With the pioneers of IT and business process outsourcing operating under contracts that were enacted five to 10 years ago, the time has come for outsourcing agreements to be refreshed, says Houston-based Equaterra. The rapid pace of technological advancement put outsourcing relationships under the guidance of agreements formed in a completely different era. Even contracts as new as three years old are reaching maturity and demand reworking, the outsourcing advisory firm says. According to Equaterra, renegotiation of outsourcing contracts should be triggered under five circumstances:
1. Expiration. Because the term of the contract is looming, renegotiations are driven by the calendar.
2. Performance. The client experiences or perceives performance failures, nonresponsiveness from the service provider, or instability in the provider's management or delivery team.
3. Economic.The client or provider believes that some or all elements of pricing are out of line with the current marketplace.
4. Events. A significant change on the client side impacts the client's business operations and requires contract adaptations. These include a merger, acquisition, divestiture, restructuring, bankruptcy, management change, or major volume increase or decrease.
5. Contractual. Negotiations are simply built into the contract at certain dates. <<<