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
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, Dallas, TX
6
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
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, Dallas, TX
11
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
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, 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 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, Dallas, TX
24
QUESTIONS?
NCMA 3rd Annual Commercial Contract Management Conference
International Contract Management—Better Business by Crossing Borders
The Fairmont Dallas, Dallas, TX
25