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Issue Date: November 2003 (es)

With outsourcing, who owns your data?

1 November 2003

With the outsourcing of IT services becoming more important to companies of all sizes, even small to mid-sized concerns have outsourced or at least considered an outsourced IT solution.
Outsourcing can work wonders and is an efficient way for companies to focus on their core competencies while ensuring their IT systems function at peak levels at all times. Most outsourcing contracts are focused on the delivery of services and penalties for failing to deliver - a natural focus for contracts involving service delivery. Very few, if any at all, deal with the termination of the contract.
Delivery is a critical part of any outsourcing contract, but what happens when the market swings and the needs of the company change? Many customers find their outsourcer is not able to supply them with the services they need and they decide to opt for a new service provider. "This is where the problems start," says Richard Firth, CEO of MIP Holdings.
"We have found a disturbing trend among some of our new clients - changing suppliers is a tricky task. Neither client nor service provider has any contractual basis for determining who owns the data, parameters or applications; how it was stored; how it will be transferred; and for how long the old outsourcing service will remain in place after the client has given notice - sometimes a three-month termination period is not enough," Firth adds.
Often, these issues all mount up to a critical point in the customer's migration to a new service provider. The client finds it has to deal with added, unexpected expenses because the old outsourcer has a blank cheque to charge any 'additional' fees if the contract has not made provision for termination. The new outsourcing partner is also unable to start delivering a service because it still requires the data and perhaps also applications.
"It is time for CEOs to go back to their contracts, whether they are planning to change IT suppliers or not, and ensure that their contracts protect them," Firth warns. Failure to do so could severely retard their business's ability to function in the future.
"We are more than happy to sign an agreement for the potential termination of our marriage before we get married, even though we have no intention of ever making use of it. But for a less important contract - such as outsourcing - we do not feel it is necessary. There is a serious underestimation of the contractual obligations between the outsourcer and outsourcing company."
If a company loses its data, or even if it cannot use its data, how can it function? When resigning a contract, if there is no contractual hand-over stipulation, you are at the mercy of your supplier.
"MIP has had the experience of a new customer signing an outsourcing contract with us without having a termination clause in the contract with their old suppliers. What happened was that the customer not only had to negotiate to get hold of their own data, but the data quality was so poor that it took longer than the three-month resignation period to get it in a fit state to use."
During the extended termination period, the supplier tripled its fees per month. In addition, all the company's data older than 18 months had been saved as an image. The effort to recover that was possibly the most expensive part of the whole project.
"The customer had no contractual basis to fall back on and could therefore do nothing but cough up the loot," Firth confirms. "Not only are there now bad vibes between the two companies, but the client lost business and, to put it bluntly, looked inept in front of its customers. It is therefore not only the ownership, but also the quality of corporate data that must be stipulated in the contract."
Firth adds that the same rules apply internally as well. A company must have a record of its intellectual property, such as knowing how and where data is stored on the database. "It is no use having critical information sitting in someone's head," Firth adds. "When the person leaves, the business cannot afford to let that knowledge go as well."
Many outsourcing contracts in South Africa are written so badly that the customer will always get the short end of the stick when they want to terminate the contract. It is critical to ensure the agreement signed protects the customer in every circumstance and distinctly states that, while the applications may belong to the service provider, the data belongs to the customer.
"It should also make provision for how the customer will receive the data should it be necessary to terminate the contract, in what time frame, in what condition and with what extra costs," Firth adds. "You never make assumptions in this market; you make signed, legal contracts."
For more information contact Richard Firth, MIP Holdings, 011 575 1857,

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