Appendix 3: Recommended elements to include in an Outsourcing Policy

Guardians of New Zealand Superannuation: Governance and management of the New Zealand Superannuation Fund.

The Guardians of New Zealand Superannuation’s Procurement Policy is currently being used as an Outsourcing Policy. We recommend that an Outsourcing Policy include further elements as outlined in the following table.

No. Recommended element
1 A clear definition of the criteria to determine that an external provider relationship exists. The definition should distinguish outsourcing relationships from general contracting or procurement relationships.
2 A process and criteria for selecting an external provider that includes:
  • focus;
  • industry reputation;
  • experience and competence;
  • support of the industry;
  • internal controls;
  • information delivery;
  • offshore or domestic;
  • geographic locations; and
  • culture.
3 Specific operational relationship management policies that include:
  • risk management, recognising that the Fund retains ownership of risk although activity is transferred;
  • scope of services/activities that can be outsourced to external providers;
  • concentration of services with one external provider;
  • minimum requirements that must be met by an applicant to provide outsourcing services; and
  • a distinction between external providers for operational and support functions.
4 Performance and risk reporting elements that include performance and risk management reporting is to be agreed with external providers who are contracted to perform operational processes (that is, part of the day-to-day business operations).
5 Relationship manager responsibilities, such as:
  • maintaining appropriate levels of regular contact;
  • executing the agreed performance monitoring processes with the external provider; and
  • dealing with issues as they arise and elevating them to senior management when required.
6 Performance management elements, such as:
  • a regular review of the performance measures based on changes in processing methods, issues identified throughout the review period, and any new requirements; and
  • reviewing and updating the service level agreement, and agreeing new performance measures for all new products.
7 External providers are to be selected through a tender process that includes short-listing bidders based on predetermined selection criteria.
8 Include key factors, based on the business case to outsource, in the outsourcing agreement.
9 Minimum reporting criteria for special outsourcing relationships (for example, for Custodian outsourcing or compliance management).
10 Requirements for outsourcing agreements, such as:
  • a clause allowing for periodic review of the agreement within the term of the contract and renegotiation if appropriate;
  • minimum performance benchmarks;
  • arrangements to terminate the agreements;
  • arrangements for any sub-contracting or outsourcing by the external provider, including specific rules or limitations to such arrangements;
  • application of minimum security and confidentiality of information requirements to sub-contractors; and
  • formal dispute resolution mechanisms.
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