Cooperation Agreements set out the obligations and ground rules for
how Suppliers will work together in Multisourcing situations. They dont have
legal force as each Suppliers contract will still be with the client, but willingness
to adhere to Vendor Cooperation Agreements can be a part of a Contract.
Of course, if you already have a significant presence in the location you want to
offshore to then this logic probably wont apply because you will already be well
linked in to the local environment but if this is the case then you wont have
xenophobia either...
This sounds rather a dry subject but it can be of great practical use if you use
Vendor Cooperation Agreements as a vehicle to get your Suppliers to work
together for your benefit.
Year
We have examples and templates for Vendor Cooperation Agreements which

cover most situations.
Warranties (See also Indemnities: they are not the same

thing, but can sometimes be confused)
This refers to the concept of a contract year as opposed to the clients financial
year. This seems simple enough but can lead to misunderstandings. Unless
instructed to the contrary, Suppliers will quote in contract years, generally
starting with contract signature. Some clients arent specific and assume the
figures quoted fit their financial year, with confusing consequences later on.
Zone
A Warranty is basically an assurance by one party to the other that some fact or
situation is as described, and if it isnt then the other party can seek redress in
some way. There are often a wide range of warranties in an outsourcing
Contract, being given in both directions.
Time zones are an important consideration in outsourcing because it is

important to know whether Suppliers are being asked to deliver a key service at
unsocial hours (for them). Quite apart from the questionable quality of work
being done in the early hours of the morning, this will tend to exacerbate the
Attrition issue.
Funnily enough, there are probably as many instances in a contract that a

Warranty is not provided as there are that it is. For example, clients will often
say that they do not warrant current processes or systems, as it is up to the
Supplier to validate these in Due Diligence.Warranties can be a very complex
area in law and expert advice should always be sought.
Nevertheless there are good examples of services being delivered out of

zone, such as F&A processing for the US being done by centres in Poland.
This has the advantage that work can be done in Poland before the US opens
for business in the afternoon, Central European time.
There are probably as many instances in a contract that a

warranty is not provided as there are that it is
In addition, playing the time zones can be advantageous. We know of one

manufacturer that outsources technical work from the US to India, not because
of the cost advantages but because they are able to use a follow the sun
approach and get work done overnight.
Witholding Tax
In some countries, payments to a party outside the country are subject to a
Withholding Tax, which may or may not be reclaimable by that party. So if you as a
client are making payments to a Supplier, you may be required to deduct say 10%
as a Withholding Tax. If the Supplier cannot recover it later they will very probably
want the payment to be grossed up to cover the tax. This sort of scenario is a
common feature of outsourcing Contracts involving international operations.
INDEX
Force Majeure
20
FTE
21
A Alsbridge plc
ARCs/RRCs
G Gainsharing
21
ARD
Glidepath
21
Attrition
Governance
21
Audit Access
H Heads of Terms
22
AVAT
HR Outsourcing
22
B BAFO
I Indemnities
22
Bargaining Power
Industrialisation
22
Baseline
Inflation Adjustment
22
BATNA
Insourcing
23
Benchmarking
Intellectual Property Rights
23
Business Case
Intermediates
23
Business Continuity Plan
Innovation
23
Business Process Outsourcing (BPO)
Invoicing
25
IT Outsourcing
23
Charter
J Joint Ventures
25
Cloud Computing
Jurisdiction
25
Confidentiality
10
Connectivity (Networks)
10
Knowledge Process Outsourcing
26
Continuous Improvement (Lean, Six Sigmaand even Lean Six Sigma)
10
Knowledge Cascade
26
Contract
11
Knowledge Transfer
26
Contract Benchmarking
11
KPIs
26
Contract Management
12
Contract Mapping
12
Languages
26
Contract User Guide
13
Lawyers
27
Controls
13
Letter of Intent
27
Currency Adjustment
15
Liability
27
15
Lift and Shift
28
Deadband
15
M Material Breach
28
Delivery Centre (Delivery Model)
15
Migration
28
Disaster Recovery
16
Most Favoured Client
28
Dispute Resolution
16
Multisourcing
29
Downselect
16
Due Diligence
16
C Change Control Procedure
D Data Protection
E Earnback
K Key Staff
L Labour Arbitrage
N Negotiating Strategy
Nearshore
26
26
29
29
17
O Offshore
29
Entire Agreement
17
Onshore
29
Exclusivity
17
Operating Level Agreement
29
Exit Assistance
17
Outsourceability
29
Exit Provision
17
F FastSource
P Payback
20
Payroll Outsourcing
F&A Outsourcing
20
Personnel Provisions
Financial Engineering
20
30
30
30
Pricing (Charges)
30
Procurement Outsourcing
31
Process Owners
31
Q Qualification Process
31
R References
33
Renegotiation
33
Request for Information (RFI)
33
Request for Proposal (RFP)
33
Retained Organisation
34
RRCs (See ARCs)
34
Reverse Service Level Agreement
34
S Sarbanes Oxley (SOX)
34
Scenario Modelling
35
Schedules
35
Scope (In/Out Analysis)
35
Selection Process
36
Service Credits
36
Service Level Agreement (Operating Level Agreement, Reverse Service

Level Agreement)
37
Service Providers
37
Sole Source
37
Step In
38
Subcontractors
38
Suppliers (aka Service Providers/Vendors)
39
T Term
39
Term Sheet
39
Termination
41
Third Party Advisors (Intermediates)
41
Tower
41
Transformational Deal
42
Transition (Migration, Workshadowing, Knowledge Transfer,

Knowledge Cascade)
42
TUPE
43
U User Groups
43
V VAT
44
Vendors
44
Vendor Cooperation Agreement
44
W Warranties
44
Withholding Tax
44
Workshadowing
45
X Xenophobia
45
Y Year
45
Z Zone
45
Alsbridge plc
22 24 Ely Place
London
EC1N 6TE
UK
Tel: +44 (0)20 7242 0666
3535 Travis Street

Suite 105
Dallas
TX 75204
Tel: +1 214 696 6410
www.alsbridge.eu
www.alsbridge.com
2011 Alsbridge plc - All Rights Reserved

A Z of Outsourcing

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The A to Z of Outsourcing

Welcome to Alsbridges A to Z of Outsourcing.

Alsbridge The A to Z of Outsourcing 1

We are completely unique amongst the advisor community

We have applied decades of accumulated experience on outsourcing and shared

ARD (see TUPE)

Alsbridge The A to Z of Outsourcing 3

It is important that a client assess their relative Bargaining

A clear baseline is important dont take short cuts!

Clearly, the sharper the teeth the more carefully the

Alsbridge The A to Z of Outsourcing 5

Business Continuity Plan

Alsbridge is the only advisor which

It is essential for the Supplier to demonstrate that there is an effective Business

Business Process Outsourcing (BPO)

Change Control Procedure

Alsbridge The A to Z of Outsourcing 7

The Alsbridge Charter has changed the way

No matter what you do or how much time you spend

We developed the Alsbridge Charter to codify the behaviours

Alsbridge Charter for fair

Alsbridge & Lawyers - We will:

Enable full, collaborative and

Not promise what we will not

Make sure you have an expert on your side who

Dont forget, in an outsourcing deal your partners problem

Many outsourcing deals have an element of Continuous Improvement, usually

All Suppliers have their own particular approaches to Continuous Improvement,

At Alsbridge, we believe that (to paraphrase Eisenhower), it is the process of

Although each deal is different there is a high degree of commonality between

Contract User Guide

All Alsbridge advised outsourcing deals have a Contract

Controls (see also Data Protection)

There are certifications that the Supplier can provide which

Alsbridge The A to Z of Outsourcing 13

Alsbridge ranked #1 Outsourcing

Delivery Centre (Delivery Model)

Alsbridge The A to Z of Outsourcing 15

Suppliers occasionally resort to jargon to describe their approach, for example

Suppliers occasionally resort to jargon to describe their

Dont forget, in many outsourcing deals, because of the confidentiality involved,

Some clients like the idea of Earnback, others hate it

It is essential to understand what Disaster Recovery plans the Supplier is

The contract covering an outsourcing deal will generally be the Entire

Exit Provision (see Termination)

Our Methodology FastSource

Research & Training

Service Agreement Mgt

Identify Need & Interest

Processes & Service Levels

Processes & Service Levels

Alsbridge The A to Z of Outsourcing 19

Contact us to find out more about how FastSource works in practice.

F&A Outsourcing (FAO)

Many outsourcing deals have a form of Gainshare. It simply means sharing

At its simplest, an outsourcing deal often involves a significant payment to a

However, it is important to note that this essentially involves borrowing money

If cash is an issue, then Financial Engineering can be

Remember, there is no secret sauce in outsourcing!

Heads of Terms (see Term Sheet)

Indemnities (also see Warranties: theyre not the same

Intellectual Property Rights

Time spent on Intellectual Property might seem

Intermediates (see Third Party Advisors)