Outsourcing Negotiations – Lessons Learned

Having participated in outsourcing contract negotiations over the past decade as both provider and client rep (not at the same time mind you but rather in different phases of my career), I maintain that when all is said and done, there are five decisive steps to ensuring successful negotiations. Each party needs to:

1. Bring the decision maker to the negotiations
2. Do their homework and planning prior to the meeting
3. Know their negotiating position; its’ reasoning and how it might affect pricing/contract terms
4. Be equipped to ‘fight the fight’ yet strive for a partnership that makes sense over the long term
5. Be fully prepared to articulate and then execute their walk away position

I’d like to say that each session I have been a part of has been a model of negotiation, but the truth of it is most service providers initially come to the table with ‘boiler plate’ positions, they don’t always bring folks that understand what the relationship is trying to achieve, and you’re right, many do not come to the table with their decision makers so a decision can’t be reached anyway.

On the other hand, clients (buyers) often come to the table armed with stories and anecdotes of what other businesses, friends, colleagues and neighbors say can be achieved – and of course they typically start out wanting it all.

Under the category of “I can’t believe I heard you say that”, I had any opportunity a few years back to help a client negotiate an ITO arrangement for the work then delivered by 150 or so folks. They wanted 25 service metrics captured, measured and reported on monthly as SLAs with penalty. 25 highly ‘aspirational’ SLAs ranging anywhere from the usual suspects of resolution, availability and reliability, to things like ‘no provider service locations will be closed, moved or relocated’ and ‘no attrition (for any reason) of key personnel’ over the 5 year contract term without penalty. Well, the service provider essentially responded that the sheer magnitude of SLA measurement and reporting was tantamount to a project and suggested it be priced separately (and quite heavily) as such. This didn’t sit well at the table but it does help support my response to your question around Mutual Indemnification.

I have found that when buyers try to force a montage of “it would be nice to have “ terms and metrics that are so far beyond what their current environment is capable of, the service provider will protect himself in other ways. Enter Mutual Indemnification. When business terms are so tight the service provider can’t breathe he will find other ways to limit his exposure. I have heard service providers essentially say “we are agreeing to current (in-house) team responsibilities … so if they somehow have to agree to indemnification internal to your business, then we will as well. If not, it’s off the table as we will not be your insurance policy”.

My bottom line is that a balanced set of contracts need to coexist. The MSA, Statement of Work and SLAs need to work together, with business and legal terms supporting a mutually beneficial arrangement between buyer and service provider. This takes a lot of hard work, coordination and commitment on both sides, but if you get it right you’re positioned to manage the relationship as I hope it was intended – as partners.