As our experience at Softheme and the practice of other industry specialists shows, the best time for customers to bargain with an outsourcing service provider for better contract terms – service quality or prices – is the contract end days. Not many customers know about this hint, but those who take advantage of this option not always do everything right.  That’s why we would like to offer the six proven practices how to turn the last days of your deal to advantage.

First of all, let’s clarify why the contract end days are so beneficial for a customer. It’s simple and true. As the contract due date becomes closer, the client gets more power over the deal and the service provider since there is no threat of contract termination fees or other penalties and the customers can easily consider services of alternative outsourcing vendors or try to negotiate new terms beneficial for them.

Yet, outsourcing providers usually know how complicated it is for customers to actually terminate the agreement. This is due to high risks and costs a customer faces associated with replacing the service provider. Eventually, the majority outsourcing customers terminate the deal after the agreement due date and fail to take the full advantage of an outsourcing contract’s end. Instead, contract renewal with the existing service provider and getting the nominal discount is a simple, risk-free and surely a much better solution.

At the same time, outsourcing customers shouldn’t take this option as an opportunity to demand impossible rate cuts disparate with provided services or business requirements, since that can lead to a serious headache. When the project becomes unprofitable for service providers, it will be very little motivation for them to deliver quality service.

In order to avoid any problems associated with contract termination and take advantage of a deal that is about to expire, consider these proven practices above:

1. Baseline your existing performance: Analyze you operation in detail before implementing a change. Ideally, the analysis should be started 18 to 24 months prior to the deal expiration. This will give you a better picture of where you are in regards to the market, business priorities and leading practices.
2. Develop a viable sourcing strategy: Using the baseline data, define what your current and future needs are; evaluate all the benefits, risk, price and change management issues of the options available – project re-outsourcing, contract renewal or splitting it into several stages, etc. This work should be done at least a year prior to the contract’s due date so that, if necessary, you would have enough time for contract renewal negotiations and an RFP process.
3. Try to be specific: When negotiating new terms with the vendor, show and discuss specific points for improvements and give proved reasons for your requirements which should be based on the market standards.
4. Prepare alternative options: If the vendor is unwilling to meet your requested improvements in specific areas of services, you should have an alternative service provider ready to develop your project under your requirements.
5. Get senior-level consent: Before negotiating with the vendor, make sure your company’s top executives are aware of and support your plans. Otherwise, it may happen that they have already done the deal without your involvement.
6. Approach the challenge seriously: If the vendor is not responsive and the contract renewal negotiations fail, you should be prepared to follow up on alternatives. Defining the needs, evaluating the available options and developing a sound strategy and the execution plan constitute a thoughtful process which should be in place to achieve desired result.

See also: Software Development Outsourcing: Benefits
IT Outsourcing Profiles And Why They Matter

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