A major North American media and communications company came to us with a dilemma. It had entered into a seven-year contract with an incumbent service provider, which it had been battling for five years. The two organizations constantly locked horns over semantics, business interruptions and the service provider’s apparent failure to live up to its end of the bargain. In desperation, the client was finally seeking help for its broken outsourcing agreement.
We began by analyzing the contract with an objective eye and observing how it adhered to contemporary best practices. We also wanted to discover how its costs compared to current market rates and whether the client was truly getting its needs met. As we looked at contract documents and service provider reports, we also interviewed the infrastructure management of the client and the account management of the service provider.
After we presented our findings, the client decided to redraft the contract and divide it into three components: managed services, data-center hosting services, and hardware. Should the service provider still fail to produce results, the client would take the RFP to market.
We discovered that the contract was far more of a liability than it was an asset. The service provider was actually costing the client 30% above the market rate and that barely even scratched the surface of bundled costs the client was really paying. In fact, it even owed the client $20 million in unmet contractual obligations. The agreement was also far more restrictive than most contemporary contracts in the market.
Despite these findings, the service provider was convinced that it is offering the client a better deal than most. It also hadn’t anticipated that the client would seek alternate arrangements and was therefore unwilling to accommodate the client’s needs.
After we aided with negotiations, the client achieved the 30% goal for cost savings and the desired improvements that more closely represented its business needs. We also implemented some transformational initiatives that allowed the client to reduce time and cost by 60–80%. As a result, the client had much more freedom to commission new environments, build cloud capabilities and automate monitoring and response to alerts in the environment.
Our solution proved that a faulty contract doesn’t spell doom for all parties involved. With a strategic reworking of terms and a commitment to accountability, IT organizations can turn an albatross around their necks into an invaluable asset.
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