Nearshore Americas

It’s High Time BPO Contracts Included Watertight AI and RPA Clauses

Artificial intelligence (AI) and robotics process automation (RPA) are here to stay, so as outsourcers and their clients start working the tech into their business strategies, now is the time for legacy contracts to be re-written.

“In the coming years, service provider capabilities around RPA could well be the deal maker when it comes to outsourcing contracts,” Deloitte said in a recent report on the tech. “RPA is expected to play a major part in balancing the role between the various tiers of outsourcing service providers.”

The worldwide market for AI is expected to grow to $16.5 billion in 2019 from $1.6 billion in 2015, increasing more than 60% per year, according to International Data Corp.

The biggest strengths of AI and RPA are the ability to quickly process large amounts of information and learn how to perform repetitive tasks.

Global banking firms have already implemented AI successfully into their search for fraud, as have some doctors, who augment their own skillsets by using it to go through databases of medical images, or even diagnose diseases.

“AI is frightening in the abstract, but becomes quite usual when you use it – very few people think Siri or Amazon is going to take over the world,” said Ed Hansen in a recent webinar hosted by Morgan Lewis. “Many people also underestimate the time it takes for AI platforms to perform; it can take up to a year to get them trained. I’ve actually seen some people name the robots that become FTEs once they’re up to speed.”

It seems that “threatening” objects become much easier to accept in the workplace when they’re called Bob or Susan.

Technological Takeover of BPO

From a BPO point of view, we’re starting to see the limits of labor arbitrage being reached, which is clearly going to affect the industry. These technologies are getting to the point where customers can see the same benefits that are seen from traditional BPO, so providers now need to find the value-add they will bring, over and above just taking processes and automating them.

If the tried-and-true BPO business model is at risk of becoming extinct, how will this play into the contractual side of the coin?

“Setting up continuous improvement or optimization as a service in the contract allows vendors to lay out what is expected of them in terms of innovation,” said Hansen. “For example, you could provide to a customer an innovation program plan every six months that is intended to create cost savings or service improvements.”

Mistakes to Avoid in New Contracts

Customer-side negotiators are at risk of making some serious mistakes when negotiating for AI or RPA innovations. This often occurs because of the amount of work that goes into implementing these solutions.

“It’s pretty tempting to try to negotiate away any of the transformation activities that have to occur in order for the change to take place,” said Hansen, “but, to achieve the costs savings, you will have to implement some pretty serious technical solutions and process engineering. From a contractual point of view, it’s the right move, but from a business point of view, there has to be a certain amount of transformation in order to realize these benefits.”

Most existing contracts were not originally negotiated to contemplate RPA and AI, but may have some flexibility if there are terms for sharing cost savings between client and vendor, or if there is a bench-marking provision in place.

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With cost, it’s vital to determine who picks up the tab if things go wrong. “Any new introduction of automation during the course of the agreement should trigger a discussion of additional pricing reductions,” said Paul Roy, Partner at law firm Mayer Brown, during an interview with Bloomberg. “Determining where the balance is between those alternatives will be important for customers who want to achieve cost savings while mitigating risks.”

The industry knows that it’s only a matter of time before a substantial AI takeover happens, so preparing or amending your outsourcing agreements and contracts should be up there on your priority list.

Matt Kendall

During his 2+ years as Chief Editor at Nearshore Americas, Matt Kendall operated at the heart of both the Nearshore BPO and IT services industries, reporting on the most impactful stories and trends in the sector.

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