Mistakes to Avoid in Outsourcing Contracts

Outsourcing can become a big headache for a company and a source of serious losses if due attention is not paid to contractual details.

Wednesday, August 11, 2010

Steve Semerdjian, writing for nearshoreamericas.com, comments that, "while outsourcing has become commonplace in today’s business environment, the contracting process will, rightfully so, continue to challenge even the most senior outsourcing veterans".

He highlights six of the most common mistakes made:

1. Incomplete Business Case
A thorough solid business case should organize the details of the transaction clearly and include prices and costs retained by the company.

2. Deal Not Scalable
A contract, and especially the pricing mechanism, should be able to cope with changes to the scale of the outsourcing deal.

3. Exit Costs Unclear
It is vital for the company to understand the costs incurred in bringing the outsourced operation back in house.

4. Lack of Change Management
There should be a clear process for agreeing changes to services and corresponding costs.

5. Over-dependence on Benchmarking
In practice, benchmarking clauses can rarely be used to successfully negotiate better prices during contracts.

6. Service Provision Unspecific
These should be described in as much detail as possible.

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