Only SIG members can listen to archived recordings of their webinars. If you are a member, you’re in luck. If not, it’s not too late to register for an upcoming webinar – they do one each Tuesday. The following are our notes from attending this week's event.
SIG Webinar: Renegotiating Existing [Outsourcing] Agreements
Speakers: Kevin Rang and Paul Roy, both with Mayer Brown, a Business Process Outsourcing firm.
Renegotiation v. Recompetition
- Renegotiation is when you sit down with your current supplier and re-examine the term and commercial aspects of their contract, renewing the agreement for a new length of time. ½ of all outsourcing contracts in 2010 went through renegotiation. Of those, 85-90% stayed with the incumbent supplier.
- Recompetition is when you take the service back through the RFP process, bringing other suppliers in to submit proposals and pricing.
Renegotiation is different than the original negotiation and requires different skills from the buying company. The incumbent supplier is associated with a balance of ‘baggage’ and advantage from having been in place. The second time around, the service requirements are likely much better defined. In the case of outsourcing, the supplier may now have more knowledge of the function than the client.
Value Opportunities and Challenges:
- Improve the contract itself (function, relationship & outsourcing trends may have changed since your last contract took effect
- Depending upon the amount of outsourcing your company has done, you may have a general contract that applies across all functions with a specialized addendum for each function. Having one basic contract for outsourcing helps consistently manage governance and risk
- You may be able to take advantage of new suppliers, increased performance standards, market standards, increased flexibility with regard to acquisitions and divestitures, and product/service changes by geography
- Consider what has changed about your management team or their attitude towards outsourcing
- There should be a formal process – one that requires project leaders to inventory the involved groups and their priorities.
In the end, most people just renegotiate (or extend current contracts) rather than recompete. A few other things to keep in mind:
- Embedded suppliers may have access to competitive data, either through access to your network or their physical presence
- While you are either recompleting or renegotiating, make the most of having access to the ‘architects’ at a supplier – the thinkers that only get involved when a deal is up for renewal.
- Deadlines will be much less flexible than they were when you sourced initially
- Get your executives involved in the right ways and at the right times with incumbent and potential suppliers.