By George Kimball, Partner, Baker & McKenzie LLP

As many as one-fifth of outsourcing clients are dissatisfied with their sourcing contracts. Nonetheless, incumbent sourcing providers are rarely displaced (with some notable exceptions). Why is this so?

Often, presumably, incumbents perform satisfactorily, and there is much wisdom in the maxim "if it isn't broken, don't fix it." Incumbents enjoy huge practical advantages over any competitor, including inertia and intimate knowledge of the customer's business. Changing suppliers, moreover, is often complicated, disruptive and costly. Small wonder that even dissatisfied customers may prefer, or at least settle for, "the devil they know."

Faced with these realities, what can customers do to improve their position when contracts lapse? Skilled negotiators know the importance of having an alternative and being properly prepared for a contract renegotiation. Otherwise, one becomes a captive, dependent upon the other side's goodwill and willingness to make unilateral concessions. The crucial thing, therefore, is to create bargaining leverage in the form of credible alternatives to the contract provisions, without damaging existing relationships that, in the end, are likely to survive.

Surprisingly, few customers actually read the contract terms. Rather, they put the document in a drawer and leave it there - unread and unused. This is a pity, since many contracts contain provisions that anticipate expiration or renegotiation, and provide leverage when those opportunities appear. This article provides a list of common contract provisions as well as tips on how to go about improving those contract terms.