In golf, players sometimes get an opportunity for a mulligan, rather like a “do-over” shot after a poor shot. Wouldn’t it be nice to be granted a mulligan in an outsourcing relationship? Over the past decade-plus as I’ve spoken with hundreds of buyers of outsourcing services, I almost always ask: “If you could do it all over again from the beginning, what would you do differently the second time around?”

Among the top five items on the list of” do-overs,” they cite are the following:

• Changing the pricing model
• Bringing in an outside consultant to help us get the governance and service level agreements right
• Establishing a gain-sharing or other risk-reward agreement (or establishing it sooner)
• Allowing more time for the transition

But there’s another item that lands at the top of the list, cited twice as often as the other four altogether: eliminating ambiguities from the contract.

Many buyers comment to me, “We are both focused on the relationship aspect, and we don’t use the contract to manage our relationship. After we signed it, we put it in a drawer and don’t look at it.” (Or they “put it on a shelf where it just gathers dust.”) Given what others tell me, I’d wager that this group just hasn’t yet run into a serious conflict that causes a need to pull the contract out of the drawer or off the shelf and see if it supports their side of the conflict. When that situation occurs, many find their contract isn’t helpful in resolving the conflict because the contract has some ambiguities.

As several buyers explain, the reality is that there will be conflicts. And when the contract is ambiguous or silent on the point at the center of the conflict, there will be a relationship problem unless the relationship is strong enough to get over that hurdle without damaging the relationship.

In contrast, there’s another group of buyers who find out at some point in their relationship that they spent too much effort in negotiating a lot of details into their contract around “how we thought we needed to work together” or around “how we wanted to work together.”  But later, those terms didn’t match the reality of how they needed to work together.

One of the most common contract ambiguities is not formalizing in writing what constitutes a “change” item – one that is, therefore, chargeable.

An example of how problematic contract ambiguities can be is the following situation that occurred in a hospital. The service provider for this buyer implemented a new system for the hospital. At the outset, the hospital’s physicians who would need to use the system were leery that it would meet their needs and be something they could easily adapt to. The outsourcing contract stated that the provider would make changes to the system that were identified as something that would make the system more user friendly. But the contract didn’t specify who would identify those user-friendly changes. The buyer thought the changes would be identified by the provider, and the provider thought the buyer was responsible for identifying the changes.  

Unlike golfing, very few outsourcing contracts result in a hole in one.

Sure, when renewing or renegotiating a contract, buyers have mulligan opportunities to straighten out things that are not working well and areas where the contract was ambiguous or silent.  But why not try to get it right at the outset?

What has been your experience with contract ambiguities and silences? How can they be avoided without building into the contract unnecessary details that later hinder the way the parties need to work together? Whether you’re a service provider, buyer, or consultant, what do you recommend? Click to add your comment to this discussion. 

Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.

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