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Three Tips for Renegotiating Outsourcing Contracts

Ann All

Last month, in a post about a new spending report from Forrester Research, I noted that 70 percent of companies surveyed by Forrester intended to wring further value from their relationships with services providers by renegotiating their contracts.

A recent CIO.com piece offers three great tips on doing so from David Patzwald, CIO of Schneider Electric North America:

  • Include executives other than the CIO. If you can get the CFO or even the CEO to the table, Patzwald suggests, vendors will approach negotiations differently and in a way that benefits your company.
  • Create metrics for both financial and broader "relationship" satisfaction and balance them to ensure that one doesn't suffer at the expense of the other.
  • Seek vendor input when making key decisions such as whether to extend legacy applications or if a project should be ended.

I like Patzwald's advice because it suggests that there should be more to outsourcing initiatives than trying to get the lowest cost possible, a point I make frequently in this blog and one that's no less true despite the currently harsh economic environment.

 

Patzwald's third suggestion was echoed in an interview I did last year with Ben Trowbridge, CEO Americas for Alsbridge. Trowbridge said providers may be able to suggest changes that can save them, and you, money. The interview is well worth a read for further ideas on contract renegotiation. Another tip from Trowbridge: Maintain an overall sourcing strategy with timing, including a date that will be a "go" or "no-go" with your current provider. He said:

You're not doing that to be overly aggressive with them. Often the incumbent provider is making money with the current contract, it's not in their interest to change at this point, so you have to give them a little nudge. Having a strategy and sticking to it helps.

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