Contracting Tips: Engage Due Diligence and Predefined Strategy for Outsourcing Renegotiation and Resourcing Success
As the outsourcing industry matures and contracts run their full cycles, we have seen an influx of deals that are expiring or up for renegotiation or resourcing. How can legal and sourcing leads prepare for an upcoming renegotiation or resourcing project? Read on for three tips to help get a leap on these projects.
Tip #1: Time is on your side. Know what your lead times are and use them.
We all know what it is like to be told that a new agreement needs to be put into place in an unreasonable time frame because the existing agreement is expiring or there is a limited window for a renegotiation trigger. We also know this puts us in a tough position when it comes to leverage. It is important to manage your timelines in a way that does not let you lose leverage.
Know when your contracts are up for renewal or renegotiation, and back into a reasonable time frame for those processes. For example, outsourcing deals can take between six weeks to six months to negotiate (and that does not necessarily include internal strategy sessions or internal stakeholder meetings). Determine the complexity of your deal and how much time is needed for the project. Then give yourself a buffer, and develop a project timeline.
Many customers have implemented systems or engaged internal or external procurement resources to track and manage upcoming expirations or triggers for renegotiation. Obtaining 6-, 12-, 18-, and 24-month views is critical. Use the reports and logs that are provided to map out your planning, and watch out for auto-renewals.
Tip #2: Read your existing contract. What are your strengths (and weaknesses)?
Your existing contract may be your friend, your enemy, or both when mapping out your renegotiation or resourcing strategy. It is important that the sourcing and negotiation teams read what the contract says about the following:
The term: When does it expire/automatically renew? Are there any extension rights? What are the notice requirements?
Termination: Do you have the right to terminate early? Can you terminate for convenience or other triggering events? What are the notice periods?
Renegotiation triggers: Are there toll gates or other events that may trigger a renegotiation or an early out? Examples may include increased/decreased volumes, end of a pilot period or implementation period, or unfavorable benchmarking results.
Termination fees: Are there any, and what triggers them? What do they include (breakage/balance sheet)? Do they include all wind down, including stranded assets/people, or are those costs incremental or not recoverable?
Termination assistance: Does it include existing services or only wind-down assistance? What is the time period?
Can it be extended? Do minimums or volume requirements apply during termination assistance?
Tip #3: Make sure you have the rights to what you need going forward.
This is really a follow-on to Tip #2. It is important to read your contract and ensure that you have the rights to the data (client data, performance data, knowledge bases), software, IP addresses/phone numbers, documents, manuals, people, and assets that you need. This exercise can help in two ways:
1. It can act as a checkpoint to see if you have what you need in case you want to transition away from your providers.
2. It can provide a list of things that you want to add to your new or renegotiated contract.