Commentaries:
Price Protection Through Benchmarking

Submitted by Baker McKenzie

Contact
Michael Mensik (312) 861 8941
George Kimball (619) 235 7781
www.bakernet.com/outsourcing

In This Issue:

Business Context

“Most-Favored” Pricing

Benchmarking

• Supplier Attitudes
• By Whom?
• Who Pays?
• “Apples-to-Apples” Comparisons
• Contentious Issues
• Consequences
• Practical Considerations

 

Introduction
Customers commonly seek at least one of two forms of price protection:

• “Most-favored customer” clauses obligating the supplier to charge the lowest rates then offered to or paid by others for the same services.
• “Benchmarking” of rates, charges and even quality against current market standards through an independent assessment.

The two are closely related. They serve the same purpose and are usually negotiated together. Since most-favored pricing is rarely acceptable to suppliers, it is often withdrawn in exchange for meaningful benchmarking – an imperfect but effective tool that is perhaps best used as part of overall review and recalibration of outsourcing relationships.

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