IT Outsourcing

Strategic Sourcing of Technology Functions to Optimize Operations and Cost

IT outsourcing enables organizations to leverage external expertise and scale for technology functions, from infrastructure management to application development to full business process outsourcing. These engagements involve complex relationships that typically span years and deeply integrate service providers into customer operations. Successful outsourcing requires sophisticated structuring, negotiation, and ongoing governance. This practice helps clients evaluate outsourcing opportunities, negotiate favorable agreements, and manage outsourcing relationships throughout their lifecycle.

Outsourcing Strategy and Sourcing

Before engaging providers, organizations must develop clear outsourcing strategies. Strategy development identifies which functions are candidates for outsourcing based on strategic importance, cost reduction opportunity, and available market capabilities. Make-versus-buy analysis compares outsourcing against internal provision and alternative models. Sourcing processes—from RFI through RFP to provider selection—should be structured to elicit meaningful proposals and enable fair comparison. Due diligence on finalist providers evaluates capability, financial stability, cultural fit, and references. Counsel supports strategy development and sourcing processes, ensuring clients make informed decisions before committing to major outsourcing relationships.

Master Service Agreement Structure

IT outsourcing agreements typically follow a master agreement structure with detailed statements of work for specific service towers. Master agreements establish the overall framework including governance structures and key personnel, pricing mechanisms and invoicing procedures, change management processes, service level frameworks, intellectual property ownership and licensing, confidentiality and data protection, liability allocation and insurance requirements, and term, termination, and transition provisions. Statements of work then define specific services in detail, including precise scope definitions, service levels with measurement methodology and consequences, resource commitments, and tower-specific pricing. This structure provides flexibility to add, modify, or terminate individual service components while maintaining the overall relationship.

Service Levels and Performance Management

Service levels translate customer requirements into measurable provider commitments. Effective SLAs define metrics that actually matter to business outcomes, establish baselines and targets that drive continuous improvement, create measurement methodologies that are objective and auditable, provide meaningful consequences for underperformance including credits and termination rights, and include governance processes for ongoing SLA management. Service level design requires understanding both customer requirements and provider capabilities. Overly aggressive SLAs that providers cannot meet create friction and dispute; overly lenient SLAs fail to drive required performance. Counsel helps clients develop SLA frameworks that drive desired outcomes.

Pricing and Financial Terms

Outsourcing pricing structures vary from simple time-and-materials arrangements to complex gain-sharing models. Common structures include fixed-price arrangements providing cost certainty, unit-based pricing that scales with volume, and hybrid models combining fixed and variable components. Benchmarking provisions allow periodic comparison against market rates. Most-favored-customer clauses provide protection against discriminatory pricing. Volume commitments and minimums affect both pricing and flexibility. Financial terms should align provider incentives with customer objectives while providing appropriate cost management.

Transition and Transformation

Moving functions from internal operations or incumbent providers to new outsourcing arrangements requires careful transition planning. Transition provisions address knowledge transfer from incumbent staff, technology migration and data conversion, parallel operation periods, acceptance criteria for transition completion, and risk allocation for transition issues. Transformation initiatives—changes that improve operations beyond simply transferring existing functions—require separate treatment with clear scope, timelines, and success criteria. Transition and transformation often determine whether outsourcing relationships achieve expected benefits.

Governance and Relationship Management

Long-term outsourcing success depends on effective ongoing governance. Governance structures typically include executive sponsors and steering committees, operational management teams, issue escalation procedures, regular performance reviews, and continuous improvement processes. Agreements should establish governance frameworks but relationships ultimately depend on people and processes beyond the contract. Counsel advises on governance structures that support successful long-term relationships.

Exit and Termination

Every outsourcing relationship eventually ends, whether through expiration, termination for cause, or termination for convenience. Exit provisions should address transition assistance obligations, continuing service during wind-down, data return and system access, employee transition considerations, and post-termination restrictions and survival provisions. Effective exit planning prevents clients from being trapped in unsatisfactory relationships and enables smooth transitions to successor arrangements.