While many companies default to renewing their current contracts with outsourcing providers, recent advances in the industry often make renewal an unwise decision. In recent years, providers have been able to provide better services for lower costs and contracts now more than ever protect the interests of both providers and clients. Buyers must often enter into strenuous negotiations in order to take advantage of these advances, but the benefits should not be ignored. Some companies may even want to rebid should their current providers prove unwilling to negotiate. Before beginning the process, clients should generally perform a comprehensive market benchmarking assessment, understanding how their services and pricing structure compare to those of other providers.
Other important issues to consider include legal protection, efficiency, and security. Before beginning the renegotiation process, businesses must ensure that they have a good relationship with the service provider and state intentions as soon as possible to avoid hard feelings. Clients naturally have less leverage during renegotiations than rebids, making it imperative that they use their market analysis to outline the exact changes they wish to see and use the benchmarking as support. They should ask the provider to respond to all suggested changes in writing and then respond promptly to the reply, stating the conditions that must be met before proceeding.
If uncomfortable with the renegotiation process, businesses may opt for competitive procurement. Otherwise, they should create a rigid schedule for the renegotiation process and begin right away by sending an amended legal agreement to the provider. Clients must always maintain their right to competitive procurement should the renegotiation not make rates and services and par with the market and fair to both parties involved. Even if the result does not prove market competitive, many companies choose to accept the new agreement to maintain a good relationship with the provider.
Renewal becomes a great option when market analyses show the current contract comparable to those of competing providers and the company has a positive relationship with the provider. Others may renew due to certain constraints on the business that make it unwise to change service providers. Generally, renewals should only last another one or two years. Should renegotiation fail and renewal not remain a viable option, clients may begin the rebid process. This does not preclude signing a new contract with the same provider.
Instead, it means that clients will seriously consider offers from other providers, forcing the current provider to become more competitive. During the process, businesses must create a legal agreement covering terms, pricing, and service level agreements, as well as a Request for Proposal (RFP), which includes instructions to potential providers and outlines IT needs. The rebid process almost always results in considerable savings, but may damage relations with the current provider.
About the Author: Ben Trowbridge founded Alsbridge, Inc., the Dallas, Texas-based global consulting firm with expertise in sourcing and benchmarking. Mr. Trowbridge’s company will be hosting the 2011 Alsbridge OL Summit for CIOs in four cities. The theme will be “Cloud Sourcing: Harnessing the Forces of Change for Competitive Advantage.”