Redoing the outsourcing deal

ALTHOUGH DOWN SLIGHTLY FROM THE FIGURES IN 2006, renegotiation of outsourcing deals in the Canadian outsourcing market accounted for about 40% of the Total Contract Value (TCV) of contracts signed in 2007, according to research firm IDC Canada. This is quite a change from just six years ago, when renegotiations accounted for about 10% of TCV.

The Three Rs of Contract Renegotiations: Restructuring, Renewing, and Realigning the Outsourcing Relationship, Part B, is a recent IDC Canada study that examines the outsourcing renegotiation process. In IDC’s view, renegotiations are not an indication of poor performance or client dissatisfaction or a precursor to tenuous times for the Canadian outsourcing market. Instead, the company sees renegotiation as a recognition that, in long-term contracts, the outsourcing relationship will need to be realigned, perhaps frequently.

“In today’s market, it has become almost a sure bet that the contract you sign today will be renegotiated at least once and perhaps twice before the term expires (indeed, the term will most likely be changed along with other fundamental elements of the contract),” says research analyst Mark Schrutt.

According to IDC, the two principal changes to the outsourcing contract resulting from renegotiation are scope and pricing. – David Carey

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