As the use of digital publishing in various formats continues to rapidly expand, many publishers are realising that they do not have the technical skills required to produce, post and syndicate digital publications with the efficiency required for this developing and highly competitive market. Questions on Kindle, iPad, how to convert PDF to XML, epub format issues and the like are bouncing around the industry day in day out. Many publishers increasingly look to outsourced solutions. But what kind of outsourced deal does the publisher need, an input deal or an output (or outcomes) deal? Get the answer to this question wrong, and the whole future of the publishing house could be put in jeopardy.
Traditionally the outsourcing of services (and particularly IT-based services) for most companies has started with the realisation that certain functions currently carried on within the organisation could be moved to a third-party provider without reduction in service quality but with a possibly considerable reduction in cost. In this scenario the organisation knows what these functions do, how they operate and, crucially, how they interact with other parts of the business. All that is required, in principle, is that the third party provider replicates the existing services. In many cases staff employed by the organisation are taken on by the provider to ensure continuity (that transfer of employees often being mandated by European law).
However, this is not necessarily the case when outsourcing digital publishing services. The skills and functions required for many of the new and emerging formats do not exist, and never have existed, within the publishing house itself. This, in fact, is not an outsourcing in the traditional sense at all. What is being “outsourced” are some of the aspects of the publishing function, but not the detailed services themselves, which are new. However, all too often publishing houses are issuing ITT’s that contain highly detailed technical requirements relating to new formats and technologies which, in truth, they have no experience of. The job of the service provider is then made easy; it must match the technical requirements, but that’s all. Whether the service provided actually meets the evolving needs of the publishing house is quite a separate matter, and the risk of getting it wrong is entirely with the publishing house itself.
A recently decided Australian High Court case illustrates how a publishing house, or indeed any customer of outsourced services, can avoid this risk. The case involved a water company outsourcing call centre services from a specialist service provider. Rather than specify precisely how telephone calls and other communications were to be dealt with, in its ITT the water company simply listed a series of business “outcomes” which the successful provider had to produce; how it produced those outcomes was a matter entirely for the provider. The contract awarded was for 3 years on a fixed-price basis.
Things went wrong, outcomes were not produced and eventually the water company terminated the contract. The service provider sued on the basis that the information it had been given by the water company in the ITT included to misrepresentations – in other words, it had been misled by the water company into entering into the contract and promising the outcomes for the fixed-price. The alleged misrepresentations related to the number and nature of the calls that the water company usually received and the fact that this pattern would continue.
The service provider’s claims failed in their entirety. The court recognised that a key factor in the outsourcing arrangement here was that it was based on “outcomes”, and that meant that the service provider was under a duty either to carry out adequate due diligence prior to entering into the contract or to take the risk if it failed to do so. In the circumstances it had not been misled into entering the contract. It is very unlikely that an English court would have found differently.
The current rate of development of digital publishing mechanisms and models is considerable, and few outside the largest global publishing houses can keep up with this rate of change. The outsourcing of digital services is bound to increase, but the well advised publishing house will consider first just what it is that is being outsourced and on what terms.
© Taveners March 2010