Renewing an outsourcing contract provides businesses with an opportunity to revive existing deals and transform the quality of their IT services.
The key to businesses getting what they want when renewing their contract lies in good preparation for negotiations with their supplier, according to outsourcing advisory firm TPI. Debora Card, associate partner at TPI, said it is vital for organisations to fully research what alternative suppliers have to offer before starting negotiations to renew an existing deal.
She said: “Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically and tactically feasible.”
Here is a summary of Card’s tips on how to get a good deal when renewing an outsourcing contract.
Businesses should start planning for contract negotiations with their existing outsourcing supplier more than a year before the deal is due to expire.
This will leave enough time to pass the service to another supplier or to bring it back in-house.
In general, firms need to start renewal planning 15 to 24 months before contract expires for single process transactions, and 24 to 36 months before it expires for more complicated multi-process deals.
To calculate when to start planning for negotiations, businesses need to add nine to 12 months to the time it would take to transition to a new provider or to bring the service back in-house.
Do your homework
Businesses should gather data on the performance of suppliers in other outsourcing deals and evaluate how well their supplier measures up to industry standards.
Being aware of other pricing and service level agreements will help businesses understand what they should be asking from their supplier, and what alternative deals are available.
For example this could include looking at alternative providers, or what niche systems are available.
Having alternatives to continuing with the existing supplier will also increase the organisation’s bargaining power.
When examining alternative outsourcing deals businesses should take care to weigh up the risks and benefits of moving to a new supplier.
Realign with reality
Chances are that not everything a business plans for in its original contract will have materialised.
It could be that the business has grown or shrunk against expectations, that standardisation of IT services has not happened or that services are not up and running in as many locations as was contracted for.
What is important is to realign expectations of what the contract should deliver in future with the existing reality, and not what was originally planned for.
This could mean renegotiating pricing structures, the addition or removal of services to better match the supplier’s capabilities or other realignment of responsibilities.
Clear up woolly contracts
Problems often arise with outsourcing contracts because they do not define precisely enough what services should be delivered.
Because of this there will often be a number of areas where businesses and their supplier disagree on the nature of the outsourcing contract.
Typically these misunderstandings occur in areas such as the scope of services the supplier provides and how to manage the deal.
Businesses should use their experience of working with the supplier to clarify woolly areas of the contract so both sides know precisely what the contract should deliver.
Work it out with your supplier
After collecting market data, weighing up different options and clarifying expectations it’s time for businesses to present the new terms for the contract to the supplier.
It is important for businesses to document their expectations for changes to pricing, scope, terms, SLAs and management, and to lay out their new timeline for service delivery.
Organisations should ask for a formal, written response from the supplier on all requirements.
Negotiations should continue until the supplier agrees to the terms of the new strategy or businesses find they need to consider an alternative way of providing the service.