In analyzing a larger-scale intranet outsourcing deal, the New York­based Outsourcing Institute suggests, a company should look at having the outsourcer buy the infrastructure and lease it back to the customer as part of the contract's fee. This would result in a cash payment to the company when the contract is signed. Selling the "boxes" could lower capital investment in a noncore area, and have the residual effect of improving certain financial metrics that negatively weight nonproductive assets.

After deciding to outsource, draft a request for proposal (RFP) and deliver it to your outsourcing candidates. Define requirements in complete and measurable terms; describe the relationship you seek; explain the problems to be solved; specify the service level required; and list current related costs.

Be sure to ask about the outsourcer's corporate culture, and analyze references and past outsourcing engagements.

Once an outsourcer is selected, the most crucial phase begins: contract negotiations. Technology outsourcing contracts are especially tricky because the playing field is changing so quickly. While a company may have no problem with more-traditional language governing such basics as service levels, risk- sharing arrangements, contract length, and detail of retained costs, third-party contract help may be required for larger, more-complex arrangements. Outsourcing contract attorney Richard Raysman of Brown Raysman Millstein Felder & Steiner LLP, in New York, encourages consideration of these areas:

• Technology refresh. Your company could lose a competitive edge if stuck with outdated technology. A refresh clause obligates a vendor to maintain the customer's installation with up-to-date technology. Prepare to pay for these upgrades if the technology resides at your location. Vendors normally foot the bill if they house the infrastructure.
• Intellectual property. Make sure your company's software licenses allow you to assign usage rights to your outsourcer, and specify who should pay associated fees. Your contract should provide that an outsourcing vendor may use software or other data only on your company's behalf. The agreement should also contain adequate confidentiality provisions. If the vendor uses its own software, the contract should stipulate your rights to access that software if the contract is terminated. Have the vendor place the source code to such software in escrow in the event of vendor bankruptcy.
• International employment. Foreign employees terminated or transferred as part of an outsourcing agreement have varying rights, depending on their home country. Retain local counsel to advise you on the most effective way to handle transfer of employment. Include an indemnification provision for third-party employee claims, making each party responsible for the time during which the person was employed.
• Audits. Claim audit rights allowing your company to perform on-site operational audits of vendor facilities. You may also include a right to perform a financial audit of associated outsourcing fees.
• Termination. While termination for cause is easy to negotiate, winning a termination- for-convenience clause is thornier. Outsourcers resist granting this right before recouping their investment. After two years, rights can usually be negotiated if a company agrees to reimburse outsourcers for a portion of lost profits, loss of revenue stream, and wind-down costs. Six-month to 12-month notification is often required. A termination assistance clause assures that the outsourcer provides adequate resources for the transfer of your company to a new outsourcer.

----------------------------------------------- --------------------------------- Intranets Are Our Business

How to reach some of the tech outsourcers managing systems for clients.

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