Renegotiations/restructuring now accounts for over half of the IT outsourcing contract value in Europe. Suppliers are largely driving this by approaching existing clients and offering them the opportunity to sit down and renegotiate contracts.
Suppliers are keen because there is no new business out there and if they start losing business they are in trouble.
So they are instigating renegotiation discussions. It is therefore critical that CIOs have a clear vision of what the business needs. A CIO might want to break-up an all-encompassing contract to get a better insight in the costs associated with different components. This might help them cut costs associated with different service lines rather than just try and cut the overall cost. Or perhaps the CIO might want to use a different delivery model such as the cloud.
Whatever the case may be below is some advice provided by industry experts about renegotiating contracts.
“Be prepared to concede certain aspects (increasing the term, adding to the scope, simplifying measurement criteria, etc) in order to secure a more flexible, agile, accountable contract. Absolutely check out the financial stability of your supplier before signing anything – two major names could go before year end. Get expert legal and sourcing advice as to the real auditability and step in-rights that you have.”
“Be very clear on what the reasons for the renegotiation are and what the objectives from it will be; try to do a once and for all re-baselining taking into account all issues, rather than death by a thousand cuts. Think laterally about what changes could be made.”
“The most important thing for a company considering renegotiations is to have a clear understanding of their objectives, and what they want to get out of the restructured IT outsourcing contract. A successful renegotiation also relies on creating financial leverage, a willingness to execute viable alternatives and a strong commercial relationship with the supplier. Another significant factor is time. Whether mid-term or end-term, companies must ensure that they allow enough time to analyse and understand all factors, which might impact the new contract and to fully engage their internal stakeholders to ensure the best possible outcome.”
“It is easy to get caught up in the renegotiations process, but it should be remembered that not everything is negotiable – a company must decide on its priorities and negotiate to build a workable solution and sourcing relationship, not to win a battle.”
“Build a deeper, more forward-looking, and business-relevant understanding of the points of difference and parity between IT services firms; demand more flexibility and pro-activeness from IT services vendors; direct more attention toward productivity improvements, not just cost reduction; seek and leverage more aggressively operating and business model innovations; collaborate with IT services vendors to co-create new capabilities in areas that matter; and demand constant improvement and global best practices.”
“Plan properly for the re-negotiation, and understand what you want to get out of the process; have the right people (ie: key subject matter experts as well as stakeholders and management) involved in the negotiations; accept some give and take in the process; allow enough time to properly discuss the issues – don’t leave this until a month before the contract is due to end; and read the contract thoroughly to ensure that you are capturing all the consequential changes that might need to be made.”
If you have any advice, feel free to leave a comment.
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