Informing suppliers of business needs will ease IT contract renegotiations and access to new technology, says expert

A recent survey by IT consultancy firm Alsbridge revealed that 38% of IT leaders in the UK, Switzerland, the Netherlands and the Nordics, feel “stuck in the past”. This is because they do not believe that their IT outsourcing contracts enable them to utilise new technology, it said.

However, IT contracts expert Iain Monaghan of Pinsent Masons, the law firm behind Out-Law.com, said that IT buyers should not feel they cannot update existing agreements with suppliers.

"Contracts need to change to reflect customer circumstances, the economic environment and developments in technology," Monaghan said. "That requires a degree of engagement between buyers and suppliers so buyers can keep suppliers informed of their business needs, and suppliers can best deliver services to their clients and inform them of the limits of what they can supply at the price customers are willing to pay."

"Most suppliers want to sell new technology because this is likely to be where most of their profit will come from in future," Monaghan said. "However, they will have heavily invested in older technology and it will usually be cheaper for them to supply services using those products."

"Buyers need to balance the cost they are prepared to pay for IT with the benefits that new technology can deliver. Suppliers are less resistant to renegotiating existing contracts if buyers can show that there is a reason for change and that the change offers a new business opportunity to the supplier. This is why constant engagement with suppliers is important. The contract is meant to embody a relationship with the supplier," he added.

According to the Alsbridge survey, 54% of IT decisions makers are planning to update existing supplier arrangements because they have a need to upgrade technology. Of those surveyed, 46% said that the ability to take advantage of new technologies was one of the most important factors they considered when selecting an IT provider.

Monaghan said that the figures show that while the majority of IT decision makers were engaged in active relationship management a significant proportion of businesses may be failing to engage properly with suppliers. He said too often companies sign contracts and do not refer to them again until the end of the term.

"IT buyers and suppliers can both be guilty of a degree of inertia once a contract is signed," Monaghan said. "This is understandable in some ways because, from the buyer's perspective, renegotiating contracts can amount to just short of running a new procurement process to deliver necessary change. From a supplier's perspective they may have become attuned to delivering certain technologies in an efficient way."

"Buyers and suppliers may also feel that they have secured advantageous commercial terms and may be reluctant to reopen negotiations for fear of losing their advantage. Tying the supplier down to an overly tight contract can, perversely, work against the buyer's long term interest because it reduces the supplier's flexibility over the way it delivers services," he said.