A date has been set for Cornwall Council to meet BT in the High Court. On 1 December 2015, both sides will have the opportunity to explain just why the ten-year £300m outsourcing contract that bound them together was ended just two years into its term. This article aims to review what the public documentation states so far, and to see whether there are any lessons to learn, combined with our own experience of being involved in hundreds of these types of situations, that may help others to avoid strategic partnership termination, or to avoid losing them to legal recourse.
The situation between BT and Cornwall Council is by no means unique, but one always hopes that long before things degrade to a point of setting court dates, something can be done to resolve the dispute. And, in most cases, we have recognised that realigning poorly performing strategic partnerships, even in the most complex of situations, is often possible.
I recognise that it is always easier to be an observer and advise from the sidelines than to be at the battlefront. The hindsight it affords us allows us to view any situation in a more detached and considered way. But we offer these observations from the perspective of our own lessons learned, passing no judgement on any party in the examples used within this article.
To understand how to avoid the early vendor termination turmoil that Cornwall Council looks to be going through, despite high-level discussions between senior executives on both sides this summer, we need to take a closer look at the dispute in hand.
BT v Cornwall Council – The story so far
Although the £100,000 fine levied on BT in May of this year suggested a perception of serious misalignment between Cornwall Council’s organisational goals and delivery by BT, it looks like there were troubling signs far earlier in the project than this. UKCampaign4Change suggests that the outsourcing contract was a contentious topic within Cornwall Council even before it was signed, with allegations reported that some councillors and senior officers had tried to rush the deal through, in spite of a motion against the proposed deal.
Ultimately, the strategic partnership was approved, but only apparently after BT’s proposal had gone through multiple revisions and a significant slimming down. While it is always possible to realign business outcomes and objectives, and even vendor performance, throughout the life of a contract, getting off on the right foot is also vitally important.
We can glean from a September 2014 council meeting, however, that no comprehensive review of the outsourcing contract had been conducted to evidence any underlying issues before this date. There was also no publicly stated suggestion that BT was failing to deliver on agreed outcomes, and councillors were given an assurance that “BT Cornwall (BTC) are working hard with the Council to identify ways in which they can contribute to the overall budget savings target and that will continue over the next 4 years”.
If not during this September 2014 meeting, when did misalignment in the Cornwall/BT relationship start to identify itself? Evidently, once that all-important contract review took place.
In an April 2015 report to the Resources Policy Advisory Committee, it was stated that, “Over recent months, there has been increasing concern that, in terms of delivery, the achievement by BTC of Key Performance Indicators and Performance Indicators has been getting worse and that the extent of Cornwall Council Service Transformation anticipated at the time of contract commencement has not reached anything like the intended levels.”
This Strategic Partnership Review, which reportedly proved to be the catalyst for the early termination decision, went on to reveal a downward trend of service delivery, with only 32% of the promised jobs materialising and little evidence that more were on the way.
Despite BT Cornwall restructuring its senior management team, the council issued its fine. In June 2015, Cornwall Council informed BT that it wanted to end the strategic partnership and entered into a standstill agreement in order to negotiate an amicable termination.
With neither Cornwall Council nor BT apparently seeing eye-to-eye on the termination procedure, BT filed for an injunction against the council to prevent it from terminating the contract. On the same day, the High Court granted an expedited trial, which will now take place on 1 December.
BT’s stance is that it has “commenced legal action to ensure fair and proper handling of the issues which have arisen about BT Cornwall”.
9 primary lessons to reduce misalignment when looking to terminate your contract early
The following nine lessons offer a holistic view of how most outsourcing agreements can retain strong relationships through the trauma of an early strategic partnership termination and, in doing so, save the small fortune that such a move could cost you if not handled with appropriate care.
1. Know precisely why you are looking for an early exit
An early exit is usually initiated either for non-performance or for reasons of convenience. The former is simple to explain, though far more difficult to prove – is your strategic partner doing what they are supposed to be doing to the levels and the schedule that you believe they should? And, can you evidence it – both the part about what they should be doing and whether they are doing so? The challenge with this being that quite often contractual agreements are less than clear about specific business objectives and are usually not quantified particularly well. In the absence of a properly funded and resourced Intelligent Client Function (ICF) team, the gathering of performance information is often also lacking.
To exit for convenience is what you will have selected to do if the agreed goals of the outsourcing relationship no longer fit with desired outcomes due to a shift in industry, company or customer expectations or needs.
In both circumstances, it will have been imperative for you to have been as diligent as you can practically be to realign expectations with your outsourced partner’s abilities to meet them before even considering an exit. And, it would always make sense to attempt as amicable a break-up as you could possibly achieve – something far more likely if you are exiting for convenience, as it is always a difficult message to convey to be told that your performance is not up to scratch.
2. Determine whether a full or partial termination is most appropriate
While it currently looks as though the relationship between Cornwall Council and BT would be very difficult to repair, there are times when a strategic partner may only be under-performing in certain areas and this requires a quite different approach.
Entering into discussions with your provider to exit from the service areas that are under-performing while continuing to use them for those that are performing to expectations, can be much simpler than starting anew after a full exit. It’s something you should consider early on in the process because, much like figuring out why you wish to terminate, the extent of the termination will define your negotiations.
If you are in the public sector, such a process has to be handled with appropriate diligence to ensure you do not breach any EU procurement regulations.
3. Do not underestimate the importance of clarity of purpose
Diagnosing just where your strategic relationship went wrong is important – as is identifying those areas where it is working well. In the example above, how clear was Cornwall Council with BT, and did BT warn the council if any of its expectations were ambiguous or unreasonable?
Utilising their expert knowledge, a service provider has an implied duty to warn in law, if their service delivery, or the client’s own expectations, are likely to prevent a client meeting a goal, or the provider will be unable to comply with an instruction because it is vague or unreasonable.
Consequently, minimising termination fees (or at least making them equitable for client and vendor alike) should be possible if the provider is seen to have neglected a) to exercise their responsibilities as an ‘expert’, or b) to take any reasonable measure to improve their service delivery when given the opportunity.
Of course, that doesn’t absolve you of your own responsibilities as a client. Strong strategic partnerships are built on a foundation of trust and clarity of business outcomes and objectives. Crystal clear communication should be emphasised from the beginning and each party should hold the other accountable if they deviate into ambiguity.
4. Exercise your own responsibilities as a client to hear and address your vendor’s advice to you
An extension of the vendor’s ‘expert’ responsibility to warn their client when they believe themselves unable to meet a specific requirement, is the client’s responsibility to listen to these warnings and either clarify or adjust their objectives accordingly. Clarity is, once again, a two-way street – if your supplier warned you about an ambiguity and its consequences/impact and you dismissed it (perhaps as something that could be sorted out later), you could be considered to be at least partially responsible if the initiative discussed, fails. On the other hand, if you acknowledged their concerns and addressed them and, despite your best efforts, poor service delivery from them continued, you will have more solid grounds on which to terminate early and exit.
Also, if the business impact of underperformance is significant enough, it is usual that you can claim appropriate financial damages.
5. What ‘expert’ representations were made during the bidding process?
Another important issue, in addition to the question of clarity of purpose, are the actual and implied promises made by the vendor before, during and after the bidding process. In most cases, where a vendor represents itself as an ‘expert’ in its field, pre-contractual vendor representations have been taken into consideration by the courts if those representations were key to the contracting decision (even if an entire agreement clause in a contract has tried to exclude these representations).
6. Were those representations fulfilled, and if so, to what extent?
If Cornwall Council possess suitable evidence to support the claim that BT made specific pre-contract representations that they did not live up to, the High Court could well consider them to be relevant to the case if the arguments around BT’s ‘expert responsibilities’ are articulated correctly. In such an event, the court will probably look at BT’s efforts to deliver on its representations. It will also then determine how far they are from achieving their promised service levels. As with BT, if a vendor is found to have failed to deliver against obligations on their side to agreed and reasonable standards – based on their ‘expert’ responsibilities – they may well be found accountable.
7. Did the contract, its termination clauses and exit fees align with those representations?
When we consider that Cornwall Council and BT were apparently not able to come to an amicable termination agreement despite a summer of negotiations, the answer to the questions above, may be ‘no’. It is an unfortunate reality that many outsourced contracts are not drafted as clearly as they could be, often containing a multitude of clauses that can be interpreted in a number of ways.
This ambiguity is consequently open to exploitation by one party or another, muddying exit negotiations that could otherwise have been straightforward (as much as a complex partnership can be straightforward). In these situations, it is important to interpret contractual clauses in terms of the expertise your partner claimed to have at the outset of the contract, and their behaviour since the relationship was formalised.
8. Align client and vendor behaviours to business objectives
However short a time the outsourcing partnership actually lasted before running into problems (compared with the ten years it was originally expected to run for), it’s important to ask whether BT and Cornwall Council understood both their own and their partner’s roles and responsibilities clearly enough.
Contractual terms and governance to operate the contract should be structured to clearly establish both vendor and client responsibilities throughout the relationship, what each party is supposed to do and when. Additionally, they should outline the process of (formal and informal) escalation when performance issues arise, in order to ensure that business outcomes can continue to be achieved in spite of any issues, and to give both sides an opportunity to change their behaviour.
If the Cornwall/BT outsourcing contract lacks clarity on expected vendor-client behaviours, the High Court is likely to take into account the assessment of each party’s historical behaviour during the contract. It can use this to determine whether parties were aligned to the business outcomes expressed in the written contract and reasonably completed what would have been expected of them.
9. Regular review of agreement, objectives and performance
In our experience, it is an essential opportunity-maximiser and risk-minimiser to always seek to review and reshape your contractual relationships biannually so that business objectives and outcomes continue to be aligned. This would mean that issues can be spotted early and value-added adaptations incorporated.
Your ICF team should retain regular contact with their vendor-side counterparts to guide, inform and nudge where necessary. But twice a year it would be sensible to conduct a thorough review of where you stand against expectations, adapting your agreement where necessary to better align with capabilities.
An early exit should always be an action of last resort because of the significant risk of financial and reputational discomfort that may ensue as a result. There is no telling how December’s High Court proceedings will go, as both sides currently seem to think the other is in the wrong. However, remembering the lessons noted above could save you from falling into a similar downward spiral in your outsourced relationships.
If you wish to discover more on this subject, you can download our free Failed Outsourcing Relationship white paper, which provides an in-depth look at how other organisations have handled early terminations, as well as guidance on whether you should be terminating early at all – and of course how to proceed safely if you decide that this is your only recourse.