1. Why do I need a “sourcing lawyer”?
What is “Sourcing”?
Sourcing is the transfer to an external service provider of functions that have been performed by vertically integrated companies or governments. Historically, outsourced services have included telephone service, financial auditing, litigation and external legal advice, architectural and engineering services and similar professional or regulated services.
In the late 1980’s, Kodak started the current trend by hiring a vendor to manage its data processing and information technology. More recently, external service providers have carved niches in virtually all fields of the business process, ranging from product design to manufacture, testing, logistics, marketing, customer care and other key components affecting the bottom line. Frequently, sourcing is accompanied by complicating provisions, such as imputed lease financing, human resources transfers, sales of depreciated assets and other major corporate “housekeeping” items.
Inner Tensions.
Sourcing contracts are a hybrid, matching the “contractor” approach of obtaining “consulting services” with a “partnership” approach of a long-term supply contract. The tension between these two approaches produces a challenge for the in-house counsel or the corporate general attorney. Without the aid of an experienced “sourcing lawyer,” an enterprise may take on substantial hidden risks. Hidden risks include issues relating to portability, changes in circumstances and retrocession (“backsourcing”) of the outsourced function to the client or to another services provider.
The Role of the “Sourcing Lawyer.”
The “sourcing lawyer” defines the purposes, scope and methods of operation of this long-term relationship that is neither a pure subcontract nor a fiduciary relationship. In negotiating the long-term “infrastructure services” agreement, the sourcing lawyer must navigate a balanced approach that should result in a mutually beneficial contract that meets both sides’ needs for certainty, flexibility, risk management and enforceability. The sourcing lawyer is skilled in a rigorous process of contract negotiation and renegotiation of long-term contracts for complex, expensive and rapidly changing key services.
2. What should my “sourcing lawyer” do for me?
General Principles.
Selecting any lawyer is a challenge. Anyone should ask all the usual questions in the due diligence process. Principal questions are not only skill and intelligence, but relevant experience and satisfied customers. Secondary questions include temperament, responsiveness, agility, lateral thinking (and experience in multiple disciplines) and creativity. Fundamental commitments should include access to relevant decision makers and the personal involvement of the attorney who has the reputation in the field. The bottom line: does the sourcing lawyer add value to the client’s business?
Special Case: Renegotiation.
Renegotiations are inevitable and are particularly sensitive. Though one law firm might have negotiated the original deal, a fresh look by another firm may enhance the chances for a successful renegotiation. Independent review by a sourcing attorney that did not negotiate the initial agreement should highlight prior decisions involving judgment and style. Such prior decisions undoubtedly have a material impact on the client. Such review may also be helpful in spotting issues where, in haste, a contract was negotiated as a stopgap measure. Finally, a further review may be appropriate where the initial promise of change was accomplished but, the relationship legal framework is ill-suited to achieving the client’s .
a. Relationship with In-house Counsel
Service Philosophy.
Information technology (“IT”) is a core infrastructure. A lawyer should provide service that is satisfying as to quality, timing and pricing.
Teamwork with Your Legal Department.
The goal is to inspire confidence in the processes and results and to enable you to provide service to your demanding in-house clients. Your lawyer should work closely with you to assure that you are provided with the information you need on a timely basis while being relieved of tasks that do not need your attention. Initially, your should establish a mutual understanding of operational parameters. Over time, your lawyer’s service should enable you to be much more efficient and focused on the high-value, or high-sensitivity, transactions that you must necessarily handle in-house. Your sourcing lawyer should be flexible in meeting your needs as in-house counsel.
Teamwork with Your Management.
Consultant and Your Management Team. Lawyers tend to focus on legal matters. Management consultants tend to focus on financial modeling, assist in defining the strategies for sourcing different services and in the selection of vendors and the general oversight of contract negotiations and implementation. Your lawyer should be compatible with your management consultant as well as others on your management team.
Strategies for Managing Your Costs.
as well as Your Transactions. Consider the following techniques.
Standardization.
Initially, your lawyer can create standard forms for standard types of transactions. Your lawyer could review forms you currently use for enhancement, and could supply his or her own. In IT, examples for standardization include:
- non-disclosure and confidentiality agreements.
- letters of intent.
- “packaged” applications software licenses.
- “custom” applications development contracts.
- database access licenses.
- news feed / data feed on-line services.
- electronic commerce transactions.
- source code escrows.
- privacy policies and procedures.
- technology assessment and remediation agreements.
- information technology services agreements.
- consents from third parties to implement the sourcing deal.
- project management agreements with independent PM organizations.
Intellectual Property Audit Service.
Ownership of intangible assets is increasingly a concern of auditors. Your lawyer should explore possible ways to ensure you own and protect your intellectual capital.
Project Management Tracking Service.
Consider a schedule in Excel or a Gantt chart as a standard form of project management service. This would help your IT managers and users understand where they are and help resolve bottlenecks. The additional nominal cost could be worth the more rapid throughput, greater quality control and standardization. Alternatively, your lawyer could prepare a standard checklist for project management tracking, depending on the nature and scope of the particular project.
Interactive Drafting and Negotiating Techniques.
Consider innovative strategies for shortening the time to closure. We have a number of simple logistical strategies for expediting closure.
Innovative Closing Techniques.
Consider bringing the vendor, or customer, to your site, or to a neutral site, where all parties have an incentive to close.
Electronic Document Markup.
Consider having your lawyer use e-mail or exchange diskettes, with documents marked with “tracked” changes in the relevant word-processing software.
Invoicing Practices.
Your lawyer should work with in-house counsel to adopt procedures to minimize surprise, such as providing invoices with time logs by date with a description of services, and classifying services by vendor name for purposes of internal charge backs or budgeting. Consider having your lawyer invoice you on a bi-weekly basis for non-negligible amounts. This frequency will enhance your evaluation of your lawyer’s performance, enabling you and your lawyer to jointly identify possible trouble spots early in the game and allowing your clients to know the score as projects evolve.
3. Conclusion.
Your sourcing lawyer should be willing to discuss any element of the relationship to ensure clear communication and client satisfaction.