Planning for success

03-01-2012 - John Hatcher

Data centre operators are understandably focussed on keeping up to date with the latest technological developments and ensuring services remain competitive in a difficult market. Under pressure to sign up new business it's important for operators to remember that spending time and effort on contractual planning is invaluable. Here are two examples of key areas where cutting corners can cause problems.

Transfer of Licences
Potential customers may have hundreds of licences relating to many different third party software packages, often purchased before they ever considered outsourcing. These licences may not cover use of the software by an outsourced service provider on behalf of the licensee. Service providers will often prefer to start with new licences they have acquired themselves for software packages they are familiar with, but customers generally try to persuade service providers to take a transfer of the licences for the customer's existing software, seeing this as more cost effective.

A thorough due diligence exercise must be carried out to identify which licences need transferring to the service provider, and which of those will need an approach to the licensor to enable use of the software in the new outsourced arrangement. This can be time-consuming, but it is essential to achieve certainty over the licensing position. It is often seen as a job for the customer, but there are significant benefits to the service provider in getting involved at the beginning of this process, because it can help to gain an insight into the way the customer uses the software in its business. The due diligence process will be new to many customers, but those service providers who are more experienced (who possibly have in-house legal departments) can add value here by assisting with the task. After all, it is in the service provider's interests to make sure the exercise is done properly.

A full transfer may be appropriate, or the customer's retained business may also require ongoing licences to use the software. If permission to transfer or vary licences can't be obtained, consider which party will be responsible for obtaining suitable alternative software from other suppliers, and what should happen in the meantime. It also saves work later if the parties make sure at this stage that licences can be transferred back to the customer (or new provider) when the outsourcing relationship ends.

Exit Planning
When negotiating an outsourcing agreement, the end of the relationship is the last thing that the parties want to contemplate, especially when there is strong commercial pressure from all sides to agree the deal. The discussion is sometimes avoided completely because it contemplates failure before the relationship has even begun. But exit assistance will be required at the natural expiry of a long-term arrangement where no fault is involved, at least as often as after a termination where something has gone wrong (in which case it can be tricky to manage and a clear plan is all the more important). A generic exit plan template is unlikely to suffice, and cutting corners at the negotiation stage can lead later to ambiguity and disagreement, with the additional time and cost which those entail. Amongst other things, consider:

• the transfer of software licences, intellectual property or other assets to the new provider (or back to the customer), as well as  any training, information and know-how they may need on exit;
• the possible transfer of employees to the new provider (or back to the customer) under the TUPE regulations;

Experienced data centre operators can add value with novice customers by helping them to understand the scope of the assistance they will need. Large-scale data centre outsourcing arrangements may require a year or two of exit assistance (sometimes continuing after the official termination of the agreement) before the migration back to the customer or the next provider is complete. This justifies some careful planning to establish the intended process before the contract. If this isn't feasible before the start of the outsourcing arrangement, the agreement should contain an outline and a clear mechanism under which the parties can work together in the early stages of the project to develop it further into a fully detailed plan. The parties' project managers should oversee the completion of the plan within a specified period to ensure it is completed long before it is ever going to be needed, enabling the parties to focus on managing an efficient and successful outsourcing relationship.