Maintaining Value in Outsourcing Deals

Entering into a long-term outsource deal inevitably requires a great deal of commitment on the part of both supplier and client.

A mistake in the due diligence process by the supplier could lock it into a loss making project which will literally bleed cash for a number of years, whilst the client will worry about the effect on its business should the supplier fail to perform, or should the costs escalate beyond what has been budgeted. Much emphasis is accordingly placed on getting "value" from the deal, not just at its outset but also through the remainder of the contract term.

From a client perspective, maintaining value is usually embodied in price controls and review, and ongoing service incentives. If such matters are not addressed in the contract at the outset, the balance of negotiating power will have swung firmly to the supplier, who may seek to squeeze maximum fees from the client for the minimum possible level of service