BUSINESS PROCESS OUTSOURCING

Transcription

1 BUSINESS PROCESS OUTSOURCING PROCESS, STRATEGIES, AND CONTRACTS Second Edition JOHN K. HALVEY BARBARA M. MELBY JOHN WILEY &SONS, INC.

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3 BUSINESS PROCESS OUTSOURCING

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5 BUSINESS PROCESS OUTSOURCING PROCESS, STRATEGIES, AND CONTRACTS Second Edition JOHN K. HALVEY BARBARA M. MELBY JOHN WILEY &SONS, INC.

6 For my friend and colleague Kurt P. Ross, who made much of this possible and whose common refrain: Well sir, please respond is and will be missed JKH For Grayson and Garrett BMM This book is printed on acid-free paper. Copyright 2007 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Wiley Bicentennial Logo: Richard J. Pacifico No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, , fax , or on the web at Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, , fax , or online at Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at , outside the United States at or fax Wiley also publishes its books in a variety of electronic formats. Some content that appears in print, however, may not be available in electronic books. For more information about Wiley products, visit our Web site at Library of Congress Cataloging-in-Publication Data: Halvey, John K. Business process outsourcing : process, strategies, and contracts / John K. Halvey, Barbara M. Melby. 2nd ed. p. cm. Includes index. ISBN: (cloth) 1. Contracting out. 2. Industrial procurement. I. Melby, Barbara Murphy. II. Title. HD2381.H dc Printed in the United States of America

7 CONTENTS ABOUT THE WEB SITE ABOUT THE AUTHORS PREFACE x xi xiii CHAPTER 1 OVERVIEW The Emerging Market What Is BPO? BPO Categories Reasons for Outsourcing Business Processes Integration: Making BPO Fit BPO Vendors 10 CHAPTER 2 PLANNING STAGE Outsourcing as an Option Defining the Scope of the Transaction Selecting a Group of Potential Vendors Request for Proposal 33 Appendix 2.1 Nondisclosure Agreement 39 Appendix 2.2 Questionnaire for Assessing Legal Resources Required 46 Appendix 2.3 Questionnaire for Assessing Legal Resources Required (Vendor Form) 50 Appendix 2.4 Request for Information 54 Appendix 2.5 Request for Proposal 59 CHAPTER 3 SELECTING THE VENDOR Evaluating the Proposals Notifying the Preferred Vendor(s) 88 Appendix 3.1 Evaluation of Vendor Proposals Relating to the Provision of BPO Services 91 Appendix 3.2 Letter of Intent (Customer Form) 98 Appendix 3.3 Letter of Intent (Vendor Form) 101 v

8 vi CONTENTS CHAPTER 4 NEGOTIATIONS: STRATEGY AND PROCESS Forging the Legal Relationship Negotiating Process Exposure Analysis People Negotiate, Not Companies Negotiating Strategy 113 Appendix 4.1 Due Diligence Agreement 116 Appendix 4.2 Model Term Sheet 121 Appendix 4.3 Legal Due Diligence Checklist 126 Appendix 4.4 Issues Arising in Connection with Implementing a Shared Services Center 129 CHAPTER 5 BUSINESS PROCESS OUTSOURCING CONTRACT Overview Use of Attorneys Key Contract Issues Regaining Strategic Control Pricing Considerations Assembling the Team 161 Appendix 5.1 Checklist: Key Issues in BPO Agreements (General) 162 Appendix 5.2 Checklist: Key Issues in HRO Agreements 175 Appendix 5.3 Checklist: Key Issues in F&A Outsourcing Agreements 189 Appendix 5.4 Checklist: Key Issues in Procurement Outsourcing Agreements 204 Appendix 5.5 Checklist: Key Issues in Logistics and Warehouse Management Outsourcing Agreements 218 Appendix 5.6 Business Process Outsourcing Agreement (Customer Form) 233 Appendix 5.7 Business Process Outsourcing Agreement (Vendor Form) 285 Appendix 5.7A A Proprietary Rights Rider (Vendor Form) 315

9 CONTENTS vii Appendix 5.8 COLA Checklist 321 Appendix 5.9 Joint Management Procedures 323 CHAPTER 6 MEASURING PERFORMANCE Overview Service Levels Benchmarking 333 Appendix 6.1 Customer Satisfaction Survey Checklist 339 Appendix 6.2 List of Reports 343 CHAPTER 7 HUMAN RESOURCES Transitioning Employees to the Vendor Due Diligence Terms and Conditions of Employment Transitioning Employees from Customer to Vendor Human Resources Representatives Contract-Related Issues 365 Appendix 7.1 Stay Incentives 367 Appendix 7.2 Human Resources Sample Language for the Request for Proposal 372 Appendix 7.3 Human Resources: Sample Terms and Conditions for Employee Transition in the United States 376 Appendix 7.4 Employee Confidentiality Agreement 380 CHAPTER 8 TRANSFORMATIONAL OUTSOURCING Moving from A to C Internal Considerations Project Definition Maintaining Multiple Environments Using Subcontractors Key Contract Provisions 390

10 viii CONTENTS CHAPTER 9 INTERNATIONAL CONSIDERATIONS International Transactions Contract and Legal Issues 408 Appendix 9.1 Checklist: Key Issues in Global BPO Transactions 418 Appendix 9.2 Offshore Checklist 425 Appendix 9.3 Local Counsel Questionnaire 439 CHAPTER 10 INFORMATION PRIVACY AND SECURITY ISSUES Introduction Selected Information Privacy Laws Selected Information Security Laws Company Privacy Policies Global Issues Offshore Outsourcing Practice Tips 475 Appendix 10.1 Data Privacy Questionnaire for Proposed Outsourcing Transaction 477 CHAPTER 11 EXHIBITS AND ANCILLARY AGREEMENTS A Critical Part of the BPO Contract Exhibit Listings Checklists for the Exhibits Ancillary Agreements 488 Appendix 11.1 General Assignment and Bill of Sale 501 Appendix 11.2 Teaming Agreement 503 Appendix 11.3 Legal Checklist for ASPs 514 Appendix 11.4 Legal Due Diligence Checklist for Companies Transacting with ASPs 516 Appendix 11.5 Business Continuity Issues for Customers to Consider When Evaluating an Application Service Provider 520 CHAPTER 12 POSTNEGOTIATION ACTIVITIES Contract Signing Press Release 524

11 CONTENTS ix 12.3 Autopsy Risk Analysis Contract Administration Implementing the Transition Plan Notifying Third Parties 529 Appendix 12.1 Consent Letter 531 Appendix 12.2 Consent Letter (Access/Installation) 534 CHAPTER 13 RENEGOTIATION AND TERMINATION Overview Renegotiation/Termination Process What Does the Contract Say? Additional Issues to Consider Termination Plan 548 Appendix 13.1 Customer Checklist for Renegotiating/ Terminating BPO Transactions 551 Appendix 13.2 Due Diligence Checklist for Customers Considering Termination 562 Appendix 13.3 Termination Agreement 567 Appendix 13.4 Outline of a Termination Assistance Services Agreement 575 INDEX 581

12 ABOUT THE WEB SITE As a purchaser of this book, Business Process Outsourcing: Process, Strategies, and Contracts, 2nd Edition, you have access to the supporting Web site: The Web site contains files for the appendices that appear in this book (see Contents). These appendices are provided in Word format. The password to enter this site is: business x

13 ABOUT THE AUTHORS John K. Halvey is a partner in the New York office of the international law firm of Milbank, Tweed, Hadley, & McCloy, LLP and the founder of the Strategic Sourcing and Technology Group. He practices in all areas of technology and sourcing law, with particular emphasis on information technology and business process outsourcing and private equity transactions involving technology or sourcing companies. Mr. Halvey has represented companies in many of the largest technology, telecommunications, and business processing outsourcing transactions, including Deutsche Bank, JP Morgan, BellSouth, Panasonic, Citigroup, DuPont, AT&T, Alcatel, Xerox, Boeing, Bombardier, General Atlantic and the Commonwealth Bank of Australia. His work in these areas has been the subject of articles in Forbes, Information Week, Computer World, CIO Magazine, The Daily Deal, and Venture Capital Journal. Mr. Halvey has for many years been ranked by Chambers and Partners as one of the world s leading information technology and outsourcing lawyers and was the only lawyer in the United States to be ranked a Star Performer in the outsourcing industry in both 2005 and In 2006 Mr. Halvey received the Chambers Shield of Excellence as the Outsourcing Attorney of the Year and as the HR Outsourcing Attorney of the Year by the HROA. In 1995 Crain s named Mr. Halvey on its list of the 40 most successful people under 40 in New York City. He is the coauthor of Information Technology Outsourcing Transactions: Process, Strategies, and Contracts (John Wiley & Sons, 2005). Barbara M. Melby is a partner in the Global Outsourcing Group at Morgan, Lewis & Bockius, LLP. Ms. Melby s practice focuses primarily on outsourcing transactions, including information technology and business process outsourcing, as well as other technology-related transactions, including development agreements, system implementation agreements, licensing and hosting agreements, technology services, joint ventures, and strategic alliances. One of the leading outsourcing attorneys in the United States, Ms. Melby is the coauthor of Information Technology Outsourcing: Process, Strategies, and Contracts (John Wiley & Sons, 2005). She was recently recognized by Chambers USA as one of the nation s leading lawyers for Business Process Outsourcing. xi

14 xii ABOUT THE AUTHORS In addition to her two books, she has written numerous articles in and has been widely quoted in a wide variety of publications, including CIO Magazine, IT World, The Metropolitan Corporate Counsel, andthe Pennsylvania Lawyer. Ms. Melby is also a frequent speaker on outsourcing and technology transactions at various business, legal, and professional conferences.

15 PREFACE The boom in business process outsourcing (BPO) that was anticipated at the time of the first edition of this book has, for the most part, been realized as we prepared this second edition. At this point, virtually every standard business process human resources, procurement, finance and accounting, project management, legal, research and development, customer care, and acquisition has been outsourced to some extent as Global 1000 enterprises search for new ways to reduce costs, improve processes and methodologies, and remain competitive. Indeed, there seems to be no limit to the scope and breadth of what can be outsourced and where it can be outsourced to. In addition to the now- traditional types of information technology and BPO services, BPO now includes more esoteric services, such as the outsourcing of hedge and mutual fund administration, research and development departments, and the interpretation of Magnetic Resonance Imaging (MRI) reports. In many respects we are now living and working in an outsourced economy: 1 one where the principal tenet of corporate operations is to leverage the outsource model for all but an increasingly core number of corporate functions and where competitive differentiation comes not necessarily from the products and services the company sells but instead from the selection and array of functions outsourced and the skill with which such outsourced functions are managed. As a result, the world has gone flat, as Tom Friedman s recent book on globalization noted, 2 and outsourcing is very much at the forefront of an intensifying debate about the balance of free trade and protectionism across the globe. This debate has led to increased scrutiny of the outsourcing product s operational effectiveness and to a more fulsome examination of the social, political, and economic ramifications of outsourcing on a widespread scale. Hardly a day goes by without national and international publications like The Wall Street Journal, The New York Times, BusinessWeek, Time, andthe Economist discussing outsourcing from a strategic, legal, and geopolitical point of view. From the now-infamous list kept by CNN s Lou Dobbs during the last presidential election of American companies exporting jobs overseas, 3 to the dozen federal bills and resolutions that are or were meant to curb offshore outsourcing, 4 and the 1. Service Mark, Milbank, Tweed, Hadley & McCloy LLP. 2. Thomas, Friedman, The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus and Giroux, 2005). 3. Lou Dobbs Tonight Web site, at 4. The list of proposed federal anti-outsourcing legislation includes, among other measures, bans on offshoring federal contract work; reporting requirements for companies considering offshoring jobs; consumers right-toknow measures for offshore call centers; restrictions on outsourcing-related work visas for foreign nationals; and ending the tax deferral for American companies overseas profits. Global Sourcing Information, Table xiii