Tech & Sourcing @ Morgan Lewis


Whether due to an upcoming contract expiration, change in leadership, decline in service quality, regulatory issues, or any of the other many events that occur during an outsourcing engagement, invariably, the original agreement with the service provider must be modified.  In a recent post, Garry Stanis of ISG highlighted issues that need to be considered before entering into any such renegotiations, including:

  • Outsourcing Objectives.  The first question is whether or not the outsourcing should continue.  Clients should build a strategic consensus around the outsourcing objectives and determine whether certain services continue to be necessary, should continue to be outsourced or brought back in-house.
  • Align Services with Current Needs.  Market changes will impact the renegotiation. Developments in automation, SaaS solutions and other emerging technology have greatly changed how services are provided. Often services that required teams of personnel or large datacenters can be handled in a more efficient and effective manner by different providers offering new solutions.  All options available in the market should be considered before beginning a renegotiation.   
  • Evaluate the Relationship.  Clients should review the relationship that exists with the service provider to develop an understanding of what is going well and what needs improvement.  Complacencies can develop with long term relationships that need to be addressed. Use the renegotiation as an opportunity to improve (and even transform) the relationship.
  • Plan Ahead.  It is important to calendar upcoming expiration and potential termination dates to avoid surprises and provide for adequate time to properly prepare.  A timeline should be established for internal discussions on renewal options, renegotiation, risks of letting the agreement expire, or engaging a new service provider. 

Any renegotiation of an outsourcing deal must be looked at as an opportunity to improve the services that are being provided and the service provider relationship.  Addressing the issues cited above and proper advanced planning increases the chances for a successful renegotiation.