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Top 5 Tips for Effective Renewal of Outsourcing Contracts

by: Karen Cayamanda

Thursday, February 11, 2010 |

Outsourcing Contract Renewal

When it comes to renewal of outsourcing contracts, Debora Card, Associate Partner at outsourcing advisory firm TPI, said the key is to be prepared before negotiating with the supplier. “Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically, and tactically feasible and desirable; and from being ready, willing and able to execute against them.”

Here are Card’s top five tips to get the most out of contract renewal:

1.    Start early. If you start renewal planning early, you will have ample time to think about whether to outsource to a different service provider or move business process/es back in-house. For single-process transactions, Card said you need to work on renewal planning about a year before the contract expires. For multi-process transactions, start 24-36 months before expiration.

2.    Do your homework. Take a closer look at the current market and see if the relationship you have with your service provider is at par with industry standards when it comes to pricing and service level agreement. Know what alternative suppliers can offer and find out which can provide a better and more efficient solution for your business.

3.    Realign with reality. It is likely that there are expectations which are not met. This can happen to both parties. In renewing the contract, make sure to realign expectations and responsibilities. These can involve changes in pricing structure and services offered.

4.    Remove the fog. Have a crystal clear agreement. According to Card, parties commonly disagree on two primary areas: scope of services and management or governance. Be clear on your expectations so you will get what you contract for and avoid conflict in the future.

5.    Play out your hand. After analyzing the current market, evaluating the alternative providers, and determining your expectations, it’s time to communicate with your supplier. Make sure to document what you want to get in terms of pricing structure, scope of service, and management. It is also important to let the supplier know about your timeline for service delivery.

Don’t wait until the last minute. Be fully equipped with the right information about the existing environment and viable options before your existing contract expires.

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