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How to Prepare for the End of an Outsourcing Contract
When should you start working on your next outsourcing contract? Many organizations do not address the end of a contract until the last year of its term. However, this is a mistake.
Developing an end-of-term strategy for an outsourcing relationship is a complex task, because it is about much more than the contract. Creating an end-of-term strategy takes just as much, if not more planning and effort as the original outsourcing scope because you will need to take into consideration the complexities the current outsourcing relationship as well as the market changes and internal learnings.
This industry is not new to change, but never before has it experienced the number and magnitude of changes we have seen over the last decade. The approach that organizations take to address their end-of-term strategy should be based on adjusting to the constant changes in their businesses and the service delivery offerings that are available to address those needs.
Organizations experiencing an end-of-term event in the next 18-to-24 months must develop a detailed strategy that addresses not only the pending contract expiration but the internal and external pressures as well. They must complete an analysis to determine the correct direction.
Too many organizations look at the end of contract as just a pricing exercise when it is really an assessment of how an organization can realign the services it is currently receiving with its new requirements. That may be the time to continue to receive services from the incumbent as well as add new ones now available in the market. This article will walk you through how to conduct a proper end-of-term assessment that can determine the proper strategy.
Balancing the Risk and Reward of Outsourcing
The best outsourcing agreement for your organization is not necessarily the one with the lowest price. Your primary goal when negotiating and structuring an outsourcing contract is to develop an agreement that achieves your business objectives not just on day one but throughout the entire term.
This white paper will help you understand the overall construct of a good outsourcing contract so that you can make certain you balance the overall risks and rewards in order to receive the services you need, at the levels you require, and within your price constraints.
Consequential and Direct Losses in the BPO Environment
In any Business Process Outsourcing (BPO) project one of the issues guaranteed to excite both provider and customer is the scope of limitations of liability. Negotiating overall caps on liability is a straightforward commercial haggle.
Negotiating overall caps on sourcing liability is a straightforward commercial haggle. The service provider aims low, usually hiding behind the "market practice" and "corporate policy" defenses. The customer reacts with a high figure, which more closely reflects the likely loss to the customer's business of serious supplier failure, but which often fails to take into account the risk/reward analysis that the provider has to perform in evaluating whether to proceed with the deal. After a process of practical risk evaluation and confidence building the parties usually arrive at a compromise figure.
Once the cap is agreed it is surprising how often the parties pay little attention to the types of loss that may be recovered. Any service provider will expect to include in the contract some form of consequential loss exclusion. However, to simply rely on or accept the presence of a boilerplate clause excluding either party's liability for "special, indirect, consequential or incidental damages", without any further detailed discussion and drafting about specific losses which would or should fall outside such exclusion, could potentially leave both parties financially exposed. In Finance and Accounting outsourcing, for example, the supplier will usually be responsible for cash management functions, accounts receivable, accounts payable and a degree of financial reporting. A failure or delay by the provider could give rise to a variety of losses for the customer. An underpayment or failure to pay a third party supplier could give rise to interest charges, loss of early payment discounts, order cancellation or delay in product delivery (which in turn could give rise to production losses and possible loss of business for the customer).
A failure to collect receivables could give rise to financing or overdraft charges, or cash flow problems for the customer. Late provision of financial reports could affect the customer's ability to submit statutory accounts or tax returns with the consequent risk of fines or interest charges. Do these losses fall within or outside consequential loss exclusion?
Squeezing IT Infrastructure for Cost Savings: Is There More to Extract?
For the past 20 years or so, corporate management has looked to information technology (IT) services as a means to reduce overall annual costs. When all the internal cost reduction strategies had been squeezed dry, IT leaders turned to outsourcing to realize additional IT cost savings through leveraged service offerings, labor reductions via better tools and processes, and competition between the outsourcing service providers.
Once those IT cost savings were maximized, IT leaders went "offshore" to find even more IT cost reduction through labor arbitrage. Both offshore service providers and US-based service providers with offshore operations were able to offer IT cost savings over the onshore solutions due to lower labor costs of IT professionals located in parts of the world like India and Malaysia.
While there are some enterprise companies that have not fully leveraged outsourcing and/or offshoring to its full potential, most Fortune 500 companies have. These IT management teams have already been through several internal cycles of cost reduction strategies through layoffs, hardware/capital reductions, application rationalizations, consolidations, and more. And yet these companies are still seeking more opportunities to save IT costs in today's unsettled economic environment.
Due to the availability of better IT cost savings tools and the standardization of IT environments, IT leaders are beginning to examine the possibility of taking some services traditionally outsourced to a service provider out of their contracts and back in-house. This changing trend has clients asking outsourcing providers to further break down their pricing by the IT service towers to enable them to pick and choose what they want to have in-house and outsourced. This white paper will explain where you might be able to squeeze your infrastructure for more IT cost savings.
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