Unlike most other transactions, the lengthy process of negotiation leading to contract signature is just the beginning of an outsourcing relationship. From that moment on the parties are bound together whether they like it or not. The customer hands over its operations for the supplier to run and can’t easily back out of the arrangement. The supplier takes over and re-platforms the services, taking on employees in the process and imposing new procedures and controls according to its particular way of doing things.

At this point the customer may be surprised to discover that services which used to be free cost money and that the people running things are former employees who now report to someone else.

The outsourcing relationship is thus unavoidably symbiotic. One party can’t succeed unless both do. The way this relationship works (and ensuring that it does work) is the function of governance and contract management.

In practice, successful relationship management involves a fairly simple formula: sufficient people with the right skills and clearly defined roles, working together within an organised hierarchy which provides adequate support and authority. ‘Governance’ deals with how the hierarchy is structured and where the points of interface between the parties lie; ‘contract management’ deals with behaviours, relationships and communication. The two go hand in hand of course: contract management can’t function without formal processes operating within an ordered hierarchy; governance relies on honesty, openness and integrity.

Although the details will differ from project to project there are essentially five base ingredients to successful governance and contract management:

1. 1.Senior executive sponsors on both sides
   

1. The executive sponsors’ role is to drive a project forward. Most of the time they need only keep a steady hand on the wheel, occasionally demanding more from the engine room when impetus is needed during stormy weather. Above all, executive sponsors must have the power and influence to carry their project teams with them and make things happen.
   

2. 2.Executive oversight
   

1. Executive oversight is usually carried out by a joint project board or steering committee which meets regularly to oversee strategic direction, policy and other issues which are escalated to it from time to time. The board should comprise executive sponsors and senior operational management from both sides. The important point about boards and committees is that they should meet regularly and be seen to be taking an active role in the governance process. Leadership and direction always come from the top. If either is lacking it will permeate down and contaminate the whole team.
   

3. 3.Account management team
   

1. The supplier’s account team usually comprises:
   

2. •an account director, who manages the relationship;
   

3. •a delivery manager, who oversees day-to-day performance;
   

4. •a finance manager, responsible for budgeting and invoicing;
   

5. •a contract manager;
   

6. •service line experts, who focus on specific areas of the service;
   

7. •and, during the crucial first phase, a transition manager.
   

1. These days many of the main players in the outsourcing marketplace are global corporations with sophisticated internal delivery structures and complex chains of supply. In these companies the account management team functions almost as a middleman, sourcing capacity, resources, products and expertise from the supplier and ‘reselling’ them to the customer. The account management team effectively operates as an interface between the customer and the supplier’s many service delivery functions - recruiting staff, securing resource and finding solutions to the multitude of challenges which outsourcing throws up. The account director is therefore key. He or she is the customer’s advocate within the supplier’s own governance hierarchy. This is important because the account team must justify every request for resource and capacity in what will be a competitive internal marketplace.
   

4. 4.Project Management Office
   

1. The PMO is the customer’s version of the account management team. It will be headed by an equivalent of the supplier’s account director with a supporting team taking responsibility for the various project functions. The roles within the PMO and the supplier’s account team need not marry exactly but there should be clear understanding on both sides about the points of interface.
   

2. 
   

3. Some customers take the view that since service delivery is the supplier’s responsibility they needn’t concern themselves with running an effective PMO. This is one of the main reasons outsourcing contracts fail. The customer should always assign a team of adequately skilled and supported staff to provide operational oversight, financial management, planning and administration. The customer also needs to direct the supplier where necessary, scrutinise reports, assess incidents, review exceptions and facilitate corrective action. All this requires active management.
   

4. 
   

5. Without an effective PMO the supplier will find itself having to juggle competing demands from different customer business units each with its own agenda. The customer’s management team should draw together competing requirements and communicate these coherently. It must also of course report to its own senior executives and stakeholders.
   

5. 5.Joint Working Groups
   

1. Sitting below the project board or steering committee, joint working groups deal with planning, budgets, change management and other operational issues. The word ‘joint’ should be a giveaway: joint working groups should be equally represented on both sides to facilitate collaboration and create a genuine team dynamic.
   

These five ingredients provide the basis for successful governance and contract management.

It’s important to remember in addition that there is an unavoidable need for micro-level administration. The crucial aspects of this are careful record-keeping (including regular meetings, with agendas, minutes and documented actions), change management and rigorous financial administration. Unfortunately, there are no shortcuts.