A new report from award winning global sourcing advisory and benchmarking firm, Alsbridge, Inc., reveals when you should reassess the pricing structure of your current outsourcing contract to determine if it requires updating, or an entire contract renegotiation.
“When your outsourcing contract is no longer consistent with the market, or reaches the complexity whereby the sheer vastness of add-ons exceeds the size of the original document and becomes difficult to manage, it may be time for a contract renegotiation,” says Ben Trowbridge, CEO, Alsbridge, Inc.
As a result of defined baseline resource units in IT being standard, even amongst different commercial industries, market pricing comparison using all available IT agreements has begun to make more sense. The outcome is: Every 3 or 4 years, it is a good time to reassess the current agreement in place and its pricing structure, to determine if it requires updating, or entire contract renegotiation.
Creating and Analyzing the New Outsourcing Contract Pricing Structure
To start out the analysis for any change in pricing structure, the client must be able to analyze the current pricing against the provider’s proposed pricing and be in the position of comparing both scenarios against its own counter proposal. Analysis templates should be developed to determine these respective impacts of change, to derive a pricing solution that is amenable to both parties.
Upon reaching the final consensus on a new pricing structure in an outsourcing contract, the client will be in the position of being able to walk from defined market-based resources, to account for increased prices for the value added services and price reduction for excluded services.
Contractual Life Expectancy
Since the 1990’s, the contractual life expectancy on an average has been extended, though not significantly, as a result of the flexibilities built into agreements. In spite of that, the agreement may require fixes that are beyond the point of adding amendments, due to the rapidly changing IT industry environment. As a result, contract renegotiation and a new pricing structure may be the best alternative.
IT outsourcing customers should be prepared to address these changes and create a pricing structure with the provider to align with market and operations. This will create a better provider and customer governance process to deliver results.
Read the full report, “When Should You Reassess Your Contract Pricing Structure?”
About Alsbridge Inc.
Alsbridge provides world class sourcing advisory and benchmarking services for the CIO, CFO and CPO. We’ve helped hundreds of companies reduce costs and get more value from their vendors. Our experienced consultants leverage proprietary tools and information databases to identify and engage the optimal vendors for your situation, negotiate best practice terms at fair market prices, and improve the way you work with your vendors. Alsbridge clients utilize the most cost effective and value added sources globally for IT infrastructure services, hardware and maintenance, network services, software and maintenance, application support and development, business processes and cloud services. Alsbridge was ranked the #1 outsourcing advisor in the world by the International Association of Outsourcing Professionals (IAOP) based on the value delivered to clients. This commitment to delivering value to our clients has made Alsbridge a distinguished member of the 2010 Inc. 500 fastest growing privately held companies in America.