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Outsourcing contracts and negotiations getting more complex

Stephanie Overby | April 30, 2012
As IT outsourcing matures, you'd think negotiating IT service deals would get easier. Not so, according to the attorneys who deal with service levels, contract structure and pricing models.

Arguments over terms related to transformation rated 17 percent higher than last year as more buyers are attempting to include transformation goals in their outsourcing engagements. "Transformation involves building into the contract terms, conditions, or measures for process transformation or for innovation or other nebulous but value-laden keywords," says LePeak. "The challenge is translating a somewhat conceptual idea like transformation into contracted terms and conditions and factoring in all the events and conditions that could impact transformation being achieved or not."

IBM, Accenture and HP Play Hardball

The toughest negotiators by far continue to be the traditional global outsourcers like IBM, Accenture and HP, according to the attorneys surveyed. Contracting with India-based service providers such Infosys, TCS and Wipro tended to be a less complex, contentious and lengthy process, according to the KPMG Research, while the easiest to deal with were regional or niche suppliers.

"Some of the legacy firms just have more and more aggressive lawyers, and there are also situational variances and exceptions across all classes," says LePeak. "But as some respondents noted, legacy firms negotiate harder but remain professional and are less likely to come back later with requested changes and some Indian firms were easier to deal with but would come back later with requested changes or would not negotiate as solid a contract as is possible. So some of it is style and some of it is substance."

And like complexity, a little back and forth during negotiations can actually be a good thing if it leads to a better or more equitable deal. "Were one side to roll over in negotiating, or if contentious points were ignored or not resolved before the deal is signed, it would be worse," LePeak says.

"Ultimately you want the best deal and contract and one that has no holes, meets both sides' needs and reflects the spirit of the effort, and sometime it's harder and more contentious to get to that point," LePeak says. "The key is that when all is said and done both sides are satisfied with the deal, and any contentiousness was not so bad that they can't stand each other and can't possibly work together going forward."



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