CEBS publishes guidelines on outsourcing by credit institutions

The Committee of European Banking Supervisors (CEBS) has published final guidelines on outsourcing by credit institutions which are attached. These guidelines take account of MiFID and build on many other excellent outsourcing advice documents.

The International Chamber of Commerce has also been preparing a Global Sourcing Handbook to which Robert Bond is a contributor.

Here is some of our guidance:

• Manage contractual issues . The key issues to address are:
  • define all deliverables
  • define acceptance criteria
  • define the acceptance process
  • clarify delivery schedules and milestones
  • specify fees and payment mechanisms
  • list rights of termination
  • address rights of access to systems and software
  • address ownership of intellectual property rights
  • provide for escrow of source codes
  • detail warranties indemnities and liabilities
  • address obligations of confidentiality
  • provide for dispute procedures
  • deal with non-solicitation of staff
  • provide for change management and change control procedures
  • address consequences of termination and exit procedures
• Focus on keeping your business running. Make sure your vendor can’t discontinue providing service under any circumstances, even in the event of a dispute or a breach by you. This reduces the ability of the vendor to hold you hostage and gives you enhanced rights if you do need to go to court to enforce the contract terms.
• Think of it as trading money for service. Usually, the only damage you can do to the vendor is not to pay them. By contrast, the vendor can substantially disrupt your business, potentially causing a devastating financial ripple effect. If it turns out you’re wrong in a given dispute, you can make the vendor whole with money – but you need to know that the service won’t be interrupted in the meantime.
• Develop a fast dispute resolution process. You may wish to design and incorporate a quick mediation or arbitration procedure for resolving contract disagreements, perhaps even pre-selecting the arbitrators. Another technique that is often used when both parties are of similar size is to prohibit either side from going to court until the chief executives of both companies have discussed the issue. (It’s amazing how this creates an incentive for resolving the dispute at a lower level.)
• Give yourself a way out. If a vendor doesn’t deliver – even through no fault of their own, such as in our meteor example – you need options. This may mean negotiating the ability to terminate the contract, but also the right to get the vendor’s help in unwinding the relationship, by providing people or resources to accelerate and simplify the transition.

Of course, some crises have no remedy. Business leaders often don’t like to ask "what if" questions where there is no good answer. But it’s difficult to negotiate an effective outsourcing contract unless you’ve faced all the things that could go wrong – and assessed what, if anything, you or your vendor can do in response. At the very least, you can look for ways to minimize the impact with a disaster recovery plan.

For more information contact robert.bond@speechlys.com