Pay the fine, bugger the problem

Adding fuel to the outsourcing debate, analysts this week said it is better in some cases for outsourcing providers to simply pay fines for breaching service level agreements (SLA) than it is to fix the problem.

Meta Group vice president of service management strategies, Dean Davison, said it is better not to fix problems in cases where contracts are already in a "lose-lose situation". That is, where they are unprofitable for the vendor and unsatisfactory for the client.

"In such circumstances, both parties are just trying to survive rather than optimise the relationship," he said.

Hanging in for the sake of the deal might seem the best choice to analysts, but for one IT manager, who requested anonymity, his preference would be to have the problems fixed; however, "If there's money on the table - grab it; it will be needed to offset the added costs involved in not only fixing the problem but in dealing with the lost time".

Another IT manager, who also preferred to remain nameless, said (with tongue firmly in cheek), "You don't fix the problem, we come round and break the legs".

While Davison admitted that paying the fine rather than fixing the problem could worsen an already delicate partnership, he said that sometimes it is better to just terminate the contract.

Research from the firm undertaken last December predicts that 75 per cent of service providers this year will fail to reach expected service levels of seamless delivery and process integration.

Davison said if a vendor "routinely under performed", customers should begin termination procedures, but added that this is never easy.

Defending his stance, Davison pointed to some of the recent outsourcing debacles with Federal Government agencies.

Matthew Reynolds, president of the Community and Public Sector Union, said government outsourcing relationships in Canberra were in such a messy state that contracts gave agencies little power to bind outsourcers to provide satisfactory levels of service.

"The situation around outsourcing to the Federal Government is very negative and our members have had very bad experiences," he said.

"Problems do get fixed eventually, but fines do not compensate for interruptions to user productivity."

Reynolds said "vendor capture" and five-year contracts means it is very hard to escape.

Davison said the complexity of outourcing relationships makes them difficult to break, likening the partnership to marriage.

"The metaphor carries over well," he said. "In marriage, they say divorce is the most expensive option and is the most emotionally taxing. In outsourcing, changing vendors is the most expensive choice and it poses the most risk to business continuity. Fixing a bad contract usually takes many years to ensure minimal risk to business."

Reiterating the financial and legal stickiness of SLAs once they are signed, independent IT consultant Rob Aalders said: "It is difficult to alter agreements without renegotiating the entire contract at greater costs."

Aalders said the alternative may be to switch providers, but analysts warn this can be a waste of time and money if the new SLA is not stronger and does not better define the services the client needs.

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