Tips for Renegotiating Technology Services Contracts

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Ever-evolving business and technology demands are forcing businesses to reassess and renegotiate their existing technology sourcing relationships. With expert predictions estimating more than $100 billion worth of renegotiated outsourcing contracts over the next few years, many companies have already lived through contract talks with their service providers. For those who have yet to face their provider across the negotiation table, thoughtful preparation now can help make those pending negotiations land on the side of “better.”

Whether renewing a legacy contract or starting from scratch, consider the following guidelines before you sign on with the same provider. Doing so will serve to best align your company’s changing needs with your provider’s evolving skillset.

#1 – Build Consensus In-House Before the Renegotiation

The best renegotiations with outside providers begin by ironing out any disagreements in-house. Start by engaging the core constituents and get everyone on the same page. Make sure to include:

• Key decision makers and senior management – These individuals need to know overall contract goals and the progress of the negotiations, especially if they are the ones signing on the bottom line.
• “On the ground” employees – Checking in with the people who interface with the outsource provider will provide valuable insight into any needed changes.
• Possible new constituents – Getting their input now will help with any changes needed in the future.

Create a formal contract management process before starting the renegotiation process to ensure that the company is negotiating with one voice. This includes establishing a comprehensive contract documentation system for tracking amendments, waivers, or other changes to the original agreement. You should also consider enacting policies that limit the list of personnel who can approve needed changes.

#2 – Formulate Clear Goals

After establishing consensus internally, work together and create a set of specific short- and long-term goals, independent of the terms of the existing contract and its expiration. Consider questions like:

  •  What method should be used to evaluate the provider’s performance?
  • Which services should be benchmarked in particular?
  • Which new technologies or industry practices should we adopt going forward?

Avoid general goal statements – be specific. Identify exact procedures that need to be followed to achieve broader goals. Make sure those terms become a part of the outsourcing relationship by including them in the parties’ contract.

#3 – Carefully Consider New Technologies

Technology has changed drastically since contracts were signed five years ago.. The technology sourcing sector has seen the rise of “digital disruptors” that have changed the way customers interact with providers and the way services are provided to customers. These digital disruptors include cloud computing, robotic automation, artificial intelligence and the Internet of Things.

Companies need to know their options and how they can help them meet their technology needs. And, while these new technologies provide opportunity, they also introduce risk that must be carefully considered before signing a new contract.

#4 – Avoid Operational and Contracting Risk

Companies should consider the operational risk when deciding to renew or move on. Providers may not be able to agree to any drastic changes in their operating models. In those situations, it may be better for both parties to part ways. Ask yourself:

  •  Has the provider experienced issues with other clients since the start of your agreement?
  • Will the provider’s operating model still be a good fit several years down the road?
  • Will the provider be open to changes and updates in its operating models, if necessary?
  • If so, will the provider be capable of executing those changes/updates?

Likewise, when considering new contracts with new providers, for new technologies, companies should stay alert for new digital age risks. For example, digital age contracts often don’t include the same types of service commitments as legacy contracts, especially when the provider is a technology startup. And, of course, digital age services include digital age issues such as cybersecurity and data privacy that must be dealt with on a contracting and operational level.

#5 – Engage Outside Expertise

Engaging competent outside advisers before and during the renegotiation process helps protect your company during negotiations and in the future. Many outside advisory firms specialize in renegotiating outsourcing contracts.

Careful planning before renegotiating an outsourcing contract may drive positive results for both parties involved. Developing consensus and identifying specific company goals bring focus and momentum to the negotiating table. Knowledge of new technology options, and their benefits and risks, can help meet new business needs. Using outside expertise to your advantage streamlines the negotiating process and decreases risk to your company. Following these measures can help companies achieve their goals during renegotiation, while sustaining a positive relationship with your technology services providers.

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