Renegotiation -- Improving Contract Terms
Without Necessarily Changing Horses

Submitted by Baker McKenzie

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

Abstract

According to surveys,
• Many companies have outsourced IT or other operations.
• Many are reasonably well satisfied, but, according to one recent survey, as many as one fifth of users are dissatisfied.
• Since outsourcing has grown rapidly in the past decade, an increasing number of contracts expire every year.
• Yet, with some notable exceptions, incumbents are rarely displaced. Surveys by consultants suggest that incumbents retain three-quarters of expiring contracts.

Why is this so?

Often, presumably, incumbents perform satisfactorily, and there is much wisdom in the maxim “if it’s not broken, don’t fix it.”

When customers consider switching horses, incumbents enjoy huge practical advantages over any competitor: inertia, a place inside the tent and intimate knowledge of the customer’s business. Inherited staff who possess the “tribal knowledge” might not return “home” or move to a competitor if the contract ends. Changing suppliers, moreover, is often complicated, disruptive and costly. Small wonder that even dissatisfied customers may prefer, or at least settle for, “the devil they know.”

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