Re-Negotiating Contracts

If your organization is worried about retaining key customers, then so are

your service providers. So, if your customers are demanding more from you at

lesser costs, then why shouldn't you? So, when it comes to IT, CIOs can reduce

costs by re-negotiating all existing contracts. Ask for a reduction and more

value for what you're paying your service provider; chances are that you would

get a mix of price reduction as well as value-adds.

According to our managed IT services survey, more than 50% of the CIOs did

some level of re-negotiation with their managed IT service providers to bring

down their costs. Out of this, nearly 16% managed to bring it down by 20%, while

others brought it down by different amounts. Some even managed to cut down their

costs by as much as 35-40%.

So, re-negotiation should be the first option to explore for reducing costs,

before considering to reduce team size, lower purchase, etc. Chances are that

though you may not get a significant reduction, but will certainly get a better

bargain in terms of more services and value-adds. For instance, maybe you'll get

higher Internet bandwidth for the same price, or longer support hours.

Here are a few things to do before re-negotiating:



Re-visit SLAs: If you haven't gone through your SLAs recently, then this is

the right time to do so. Look at the gaps in the service delivery that require

improvements, re-visit the penalty clauses to see if they need revision, etc.

Don't just look at penalty clauses as a way to pin down the MSP. Do also look at

a reward system if the MSP does better than expected or over-delivers. After

all, you want this to be a win-win partnership.

Think long-term: While it's important to address cost issues, it's not the

most important thing when re-negotiating a deal. Ultimately, you want to achieve

the true value potential of your IT infrastructure, and the MSP wants to earn

some profits. So you have to make sure that both sides benefit from the deal.

Otherwise, if you squeeze out too much of the cost, then the MSP would also

start cutting corners, which won't be good for your IT infrastructure. Instead,

try and strike a balance between the right cost, and the right set of

value-adds.

Re-visit your payment terms: If you've been having issues in service

delivery, then make the payment terms more stringent. Pay only when specific

tasks have been achieved. At the same time, you shouldn't become so stringent

about payments that the MSP starts cutting corners. One possibility is to

negotiate the price for a whole year, and revisit the same only after the

contract period is over, or if there's a drastic violation of the SLA.

Compare against other customers: You're not the only customer that your MSP

is dealing with. During tough times like these, it's better to speak to as many

people as possible to understand how they're saving costs. So talk to other

customers of the MSP and try to understand how much are they paying. Knowing

this information would make your position stronger while negotiating with your

MSP.

More productivity from existing manpower: The MSP would depute some manpower

for the services being offered. These could be for 24x7 support, resident

engineers, etc. Revisit these deployments to see if you can do with lesser

manpower in any place. For instance, perhaps you can do with fewer people for a

particular project as compared to the existing number. Maybe certain

applications don't require 24x7 support, or others could do with remote support.

The other possibility is to get more out of existing manpower provided by your

MSP, instead of increasing it. Of course, if the MSP increases the manpower

without any financial impact on you, then it's a different thing altogether!

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