Over recent years the move to cloud based packaged solutions to fulfill IT service needs has accelerated the sales process and client decision cycles. With a standardized solution there is less to talk about, it’s quicker to implement, let’s get going ! Just sign here and we can get started says the supplier.
Not so fast…… The days of six month plus outsourcing competitions may be over but it is still important to take a little bit of time over the contract. Not all cloud based solutions are mission critical but the contract still deserves a little more attention than a click through agreement, if your cloud solution has any element that is even slightly mission critical, then the contract deserves some serious attention.
The best approach is that a detailed contract evaluation is a part of your overall supplier selection process, and you get to push on important issues while you have maximum leverage. However not everyone in IT builds this into the process. Even if you leave the contract until the end, when the supplier is chosen, you can still gain considerable ground with an informed contracting approach, and it does not have to slow down implementation
Cloud suppliers are quick to leverage the supposed ‘standardization’ of their offerings. They position the contract as being the ‘same as everyone signs’ and present perceived barriers to challenging or negotiating terms. These barriers can and should be overcome. The first contract they put in front of you will likely be completely one sided in terms of flexibility and risk allocation. Do not just agree to it. Whatever the sales guy might say cloud solution suppliers are used to push back, and have whole sets of much more client balanced terms if you know where to push and have the knowledge to ask.
Whether you do it internally or bring someone in, I have listed below some of the most common contract terms that cloud suppliers do not offer, unless pressed.
Description of Services – sounds obvious but many initial contracts are quite vague on what services exactly the supplier will perform. Indeed, many contracts have a bigger list of client obligations . The contract needs to be clear and specific on services the supplier will provide, ideally with a detailed RACI chart(s).
Performance Obligations and SLA’s – Performance obligations need to be clear, SLA’s should mean something. SLA’s that are targets and have no consequences are next to useless. SLA’s with numbers should be well thought through. 99% availability allows 432 minutes of downtime per month, each 0.1% after that reduces it by 43 minutes, 99.9% availability allows 43 minutes downtime per month, which are you expecting?
Governance and Reporting – This area is notoriously under described in cloud contracts, maybe you get access to a portal and you can go look things up! Is that enough, really? Be clear about what you are expecting about types of meetings, frequency, types of reporting, responsibility to produce, etc.
Pricing Approach – Not just the actual $ values but the way you are charged, when you are charged, etc. Is there enough granularity if things change, can you add storage, switch off servers? Lack of flexibility in pricing approach is likely to severely reduce your leverage once the contract starts and those friendly sales guys are long gone.
There are clearly many more contract areas to press on. Taking the time, while you have leverage, to work on these can bring significant benefits. SHC is clearly ready and waiting to help.
In the OPM marketplace today there are multiple suppliers
and multiple offerings to choose from. A recent article and webinar from Phil
Hill Article does an excellent job of describing offerings available and
trending. In his piece, Phil discusses the historically successful full service
offerings (2U, Pearson, Academic Partners) driven by revenue share and then
also talks about newer Fee for Service offerings (Noodle Partners) where the
supplier acts as an integrator to bundle service components to deliver an
ultimate complete service. A telling part for me of his presentation was the
statement that these quite different offerings should ‘not be considered as
As a services sourcing expert with recent experience in the
OPM space I can readily tell you that process and strategy are vital in a
sourcing approach. Running a competitive souring process, and having a mix of
suppliers and delivery models involved, is the only way to
Have the information needed to make an informed
choice by knowing what the best deal is, based on alignment with your overall
Compounding this by using competition to get the
best deal in terms of contract terms, financials, etc.
Do not rush to pick a winner in Revenue Share v’s Fee for
Service models, at least until you have all the information.
In a recent OPM engagement Stuart Harris Consulting helped a
School develop and implement such a process. Both traditional Revenue Share and
new Fee for Service suppliers were involved. As the process moved forward it
drove both competition and more and more knowledge about the details behind
each suppliers’ offerings. We were able to build financial models, risk
assessment models, contract comparisons, and more. Stakeholders who had potentially favored one
solution at the outset changed their minds as details (positive and negative),
risks, and concerns emerged. Based on
all of this The School was eventually able to make a choice of supplier and
delivery model that aligned with their strategy, they got a solid modern services
contract to support the deal, and they got business and risk management deal
terms that would never have been on offer based on ‘standard paper’. Most
importantly they signed up for a deal that in their view optimized the
financial returns from OPM balancing against other factors.
For this School, having an OPM evaluation strategy certainly
paid, the first step to building the strategy was not thinking that Fee for
Service/Revenue Share was a binary choice, they let the process lead them to an
informed strategic decision.
In response to a number of questions from Schools who are in
the process of evaluating their existing OPM contract, Stuart Harris Consulting
has developed a check list of terms and concepts that should be included.
School’s examining contracts may be doing so for various reasons, including
They are happy with the current OPM partnership
but/and are looking to renew/extend in the near/medium term. As part of any
extension strategy the contract needs to be brought up to date and gaps in risk
and compliance closed, not to mention maybe sharpening up some business deal
The existing OPM contract still has multiple
years to run but as part of an organizational risk assessment strategy the
contract needs to be re-opened to close gaps. Potential issues to address might
be FERPA, WCAG Compliance, US Data Privacy, GDPR, to name just a few
The SHC list can be applied quickly as part of a contract
assessment to help Schools map out what types of contract changes, they should
at least be considering. The list can equally be applied to Schools considering
new OPM arrangements to ensure that any ultimate contract is comprehensive and
entered into thoughtfully.
Supplier ‘Standard’ terms are seldom client friendly, and/or
comprehensive. Such terms can leave Schools very exposed, not just around
compliance but also around quality of services, ability to terminate, ‘lock in’
OPM as a business offering has certainly been in the news
New deals continue to be announced, and the market and offerings continue to grow.
2U announced not so good financial results, and the stock market reacted. Shortly after, 2U followed up with a seeming shift in strategy, and a framework for OPM transparency.
The state of California has concerns with the OPM business model. The Century Foundation also raised a number of issues with the OPM business model for schools in a major piece. This based on a study of OPM contracts.
Commentators such as Phil Hill have questioned the depth ‘study’ that went into the TCF piece, but do not question the need for a thoughtful approach.
The current publicity around OPM may or may not lead to industry changes, so what are schools supposed to do in the meantime if they are already in an OPM deal or are maybe thinking about entering a new one? The answer, I believe, is simple.
Ensure you move forward thoughtfully…. Do not rush, do net get locked in too soon to a single delivery model, or worse to a single supplier.
Whether a new deal or an extension of an existing deal:
Ensure the basic contract structure and content is fit for a contract that covers 10’s of millions of S’s in services.
Carefully consider and negotiate business terms. Supplier paper and talk of partnership are not viable if you want to retain future strategic flexibility.
Be very wary of anything that is presented to you as ‘standard’ or that is never deviated from…… everything is negotiable.
The world of OPM is changing; there are many reasons to move forward, but do so thoughtfully.
As part of consulting engagements over the last 2 years I have had the opportunity to review multiple OPM contracts, many of them from prestigious schools with successful online programs. Common themes and observations that have emerged from these reviews include:
The overall brevity of the contracts themselves and the extent to which, when concepts are covered, they are usually covered in a very supplier friendly manner.
In addition to being long in duration, many contracts included other business terms which led to barriers to exit and effective contract ‘lock in’. Lack of specificity about exit roles and responsibilities, marketing spending, IP Ownership, and more, make planning to, and having the freedom to, move on very complicated.
The seeming absence of many 2019 standard service contract clauses and components. Modern services contracts need to cover a long list of issues. For example, FERPA, WCAG Compliance, US Data Privacy, GDPR, and many more. Not addressing these issues explicitly in contracts generates a real risk to the school.
The number of contracts that were originally signed years ago and have just beenrenewed/extended. Very few seem to be updated for today’s world. Times have changed in OPM, market rates for revenue share have developed, business terms for IP Ownership have moved on, not to mention standard terms as described above.
For successful programs (and programs that hope to become successful through the OPM partnership) the amount of revenue share generated can easily get to be over $5m per year. That can add up to a $40m -$60m sum over a 10-year term. Maybe it is understandable that in the early days of OPM these contracts were entered into quickly, perhaps without as much scrutiny as was needed. Today, whether entering OPM for the first time or reviewing/extending the contract, effort deserves to be done thoughtfully.