Contractual Pricing Assurance: Beyond Benchmarking

Negotiating a large ITO deal presents the thorny challenge of codifying the agreed commercial pricing (usually by service tower). The plethora of pricing models available – such as ARC/RRC, fixed price, T&M, risk/reward, gainshare and cost plus – often creates ambiguity (or “wiggle room”), and increases the risk of the dreaded “value leakage.”

While a market price benchmark provides a good starting point for setting the price point boundaries for a fair deal for both parties, we often find that, one or two years into the contract term, pricing disputes arise. These can be extremely time consuming to resolve, can generate tension in an otherwise positive operational relationship between service provider and client, and most importantly can erode the original business case such that the parties become so entrenched in their positions that service delivery is compromised.

This ISG white paper discusses various pricing models, how to ensure actual charges reflect what was intended during commercial negotiations and how to avoid value leakage through good contracting rigor.