OF Icon

Outsourcing Fundamentals

Independent guide to Outsourcing: BPO strategy, Service Provider selection, contracting and implementation projects. Assessing and improving your current service.

Contract End > Preparation

Preparing for the Renewal of the Services


Starting your preparation in plenty of time is critical to achieving a successful result. What constitutes plenty of time depends on two factors: the provisions in your current contract for extensions; and the size and complexity of the service you are looking to renew.

Many outsourcing contracts give the rights to one or more periods of extension at the defined terms. These can be taken into your planning for renewal, but I would suggest that you use the last extension as contingency.

One of my clients who had an agreement that did provide good support for the contract end / renewal stage negotiated an additional year of services plus better terms rather than try and rush a renewal.

The time allowed for renewal needs to take account of the option that will take the longest. So, even if your preferred renewal is a fairly straightforward extension, allow sufficient time for the negotiations to fail and to undertake your second option. The outline schedule might look as below:

  • Review & plan - one month
  • negotiate extension key terms - 3 weeks
  • Review next best option - 1 week
  • Go to market & select provider - 2 months
  • Finalist solution and contract - 1 month
  • New Service provider preparation - 3 months

Situation Review

For the situation review, you need to look at the service, the provider, your business and the alternatives in the market.

Firstly, how has the service performed and how does it match up to expected requirements?

  • Service Satisfaction: Are the services meeting the needs of the business. Is the quality sufficiently high? Or indeed, are you paying for more than you need. What about capacity limitations, flexibility and responsiveness?
  • Provider Performance: To what extent has lack of provider delivery contributed to any deficiency in the service? Is the provider fulfilling all its contractual obligations? Is the relationship working well such that issues are resolved in collaboration and there is flexibility in the services?
  • Business Direction: How will your business develop over the period of the next contract term? Will there be changes that will affect the services?

Given your review, what are your service objectives for the next period - irrespective of how they are sourced?

How do the alternatives compare?

  • Your Provider: Is the known entity, but do they have untapped capability?
  • The market: Do you have any indication that there are new or stronger providers that will want your business? Are other providers winning more business of a similar nature to your services than your provider?
  • In-house capability: Do you have the capability to take the services back in-house? Will there be ongoing support for giving this area management attention and for maintaining the capability required

Before finally deciding on your preferred option for the renewal, you should check your capability for carrying out the renewal. Do you have the knowledge and expertise to manage the renewal without support from your current provider?

  • Do you have employees with expertise covering the outsourced processes?
  • do you have documented processes and procedures?
  • Information on the performance history?

Bring together the range of factors to take into account for deciding the option to be pursued.

  1. Where are the senior stakeholders? Would they support continuing BPO? Would they support bringing the service in-house?
  2. What are the direct cost benefits? Factor in the cost of implementation.
  3. Does one option offer particular benefits to your business?
  4. How do the options compare on risk and quality of relationship?

Is the answer to these questions the same for all of the current scope of the services or should you consider taking specific activities out of scope? Is there additional scope that would benefit from being included in the renewed solution?