Managing more than one provider

There is also the key question of how you manage the arrangement. In its much publicised mid 1990s IT outsourcing, BP Exploration claimed to have solved this problem by appointing three specialists on a worldwide basis, with each provider looking after the same specialist area all over the globe. In addition, however, the BP Exploration world of operations was split into three groups: North America, Europe and the rest of the world and each of the three providers was given control of the operation in one group. In that area the provider was made totally responsible to BP Exploration for the performance of the other two providers. Obviously, an arrangement of this type will necessitate the existence of a prime contract and very clearly defined sub-contracts.

Unless the client makes one service provider responsible for all the IT activities in one group or at one site, it will need to create a set of separate contracts and some form of co-operation agreement between itself and all the relevant service providers. Clearly, the advantages of making one provider responsible for the service normally outweigh the disadvantages. Having to negotiate with several providers to solve a problem will be difficult if there is any chance of the providers being able to transfer blame to others. It is sometimes argued that in law putting one provider in overall control will limit the client’s ability to deal on a day-to-day basis with the other providers. But in practice it is a relatively simple task for the client to build this requirement into the contract.

The main provider will obviously take on the difficult task of managing the other providers on the site. This will have to be paid for as an extra in the contract but it could be argued that this fee will probably be less than the cost the client would incur trying to manage all the providers separately itself.

However, even where one provider has ultimate responsibility for the actions of other providers and minor sub-contractors on a site, it would be very unwise for the client to ’leave them to get on with it’. A client that has based its choice of providers on the ’best of breed’ basis will need to consider other factors before it can hope to achieve its aims. For a start, service providers will not be overjoyed at the prospect of working closely with competitors. You may have chosen the providers on a ’best of breed’ basis but the likelihood is that all the providers will supply the full range of IT services for other clients. They will also see themselves competing in the future for both full and part IT outsourcings. Not an ideal basis on which to expect them to co-operate fully and swap sensitive information.

If the PR handouts are to be believed, then there is some evidence that a prime service provider can manage the day-to-day running of a multiple provider operation perfectly adequately and cost effectively for the client. Nevertheless, if the system fails, the client had better be prepared to find out the source of the problem by itself. Was it really a software problem or was it something else? Then, when the guilty provider is found, how do you compensate the others? Should you compensate the others?

Given all the various possibilities it would appear likely that for a very large client there may be initial cost benefits in the ’best of breed’ approach, i.e. the overall cost of the total IT outsourcing may be less if it is split up in this way. Nevertheless, I would expect that in the majority of cases and over time the cost of managing inter-provider disputes is likely to outweigh the initial cost advantages.

One thing is certain – appointing a prime service provider to manage the activities of other providers may sometimes work well on a day-to-day basis, but it removes none of the client’s need to manage the overall function – if anything it may require more management activity.