How to get the best out of your outsourcing provider
Entering into a long-term outsource deal is like a marriage, requiring commitment and flexibility from both parties.
Successful outsourcing deals are built on contract flexibility, price control and good service. Contract terms need to be negotiated carefully so there is a fair balance of power between all parties ensuring everyone obtains value from the outsource deal throughout the contract term. Get this wrong and the provider may start cutting corners if they find themselves in a loss making deal.
At DMW we help our clients with a variety of mechanisms during contract negotiations to ensure a successful relationship is built and maintained throughout the term of the deal. Some example mechanisms are:-
Service Descriptions are a key ingredient as these should explain in detail what the supplier is to deliver and what the client is to receive in the way of services. Get this wrong and disagreements can often occur concerning supplier responsibilities. It’s therefore essential that Service Descriptions are free from ambiguity and explain in detail what service shall be delivered in a clear and concise manner.
Service Levels and Credits are important to ensure that service quality is maintained and the performance of the supplier is continually measured. Service Levels incentivise a supplier to perform and ensure that the client gets the service they are expecting.
Benchmarking is an important mechanism for ensuring that a client is receiving a good service at a price that is comparative with the market. This is especially important where a long term contract is being negotiated. Benchmarking outcomes should be clearly and transparently defined ensuring the terms of the clause are actionable and realistic.
Cost Controls are key for providing flexibility during the contract term. Mechanisms such as “Arcs and Rooks” allow for controlled flexibility where there is a significant change in the scope of the service.[i] Obtaining an accurate view of the baseline volumes is critical prior to entering into a contract, as is maintaining this view over the contract term. Having the right tools in place to support this need is essential.
Governance is essential to review performance and deal with escalations that could cause potential dispute. Whilst a contract should always have carefully constructed break clauses and termination rights, a sound governance process should prevent these mechanisms from ever being executed.
Plan ahead to the end of the contract when, should you decide to move to another supplier or insource, adequate disengagement services are provided to support any transition away from the incumbent supplier.
DMW has extensive experience supporting enterprise organizations through complex outsourcing programmes, from sourcing and contracting through to transition and transformation delivery. If you’re starting an outsourcing programme, please contact us to understand how we can help you gain the maximum value from your new arrangements.
[i] ARC/RRCs is a mechanism designed to accommodate changes in consumption (+ / -) of the services during the term:
- ARC – Additional Resource Charge
- RRC – Reduced Resource Credit
- Resource Units are assigned to particular functions – e.g. one supported desktop = one resource unit