7 outsourcing nightmares -- and how to avoid them

Poor communication, shortsighted contracts -- don't get derailed by an IT outsourcing agreement gone awry

Outsourcing IT functions can be a smart business move, particularly if your organization lacks specific expertise. IT infrastructure, networking, application development, help desk -- plenty of high-quality service providers are available to fulfill your IT needs.

But like other major business and technology initiatives, outsourcing comes with risks, regardless of how experienced the outsourcing provider is or how good the move looked initially.

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Outsourcer employee turnover, communication breakdowns, shortsighted contracts: They can all sink an arrangement, resulting in lost opportunities, downtime, or worse. In the interest of forewarned is forearmed, here are seven real-life examples of what can go wrong with an outsourcing initiative -- and how to avoid or resolve these outsourcing arrangements gone amok.

Outsourcing nightmare No 1: Outsourcing employee exodus

Several years ago, Coalition 
Technologies had a project for an important client that it sent to an outsourcing partner to complete. The Web design and marketing firm had worked with the outsourcing partner before, and the experience had been positive. The partner had been responsive and provided a high level of quality and communication, says Joel Gross, founder and CEO of Coalition.

"Everything seemed to be moving along fine, until the project neared its completion date," Gross says. Then the outsourcing company's CEO contacted Coalition to report that more than half of the company's staff had quit.

"They did not have the capability to complete the project," Gross says. "As a result, we had to scramble and find a way to resolve [the problem] internally on extremely short notice."

While Coalition was able to deliver the work without too much added delay, it learned a valuable lesson about the risks of outsourcing. Now, the company tries to keep all of its critical IT work in-house, relying on a dedicated, handpicked 

When technology projects pile up, Coalition does contract outside providers to perform basic tasks, Gross says. It might sound obvious, but including every possible contingency in the contract is vital.

"Avoiding contracting nightmares is possible; you just have to lay the 
ground rules," he says. "In order to ensure the quality and standard of work, we have a strict and explicit contract that must be signed."

Payment schedules and consequences for late or bug-prone work are central components of those contracts.
 Contractors receive 25 percent of cost funded upfront, another 25 percent upon beta 
completion, and the remaining 50 percent when the project is complete and has been
 certified bug-free by Coalition project managers.

Coalition also requires that contractors submit two or three references that can provide feedback on the quality of work.

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