Alsbridge Answers, When Should You Reassess Your Contract Pricing Structure

A new report from award winning global sourcing advisory and benchmarking firm, Alsbridge, Inc., reveals when you should reassess the pricing structure of your current outsourcing contract to determine if it requires updating.

Dallas, TX (I-Newswire) October 12, 2012 - “When your outsourcing contract is no longer consistent with the market, or reaches the complexity whereby the sheer vastness of add-ons exceeds the size of the original document and becomes difficult to manage, it may be time for a contract renegotiation,” says Ben Trowbridge, CEO, Alsbridge, Inc.
As a result of defined baseline resource units in IT being standard, even amongst different commercial industries, market pricing comparison using all available IT agreements has begun to make more sense. The outcome is: Every 3 or 4 years, it is a good time to reassess the current agreement in place and its pricing structure, to determine if it requires updating, or entire contract renegotiation.


Creating and Analyzing the New Outsourcing Contract Pricing Structure

To start out the analysis for any change in pricing structure, the client must be able to analyze the current pricing against the provider’s proposed pricing and be in the position of comparing both scenarios against its own counter proposal. Analysis templates should be developed to determine these respective impacts of change, to derive a pricing solution that is amenable to both parties.

Upon reaching the final consensus on a new pricing structure in an outsourcing contract, the client will be in the position of being able to walk from defined market-based resources, to account for increased prices for the value added services and price reduction for excluded services.


Contractual Life Expectancy

Since the 1990’s, the contractual life expectancy on an average has been extended, though not significantly, as a result of the flexibilities built into agreements. In spite of that, the agreement may require fixes that are beyond the point of adding amendments, due to the rapidly changing IT industry environment. As a result, contract renegotiation and a new pricing structure may be the best alternative.

IT outsourcing customers should be prepared to address these changes and create a pricing structure with the provider to align with market and operations. This will create a better provider and customer governance process to deliver results.

Read the full report, “When Should You Reassess Your Contract Pricing Structure?”