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Tech & Sourcing @ Morgan Lewis


As business needs and the associated information technologies required to support businesses continue to rapidly evolve, companies may find themselves with outsourcing contracts that no longer adequately serve their needs but that have years remaining before expiration. A recent article highlights five factors that companies should consider when determining whether and how to renegotiate an existing IT outsourcing contract:

  • Resolutioning. Companies may consider renegotiating existing deals to provide for new delivery mechanisms for IT services, such as cloud computing, or emerging trends, such as the use of autonomics.
  • Resourcing. It may be more efficient or cost-effective to consider alternative providers to perform some or all IT services under an existing contract.
  • Restructuring. Companies should consider organizing outsourcing contracts around an outcome-based model, focusing on factors that matter to a business rather than around technology services levels to give companies greater control over the services they purchase.
  • Retrofitting. Rather than seeking out additional contracts for new technologies that are important to a business, companies should consider layering the provision of those new technologies into existing deals.
  • Reconciling. Companies should renegotiate existing terms of outsourcing contracts where price and performance are misaligned and when business needs have increased or decreased.

When a company chooses to renegotiate an existing outsourcing contract, it should ensure that it has adequate internal procedures in place to manage changes to business processes, as well as adequate internal talent to manage the updated service model. Companies should consult with their legal advisers about best practices for approaching a service provider to preserve negotiating leverage, as well as about strategies for renegotiating termination fees and other sunk costs built into outsourcing contracts that might otherwise offset the savings gained from the new agreement.