Alsbridge, Inc. Reveals the Five “Gotchas” When Negotiating an Outsourcing Agreement

Leading global sourcing advisory and benchmarking firm, Alsbridge, Inc., today announced a new report which identifies five “gotchas” that can occur during the outsourcing contract negotiation process.

Negotiating a successful outsourcing contract involves much more than just achieving a desired price. Reducing cost is typically the primary value proposition for outsourcing, along with an outsourcing contract that allows you to realize your immediate and long-term delivery needs, provides contract flexibility and ensures maximum value for money spent, according to a new report released by Alsbridge, Inc.

How can an organization meet the objectives of an outsourcing contract negotiation? Alsbridge Inc. has identified five “gotchas” that can potentially keep you from conducting a successful outsourcing contract negotiation:

1) Statement of Work - A Statement of Work (SOW) describes in great detail the services to be performed by the provider and also clarifies certain client responsibilities.

2) Service Levels - Service levels work in conjunction with the SOW to scope the services that the provider will deliver.  They describe how much and to what extent the services described in the SOW are delivered.  

3) Termination Language - Termination language is analogous to a prenuptial agreement; just in case things do not work out as originally intended and can be manipulated towards the end of an outsourcing contract negotiation in order to get preferred price.

4) Future Pricing - IT costs should go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation, and so forth.  Because each situation is different, there are no easy “rules of thumb” to apply, but pay close attention to these specific areas:
              •    Year-over-Year Pricing
              •    Cost of Living Allowance (COLA)
              •    Variance Pricing

5) Delivery Locations - A provider may want to include the freedom to deliver whatever location they see fit in an outsourcing contract negotiation. Due to the risk of potential business impact, buyers should have approval prior to the movement of support functions

“These areas of the agreement, if not carefully structured, can drain value from your business case and decrease the probability of having a successful and sustainable outsourcing negotiation,” said Ben Trowbridge, CEO, Alsbridge, Inc. “Due to the variations and complexity inherent in each deal you should strongly consider the use of an outside outsourcing advisor to help. Because they understand your perspective as well as the providers’ point of view, they are ideally positioned to help manage through these items and develop an outsourcing agreement that works well for both you and the provider.”

Read full report from Alsbridge, Inc.

About Alsbridge Inc.

Alsbridge provides world class sourcing advisory and benchmarking services for the CIO, CFO and CPO.  We’ve helped hundreds of companies reduce costs and get more value from their vendors.  Our experienced consultants leverage proprietary tools and information databases to identify and engage the optimal vendors for your situation, negotiate best practice terms at fair market prices, and improve the way you work with your vendors.  Alsbridge clients utilize the most cost effective and value added sources globally for IT infrastructure services, hardware and maintenance, network services, software and maintenance, application support and development, business processes and cloud services. Alsbridge was ranked the #1 outsourcing advisor in the world by the International Association of Outsourcing Professionals (IAOP) based on the value delivered to clients.  This commitment to delivering value to our clients has made Alsbridge a distinguished member of the 2010 Inc. 500 fastest growing privately held companies in America.