Alsbridge Reveals How to Combat the 7 Deadly Sins of Outsourcing Contracts

Alsbridge, Inc. says a surprising number of outsourcing contracts are poorly negotiated, resulting in an ineffective agreement for the client as well as the outsourcing provider.  

“Alsbridge CEO Ben Trowbridge says, “Having a contract that details the services you need, the governance that is required, and an agreement as to what happens if things go wrong is critical in the outsourcing industry.” 

Trowbridge, who has personally negotiated more than 200 outsourcing agreements totaling $15 billion says there ways to combat the 7 deadly sins of outsourcing contracts.

1. Don’t underestimate the value of an outsourcing advisory firm. Advisory firms eat, sleep, and breathe outsourcing. They know which providers can meet your needs and what is happening in the market.  With their deep industry expertise, these advisors have the essential processes, knowledge and experience needed to acquire a market leading deal. Also, these advisors have knowledge about pricing, services considered standard in the industry, service levels, and all other business aspect of outsourcing.
2. Find a legal eagle. Similar to outsourcing advisory firms, outsourcing legal firms understand the nuances of contract language and often have experience understanding how courts have interpreted contract language. Hiring an external counsel that specializes in outsourcing will help you avoid issues down the road.
3. Tap your people power. Outsourcing advisors understand the business.  Outsourcing lawyers understand the legalities. Your top people truly understand the details and nuances of your particular business environment. Make them available during preparation, provider selection, negotiations, and transition. 
4. Get the facts.  Fact-based, business focused negotiations have the best outcome for all of the parties involved.  Rely on the outsourcing advisors to provide facts about the current state of the market and legal advisors know the current Master Service Agreement (MSA), terms that are being agreed upon.  Occasionally when a provider deals with a client that does not have advisors, they will claim all sorts of things to be either unheard or always done in the industry.  Your advisor and counsel can cite specific examples of how something has been done in other contracts.
5. Stick to standards.  Pushing for unique services may limit the providers’ ability to leverage global capabilities, utilize leveraged (as opposed to dedicated) resources, and increase the price you pay.  An outsourcing advisor can help you determine what is standard and in the industry and what services may cost you more.
6. Be clear about pricing. There is value in understanding how the provider comes up with a price.  For dedicated environments, you want the services priced separately from the infrastructure required to provide the services.  Unless you have more buying power than your provider for hardware and software, consider having them procure these for you in a pass through model where they have some small mark-up or transaction fee.  As providers are coming online with cloud/utility pricing, you want to be sure that you are not funding their entire infrastructure.  You only want to pay for your fair portion of the infrastructure.
7. Be a good partner.  When your negotiations are fact-based and business focused as mentioned above, there is no real need for the histrionics of negotiating.  Keep in mind that you are contracting for a critical partnership that has a huge impact on your business.  Although it may be cliché, it’s true that an outsourcing relationship is like a marriage – and the outsourcing contract is akin to a prenuptial agreement. Contract negotiation is an opportunity to begin building a trusting and mutually beneficial relationship.

“Getting it right the first time is worth the time and effort required to do so,” Trowbridge concludes.

About Alsbridge

Alsbridge, Inc. is an award-winning global advisory firm that has redefined the way companies reduce costs and improve back office operations.  Our proprietary benchmarking tools and data resources enable clients to utilize the most cost effective and value added sources globally for information technology, business processes and telecommunications networks.   Through a combination of internal optimization and outsourcing, our clients achieve cost savings that support their strategic business objectives.

Founded in 2003, Alsbridge is the proven, effective difference. The company’s web site is: www.alsbridge.com.