Outsourcing Software Development Services The Offshore Approach Breakout

Outsourcing Software Development Services: The Offshore Approach Breakout Session # 5 Peter R. Easley, Esq. Senior Contracts Officer, World Bank April 8, 2003 10: 00 am – 11: 00 am NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 1

Why Outsource Application Development? • • • Not “core” to most organizations Potential Cost Savings Allows you to focus on core business Availability and retention of resources Quality NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 2

Offshore Software Development • Outsourcing software programming and engineering services beyond national boundaries – Three Potential Justifications • Cost avoidance / cost reduction • Internationalization (set-off’s / balance of trade / good corporate citizen) • Inadequate supply of domestic resources NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 3

Countries to Consider • Leaders: – India, Ireland, Israel, • Up and Coming: – Pakistan, China, Russia, Mexico, Philippines • Important Contributors: – Hungary, Poland, Brazil, S. Africa Source: Gartner Research NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 4

Offshore Software Development Models • 70 / 30 Model – 70 % of work performed offshore; 30% performed onshore • “Offshore” – Typically work performed in a developing country where labor costs are inexpensive • “Near-Shore” – Work performed outside of US in either Canada or Europe (e. g. . Ireland) NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 5

Social Responsibility Issues • Fair Treatment (equal opportunity / due process) • Fair Pay • Fair Benefits • Child Labor Issues – Hot food, proper clothing, access to medical services, daycare • Safe Work Environment NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 6

Visa Issues • H-1 B Visa – Sponsored by external service provider (ESP) in US – Has an initial term of 3 years renewable for 3 more years maximum – US Dept. of Labor requires H-1 B employees working in US for more than 90 days to receive salary and benefits which are equivalent to that which similarly situate US workers would receive NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 7

Visa Issues • L-1 Visa – Used for Intra-company transfers – The visa recipient must have worked with the petitioning company in an overseas branch for some number of years • TN-1 Visa – Available to citizens of NAFTA countries in specific professions NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 8

Do your Homework First • Use cross functional team to assess supplier and market, including representatives from: – Procurement, Technical / IT, Quality Assurance, Finance, HR etc. • Conduct Local Market Research Site Visits to assess Capabilities of potential suppliers and methods of service delivery NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 9

Local Market Research Site Visits • Develop a set of questions / issues to be considered • Assess company’s technical capabilities • Be respectful of cultural differences and approaches • Consider language and communication gaps • Assess cultural fit with your organization • Benchmark local wages and benefits NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 10

Assess Potential Risks • Intellectual Property Risk • Reputational Risk • Ability to manage development projects in an offshore model • Communication risks • Political / force majure risks • Currency Risks • Quality Risks • Security (personal, finance, information, data) NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 11

Assess Potential Risks • Security – systems integrity • Business Interruption – Holidays – War – Currency fluctuation • Tax issues • Supplier Key Account NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 12

Other Sources of Information • Issue a Request for Information • Gartner, Meta Group, Outsourcing Institute, Burton • Contact best practice groups • Contact other companies that use offshore software development model • Contact software industry associations in countries you are considering • Contact embassies NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 13

Quality • International Organization for Standardization (ISO) – ISO 9001 – Quality Management System (QSM) • Software Engineering Institute www. sei. cmu. edu – Capability Maturity Model (CMM) • Levels 1 (low) to 5 (high) • Web site lists companies that have achieved certification NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 14

Quality continued – CMM certification can be obtained by a company or by one of its off shore development centers – Most Indian ESP’s have obtained CMM certification • Six Sigma – Rigorous and systematic methodology to prevent defects NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 15

Quality continued – Six Sigma utilizes the DMAIC Model • • • Define Opportunities Measure Performance Analyze Opportunity Improve Performance Control Performance – A key measure is defects per million opportunities which is then used to calculate the metric of actual achievement and performance NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 16

Is your organization prepared to benefit from these quality standards? • Changes in your business process to effectively implement – Project Management skills – Contract management skills – “people” skills • Communication and Trust are key to success NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 17

Is your organization prepared to benefit from these quality standards? • Consider your organization’s CMM / ISO / Six Sigma level • Culturally, will these processes work in your organization • Assess the risk and costs to implement • Changes in your business process to effectively implement – Project Management • Human Resource Issues NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 18

Solicitation Process – issues to consider • Use matrix RFP format to facilitate evaluation • Define proposed offshore model and approach or request offeror to propose methodology – % onshore vs. offshore vs. near shore – Quality certifications / processes • Currency NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 19

Solicitation Process – issues to consider • Consider export of technology issues – Will they access your systems on your hardware or will they work on their own and send you code • Visas • Social Responsibility / reporting – Service Contract Act • R&D NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 20

Solicitation Process – issues to consider • Contract Terms and Conditions – Use contract matrix with mandatory clauses • Forces due diligence by offerors up-front • Minimizes contract negotiation timeframe – Include: Force Majeure, Insurance (possibly bonding), confidentiality, protection against copyright infringement, ownership of data, security background checks, acceptance testing, right to audit, indemnification, dispute resolution, rate escalation, quality assurance NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 21

Solicitation Process – issues to consider • Contract Clauses (cont. ) – Require business continuity (redundancy) planning – Require termination out assistance – Require Compliance with US and local labor laws (e. g. . Service Contract Act) NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 22

Solicitation Process – issues to consider • Proposal Evaluation – Proposed model customized to your requirement – Relevance of past experience – Offeror’s corporate structure and financial status – Offeror’s technical infrastructure (e. g. . Network) NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 23

Solicitation Process – issues to consider • Proposal Evaluation (cont. ) – Price! – Consider a site visit to confirm that offeror has capability, resources and technology to support your requirement • Contract Award and Negotiation • Contract Administration NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 24

QUESTIONS? NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 25