Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically, and tactically feasible and desirable; and from being ready, willing and able to execute against them.
Here are the Top 5 tips for maximizing leverage in your contract renewals:
1. Start early; don’t rush. The more time you have before expiration, the more options you have to introduce competition, move some or all of the services, and hold firm on your requirements.
2. Do your homework. Collect market data to understand where your service provider relationship stands against current market standards for pricing, service level agreements (SLAs), services and terms and conditions.
3. Realign with reality. Chances are that not everything you planned for in your original agreement is still valid.
4. Remove the fog. Think about the top three to five areas where you and your service provider regularly disagree. Typically, these revolve around two primary areas: 1) scope of services (What is the service provider supposed to do, and should it be in the base price or a change order?); and 2) governance (How do we manage change, performance issues, innovation, etc.).
5. Play out your hand. After you’ve gone through the preparation phases of collecting market data, understanding your current environment, weighing your options and clarifying expectations, you have almost all of the components necessary for a solid strategy for entering into renewal negotiations with your provider. There’s one last critical step … make sure you have executive alignment with all possible outcomes.
ISG’s seasoned sourcing experts can help you achieve your global sourcing goals through objective advice, robust market data, knowledge of your industry and extensive experience with sourcing negotiations.