Compass Urges Organizations to Be Prepared When Renegotiating Sourcing Contracts

End of Contract Term is Critical Time to Drive Improvements, Yet Often
Mishandled
NAPERVILLE, Ill.--(Business Wire)--
The end of a contract term is often considered the best time to negotiate
improvements in services, pricing, service levels and commercial conditions in a
sourcing contract. The rationale is that service providers are more willing to
make concessions in order to retain business. However, many client organizations
go into the negotiating process over confident and under prepared.

"Organizations should remember that renegotiating does not mean simply
exchanging concessions," says Bob Mathers, principal consultant at Compass. "The
ability to drive change requires a proactive process of defining what you want,
and evaluating the available options. Many businesses don`t prepare and assume
that the end of a contract brings significant power to negotiate change. It
doesn't."

Compass identifies five strategies to help organizations drive improvements in
end-of-contract negotiations:

* Baseline Existing Operations: A baseline analysis identifies where a service
provider`s services, commercial terms and pricing are competitive and where gaps
exist. At the end of a contract term, this information provides a stake in the
ground to define priorities for the renegotiation. For example, if prices are
dramatically out of line in certain service areas, then making adjustments in
those areas should top the agenda. However, if the baseline analysis is part of
an ongoing program of continuous measurement and improvement, existing costs
will likely be competitive and aligned with market standards. In that case, the
focus of the contract renewal discussion can shift from cost reduction to
governance issues, facilitating innovation, or improving process efficiency.
* Specify Objectives: The baseline analysis should be used to define specific
points to address in negotiation. For example, rather than demanding
across-the-board pricing concessions, focus on a 20 percent reduction in an area
where existing charges were found to be significantly above market standards.
This also ensures alignment of each service tower to market. Have a response
ready if the vendor is unwilling to address requested improvements in specific
towers of services.
* Get Senior-level Support: Boardroom objectives must be aligned with and
communicated to the executives charged with implementing the end-of-contract
strategy. Make sure the work done by the IT executive managing the deal does not
get erased by the top executive signing the contract.
* Be Willing to Pursue Other Options: Ultimately, an effective end-of-contract
strategy hinges on the client organization`s willingness to follow through and
actually make a change in service delivery. Gaining that credibility, in turn,
requires preparation and assessment of alternatives, and development of viable
options - and communication of those options to the service provider.
* Consider the Vendor`s Perspective: By understanding and addressing the service
provider`s interests, a client organization can make the negotiation a win/win
rather than an exchange of concessions. Bring incentives to the negotiation
table that can benefit both parties and make the discussion a win/win rather
than an exchange of concessions. For example, rather than focusing on price
reductions, clients can give service providers latitude to standardize and
streamline internal processes, resulting in savings for client organizations
while allowing the vendor to maintain its margin.

About Compass

Founded in 1980, Compass (www.compassmc.com) is a global management consulting
firm specializing in business and IT operational improvement. Compass'
fact-based approach enables clients to achieve world-class operational
performance, optimized sourcing, alignment between systems and business
processes, enhanced process maturity, and maximum value from investment in
information technology.

For Compass
Whitney Fleming, 724-687-0377
whitneyf@whitneyfleming.com

Copyright Business Wire 2009