Planning for and managing IT exits

Posted on 13 Feb 2014 by The Manufacturer

Stuart Padgham, who is a partner at legal firm Thomas Eggar LLP, writes with Daniel Hedley, Solicitor, on how firms can best plan and manage the changing of IT contractors.

Stuart Padgham
Stuart Padgham, Thomas Eggar LLP

It is a fact of life that IT service contracts come to an end, and part of the procurement team’s role is to facilitate the process of unpicking your enterprise from the outgoing supplier and transitioning to the new.  While rarely completely smooth, there are a number of things you can take into account at the time of negotiating your IT contracts which can help make the process as pain-free as possible.

The most important thing to ensure is that termination or expiry of the contract does not have the effect of immediately terminating the existing supplier’s obligations without obliging the supplier to cooperate with you and the new supplier, and to provide you and the new supplier with the necessary information and access to the necessary personnel and resources to complete the transition to the new supplier.

Suppliers tend to have two concerns about arrangements like this which you will need to be alive to.

Firstly, there is the vexed issue of exit costs.  A customer in a strong bargaining position may be tempted to try to push all of the costs of exit assistance onto the supplier.  However, this approach tends to be counter-productive; it creates a perverse incentive for the supplier to do as little as possible by way of exit assistance, thereby potentially delaying transition to the new provider (for which the new provider is unlikely to accept the risk) and ultimately costing you more.

Secondly, the supplier will be concerned about signing up to an open-ended transition, and will likely want a long-stop date by which it knows it will be off the hook.  This should generally be resisted on the basis that it is impossible to predict ahead of time how long transition will take, especially in medium to long term agreements where the nature and scope of the services may change significantly over the contract lifetime, and in any event the supplier is being paid for their assistance throughout the transition process.

Another key exit issue which you should ensure is dealt with in the contract is how you will retrieve your data from the existing supplier and in what form.  Generally, you should receive your data on demand and in the format in which you provided it.

It is always best to try to include as much certainty on what happens on contract exit in the signed agreement, if only because relations with the supplier are generally better pre-signing than on termination or expiry, so you are likely to reach a more workable position.

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