Review of Outsourcing Contracts


The client had a year earlier outsourced its mainframe and mid-range data center operations to a service provider. The client had three data centers located in different states all containing different equipment and running different applications. The service provider was as part of its contract supposed to consolidate data centers and drive costs down.


This client was engaged in the Healthcare/ HMO business. A year into the outsourcing agreement, after eliminating one data center, the client found it’s costs increasing rather than decreasing. They engaged TBI to determine why this was happening and to put our “TBI” methodology in place to verify the vendor’s performance and billing charges on a continuous basis.


To answer the immediate question at hand related to billing charges and to set up the process under “TBI” for continuous monitoring, TBI reviewed the outsourcing agreement and related exhibits and statements of work. Information related to service levels, non-performance, billing algorithms, client and vendor commitments; etc were extracted, verified and placed into the process for continuous monitoring. In addition, client users, I/S staff and vendor staff were interviewed to determine if volumes, applications, hardware changes, consolidation, etc; impacted the increase in costs. It was determined that the original billing approach agreed to between the client and the vendor was in error as the information provided to the vendor and verified by the vendor was based on incompatible data collection and consolidation of detail used in the billing. As the vendor began to standardize the collection and billing information, a payment shortfall of $500,000 based on the billing algorithm was uncovered.


The client received:

  • An understanding of why it’s payments to the vendor was higher than anticipated.
  • Recommendations regarding changes to the billing algorithm and a process to identify swings in utilization to trigger automatic re-negotiation.
  • A continuous process for verifying all aspects of the agreement between the parties.
  • An agreement by the vendor for each of the parties to pay half of the “TBI” process going forward as both parties benefit from the process.
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