A Master Service Agreement (MSA) is intended to create a contractual framework for relationships between parties involved. Unfortunately way too often MSAs are used to protect intentional incompliance with a spirit of the agreement. When MSA is written and negotiated the parties bring to the table their knowledge of the domain, in this case offshore outsourcing services. The party more experienced in the space can predict certain behaviors and relationship patterns and appropriately protect themselves from liabilities they bring. More so that party can take advantage of less experienced negotiating partner and create an invisible cloak that will be used to hide issues and drive higher profit from the contract.
I am afraid that sounds very theoretical, vogue and convoluted… Let me suggest a couple of examples:
- As a service provider I know that customer is likely to be late on their deliverables and my team would be spinning wheels waiting on those deliverables. To protect myself from that potentially serious issue I will put a clause in MSA that would state that if I am waiting on the customer I am still getting paid. That’s just fair, isn’t it? Now, consider what I can do during negotiations – I can downplay the probability of customer delays (most likely using customer’s ego) and shape that clause in a manner that gives me a lot of flexibility. Then, when the opportunity presents itself I can induce waiting period and rip the benefits that already embedded in the MSA.
- Another, probably most common area, is related to provider dealing with the resources on their side. There are many areas where supplier can negotiate “reasonable” terms that have nothing to do with reality of the situation. For example, if a software developer quits another developer would be put in his/her place and ramp up period should be the industry’s standard 2 weeks. Industry standard? When I bring onboard a new developer it takes 2-3 month for him / her to become fully productive how come it takes four times less with an offshore guy? That’s not the point though, no matter how many weeks of shadowing you might negotiate the realities of delivery against the item in MSA remain practically unknown, and thus could be manipulated to fit provider’s objectives.
- Even a very straightforward items like “body count” becomes pretty vogue and unenforceable. Imagine that you are trying to count people in organization and people always move from one office to another. Getting the numbers right would be quite challenging. Just a few weeks ago i spend almost a week trying to figure out how many QA engineers I have on staff with my Indian offshore operations. The numbers varied greatly depending on who I’d ask. Most precise figures came from the vendor, in that light resorting to MSA as a lifesaver is only natural. Yet, if you think that if my development manager thinks that there are 2 QA engineers on his project while my provider tells me that there are 5, something is seriously wrong here. I bet it means that I get the work of 2 while paying for 5…
In general what makes an MSA an invisibility cloak is not bad intentions of the vendor, but buyer’s inability or lack of desire to enforce it by staying on the top of engagement. If you do not control the deliverables each step along the way, if you do not verify timesheets and assignments, if you hope that the MSA will prevent me from issues and problems of malicious or delinquent nature you will most likely fail. In that case the MSA will become opaque and impenetrable defense mechanism for the vendor. I guess Invisibility is in the eye of the beholder.
Steps to making an MSA transparent are obvious – focus on execution, control of deliverables, etc. Considering an example of team turnover. A realistic ramp up for a developer in terms of productivity would be 25% first month, 50% second, 75% third and 100% from that point on. In that case over 12 months developer produce 1050% of the monthly allocation. Suppose a developer quits after 6 months and spends one month training a shadow resource (it’s reasonable to assume that that between two of them productivity for that month is 100%). In that case total productivity over the year will be 975% or ~7% less. If we have two replacements over the year the figures would be 900% or ~14% loss of productivity.
That could be easily translated to the rate impact – if your rate for the developer was negotiated at $25 per hour in the second case you paid roughly $27 and $29 in the third. Of course not controlling these figures makes the difference invisible… The magic spell to make the cloak transparent would include linking turnover baseline to rate and more important watching it over the case of the engagement.