Outsourcing Contract Negotiation

Project Background

A well known brand name brewing company was in the process of down selecting to a final vendor after undertaking a 9 month process of assessing its needs, developing an RFP, issuing it to potential bidders, and reviewing their subsequent proposals. Unhappy with the performance of the then current outsourcing consultant, the client felt it needed to engage another consultant to help it better assess the finalist vendor’s proposal and help with structuring a suitable deal. The client, which had previously discussed the engagement with TBI, but which awarded it to another consultant that the client dismissed after the down select to the finalist was made, contacted TBI and offered the remainder of the engagement to TBI.

Problem Summary

The client received a vague proposal with very little detail describing scope of services, service levels, and pricing. Furthermore, the vendor was offering nothing more than a facilities management deal in which it would take over and manage the clients IT staff and existing infrastructure services. No provisions were made to add value to the deal which characterize typical outsourcing services, like assets purchase, technology refresh, assumption of contracts and leverage them for cost savings, service levels with credits, etc. The vendor did not want to assume any financial responsibilities or accountability for the quality of service. Both the client and TBI were faced with a starting position that was ambiguous at best and heavily favored the vendor. Further complicating matters was the need to close the deal within 4 weeks, from a situation that normally takes 2 to 3 times the amount of time allotted.

TBI’s Approach

TBI’s team spear-headed a major effort to force the vendor to explain more specifics about its proposal, in particular the financial and pricing considerations and scope of work and service level considerations. TBI was able to demonstrate that the losing vendor’s deal was more comprehensive than the finalist vendor’s bid and that upon normalization was actually a better deal, both financially and in terms of scope. The vendor, which claimed a superior deal, had to step up to the eliminated vendors deal, to retain their credibility or risk losing the deal altogether. TBI was able to raise sufficient issues that the client was forced to extend the deal dead-line by another 6 weeks in order resolve all the significant open issues so that to be able to construct a favorable deal for the client. The extension eliminated the time constraint which the vendor was using against its future client to effectuate a quick deal.

TBI’s methodology, combined with its extensive database of outsourcing information, enabled TBI to rapidly develop a comprehensive statement of work and service levels. Relying on its extensive library of deals, TBI was able to leverage best practice information, which enable the client to gain key provisions, such as service credits, which are typically found in good outsourcing deals.

Successful Business Solutions

TBI was able to transform what was a facilities management deal into a true outsourcing deal which included asset purchase and refresh, detailed scope of work, flexible service levels and service credits, provisions for contract management and oversight, and detailed unit pricing and pricing flexibility among its favorable provisions. The goal to achieve a deal that was cost neutral with greater value was achieved. Three months into the deal, the vendor has exceeded expectations by not only improving the overall quality of service, but also assuming a more responsibilities than it needed to. In return, the client, gaining increased confidence with the vendor’s capabilities and its performance, has been awarding more and more project work to its outsourcing vendor.

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