A new report from award winning global sourcing advisory and benchmarking firm, Alsbridge, Inc., reveals when you should reassess the pricing structure of your current outsourcing contract to determine if it requires updating, or an entire contract renegotiation.
“When your outsourcing
contract is no longer consistent with the market, or reaches the complexity
whereby the sheer vastness of add-ons exceeds the size of the original document
and becomes difficult to manage, it may be time for a contract renegotiation,”
says Ben Trowbridge, CEO, Alsbridge,
Inc.
As a result of defined baseline resource units in IT being standard, even amongst different commercial industries, market pricing comparison using all available IT agreements has begun to make more sense. The outcome is: Every 3 or 4 years, it is a good time to reassess the current agreement in place and its pricing structure, to determine if it requires updating, or entire contract renegotiation.
Creating and Analyzing the New Outsourcing Contract
Pricing Structure
To start out the
analysis for any change in pricing structure, the client must be able to analyze
the current pricing against the provider’s proposed pricing and be in the
position of comparing both scenarios against its own counter proposal. Analysis templates should be developed to
determine these respective impacts of change, to derive a pricing solution that
is amenable to both parties.
Upon reaching the final consensus on a new pricing structure in an outsourcing contract, the client will be in the position of being able to walk from defined market-based resources, to account for increased prices for the value added services and price reduction for excluded services.
Contractual Life Expectancy
Since the 1990’s, the contractual life expectancy on an average has been extended, though not significantly, as a result of the flexibilities built into agreements. In spite of that, the agreement may require fixes that are beyond the point of adding amendments, due to the rapidly changing IT industry environment. As a result, contract renegotiation and a new pricing structure may be the best alternative.
IT outsourcing
customers should be prepared to address these changes and create a pricing
structure with the provider to align with market and operations. This will create a better provider and
customer governance process to deliver results.
Read the full
report, “When
Should You Reassess Your Contract Pricing Structure?”
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.
