1. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

2. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

3. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

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

5. Offshore Software Development Models
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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

6. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

7. Visa Issues
H-1B 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-1B 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

8. Visa Issues L-1 Visa TN-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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

9. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

10. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

11. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

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

13. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

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

15. Quality continued Six Sigma
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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

16. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

17. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

18. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

19. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

20. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

21. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

22. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

23. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

24. 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders

25. QUESTIONS? NCMA 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders