Before Vendor Shopping Beware of Dangerous Obstacles

[featured-text]An enterprise considers replacing an incumbent vendor in outsourcing and strategic services relationships for a various reasons. Aside from upgrading services for more bandwidth, and the like, many want to leverage new or enhanced solutions and/or find more favorable pricing. Sometimes a change is sought to address relationship or performance issues.[/featured-text]

Seeking new vendors always presents an opportunity for positive change. However, there often is a step missed when seeking new proposals and designs. IT and legal need to be aware of obstacles in existing agreements that could impact the customer’s ability to go out for bid to confirm they is movability from their current agreement to a new one. Another area to look for opportunities is around adding provisions that allow for greater flexibility when negotiating new or amending existing agreements.

Below are some key areas to pay very close attention to when seeking a new relationship, gleaned from our deep domain knowledge around telecom sourcing. (Such complexities are a major reason why so many of our customers hand over all their sourcing efforts to Network Control):

Read your Existing Agreement
Before making changes to your existing agreement and addenda review the contract with the incumbent vendor to assess the key provisions that govern and direct the relationship. Reviewing details such as the scope of services, service levels and when the contract expires or exploring the ways it can be terminated will be vital steps prior to exploring new purchases.

Leveraging performance-related data
When considering whether to end the existing relationship – either at its expiration or by early termination it is mandatory to be able to share scope, service level and other business information relating to the existing environment with potential successor vendors. Some often overlooked questions we run into center around who owns the information and whether any of the information is deemed vendor confidential information. The customer’s rights arrangement that are addressed in the MSA and outline the proprietary and confidentiality rights sections of the agreement. Addenda also may spell out relevant language in the actual scope, service level and reporting sections as well. The key is to identify the sections that specifically address the confidentiality of the agreement, ownership of performance data, and all other environment-related data and data contained in customer-specific reports.

Termination of rights and obligations
It is vital to review whether or not the agreement is not expiring by its own terms. If not, then we help the enterprise assess what rights it has to terminate the agreement. We have identified where the enterprise has termination for convenience rights and, if the decision to re-source is due to performance issues or other problems, termination for cause rights. Part of our sourcing efforts is to help the enterprise determine which termination right to pursue first because it will likely dictate the re-sourcing strategy.

Every contract is different.  While many contracts allow for the customer to terminate upon notice, some do not. It will be important to determine if there are any termination fees, including early termination penalties and wind-down costs. A full understanding of the termination fees is important for assessing impact on the business case.

Recommended provisions to include when negotiating new contracts (or amendments)
Thinking through a renewal or exit arrangement of services agreement when negotiating the agreement at the front end may help avoid some of the challenges discussed above, and provide greater flexibility. A few often overlooked provisions to include in new agreements:

• Non-exclusivity. Add a provision clearly stating that the agreement and services are non-exclusive, and that the customer (and its affiliates) has the right to use third parties to provide the services or perform the services itself.
• Right to rebid and share performance information. Similar to non-exclusivity, consider reserving rights to re-bid the services, as well as retaining the right to share certain information and documents that will facilitate a rebid.
• Cooperation and transition back assistance. To facilitate the success and efficiency of a future re-sourcing, consider a broad cooperation provision that requires the incumbent vendor to work with, and facilitate the transition to, successor providers, including assisting with the transition back of services and providing access to systems, processes, documentation, facilities, interfaces and other important information and personnel necessary for the performance of the services.
• Co-terminus amendments to the original MSA dates.

There are many other provisions we add for our customers in new or renewal agreements but the above are just a few of them to note.

Please contact our sourcing team for additional information on contract negation services we offer.