I never knew that up to 3/4th of outsourcing contracts are re-negotiated at some point of time. And according to this article this figure is rising. What is the definition of renegotiation? Well, as they say, renegotiation is the first step to redefine an outsourcing contract. Hmm…the pros and cons, the service delivery matrix, the hidden agenda, the chaotic undisciplined shortsighted management principles, renegotiation is a tool to smoothen the process flow (the way a gardener chops off the unwanted tree branches)
You have here four basic triggers that underline almost all renegotiations
First, and most obviously, is the timing factor. If contract expiry is imminent, the outsourcing client needs to either agree an extension with the current supplier, find a new supplier, or bring the work back in-house.
Second, there is the issue of under-performance. This is not always about pricing, although a recent Gartner survey showed that 40% of companies thought they were paying too much for outsourced capabilities.
A third and related type of trigger is contract flaws, which often can only be resolved through renegotiation to address omissions in the original contract or unintended behaviours from poor drafting.
Finally, major business change is an important driver of renegotiation. Any good outsourcing relationship should be able to deal with day-to-day change, in terms of minor scope extensions or adjustments to service levels or pricing.
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