1. Strategy– Outsourcing is strategic decision that is typically developed at senior levels within a business. It may be part of a larger strategy to move the company to a leveraged business model and to focus on core competencies. Or it may be to save net costs or due to a lack of internal resources. Outsourcing may act as a key differentiator which will give your business a competitive advantage over your competitors. It may equally be strictly a decision to outsource a particular function, operation, programme or project. Too few businesses consider taking legal counsel at this stage. However, it can be an invaluable albeit relatively small input; so many projects encounter real difficulties which are often difficult to work around at a later stage. For example, difficulties about licensing, intellectual property rights or a pre-existing contractual or leasing arrangement. Remember too that an outsourcing lawyer spends his life dealing with such transactions. They will be able to give you objective input as to the commercial viability of the transaction your putative strategy contemplates and the response of the market to it.
2. Reassessment– this is not always considered enough, but often organisations look at their internal supply or alternative methods of supply to see if it could be re-engineered to meet the requirements that lead to outsourcing. Again the lawyer's input is small but important; helping you understand the options available.
3. Selection– Perhaps the most important phase. This covers the definition of the work to be outsourced, as well as the selection of the vendors using RFI or RFP processes, and finally making the selection of the "best-value" vendor or vendors. Your outsourcing lawyer will be a key advisor here helping you with definition, the RFI process, identifying constraints and assisting in evaluation.
4. Negotiation– This phase includes the negotiating of the contracts, schedules and associated agreements, and the final contract signing which is usually proceeded by extensive reviews on both sides. Two key decisions are necessary before this goes ahead – one is whether to negotiate with more than one supplier and whether or not to reach agreement on "heads of terms" or a "term sheet" before entering into detailed negotiation. Your lawyer will be able to advise you on this, but experience shows that clients tend to ignore the factor of competitive pressure, and to maintain competitive pressure for as long as possible. The momentum of competitive pressure usually delivers a far quicker and a better deal, though it may need to be balanced with other factors such as management time and cost. Term sheets are in my experience useful for ensuring that both sides are engaged in a deal-making process that makes sense to them and to focus on key issues. Do not, however, regard them as a substitute for proper negotiation –the devil is always in the detail. This negotiation process must involve adequate resources and senior executives from both sides - the key issues in a long-term relationship, such as outsourcing, are too important not to justify executive engagement from supplier and customer.
5. Implementation– This phase involves the start-up activities of planning the transition and the implementation of the outsourced agreement, as well as establishing the detailed budget and administrative functions needed for its management, and formal launching of the programme. Both sides will probably find it something of a honeymoon and generally even the worst of marriages do not need their lawyer in those circumstances! However, remember that there are going to be a host of issues that you might need guidance upon such as staff transfer, mutual responsibilities and the like. Do not allow these issues to fester and start the relationship on a bad footing; it is much better to get them on the table.