Those KPIs are also set out in contracts, but Jamieson points out that Nike does not overplay its bargaining hand. "We are as careful as possible to ensure that the scope of developmental works, or infrastructure KPIs, are realistic, which at the end of the day limits risk to both parties and the likelihood of an issue related to underperformance in the first place. Fortunately, we have not experienced any local non-performance contract issues in the IT arena for many years."
Very much a believer that litigation should only ever be a measure of last resort, SACL's Luong says he views all contracts as the blueprint for a partnership between supplier and user where both parties use the contract as a framework to achieve what was intended. Contracts are not something signed and shelved but exist as a living document that should provide the framework for progress, he says.
It is an important point. Organizations that do not review their contracts on a regular basis may lose out.
It is a lesson learned by the Canberra-based Health Insurance Commission (HIC). HIC outsources its hardware requirements to IBM GSA. It retains, however, a significant investment in internally generated software and third-party software. Vipan Nahajan is the manager of capability development and projects for HIC, reporting to Lyn O'Connell, HIC's CIO.
Over the past 18 months Nahajan has been overseeing a software audit - identifying what HIC owns, pulling out of the bottom drawers the contracts associated with the software, and then identifying the liabilities associated with what it owns. What he has uncovered in the jumble of contracts is "a number of hidden horrors".
"For example, there is ambiguity in terms of the annual maintenance costs, and you can fall into the trap," Nahajan says. "Say you are paying a percentage of the list price of the software for your maintenance. Well, 20 years ago it may have had a list price of $1000. But the software vendor can turn around and say: 'Well, the list price today is $50,000.'"
Nahajan may have found himself scared half to death with what he has found in some of the contracts, but he turned the potential horror into an opportunity. He has created a timetable noting when the contracts come up for review, and carefully logged what aspects of the contract need to be negotiated.
"A number of vendors have said that they would never license software according to a logical partition of the mainframe," says Nahajan. "In the past vendors were unwilling to negotiate that." But he says increased IT market competition now means that where there might have been only one supplier able to meet the organization's needs in the past, there is now a flurry of possibilities.
"The leverage we have been using is that there are now a number of equivalent products. We do realize there are risks involved if we did move. But we tell the vendors that if their costings don't improve we might be willing to make the change. We have done that with one of the big vendors."
HIC had been paying $4.6 million for software to run on an 1800 Mips mainframe. When it renegotiated the supply it got the price down to $3 million, and also the flexibility to run the software on 2000-3000 Mips as demand required. That the industry is prepared to negotiate afresh is, according to Nahajan, in part a reflection of its growing maturity and a recognition that users are under greater financial constraints.
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