Best Practices for Understanding and Negotiating Outsourcing Contract Risks

This article discusses best practices for handing elements of risk in outsourcing contracts.

Outsourcing contracts have six major risk areas that come out as financial aspects of the deal that must be negotiated and appropriately documented in the contract: termination and disentanglement; benchmarking; performance-based metrics; penalties and incentives; allocation of resources; and innovation. There are some recommendations what to do before negotiations:

* Build a strategy for each risk element
* Know what you truly need and what you are willing to negotiate;
* Understand the risks that both sides face in the deal.
* Insist on specifics in the outsourcing contract;
* Don’t forget about technology .Gartner has found that once the negotiators get to the bargaining table, they usually spend about 75% of their time negotiating risk elements of the deal, not the technical details, and they often are unprepared.


The article also gives six “best practices” - describes them and gives “tips for success” in that area.


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