Well drafted agreements will smooth process for IT contract renegotiations, says expert

IT and telecoms contract specialist Clive Seddon of Pinsent Masons, the law firm behind Out-Law.com, said that well drafted IT outsourcing contracts should provide flexibility for both customers and suppliers to renegotiate the terms of those agreements during the period of the contract.

Seddon was commenting after a survey by IT consultancy firm Alsbridge revealed that 39% of IT buyers feel 'locked in' to existing IT contracts (registration required) and that 65% feel suppliers are neither open nor approachable when it comes to the issue of renegotiations. Almost half (48%) believe suppliers would "kick up a fuss" if attempts were made to amend existing agreements, according to a report on the survey.

Alsbridge said it interviewed 250 senior IT decision makers at businesses in major IT outsourcing markets in Europe, including the UK, the Netherlands and Switzerland.

The survey revealed that 42% of IT buyers do not have a "formalised review point" set out in their contracts with suppliers. Seddon said that having "trigger points" for renegotiating contracts is one way to help IT decision makers overcome any perception that they have that they cannot renegotiate existing deals.

"Customers may feel locked in to contracts, but well drafted IT outsourcing contracts are designed in such a way that they allow both parties flexibility in recognition of changes that can arise during the course of the contractual relationship," Seddon said. "From the perspective of customers, renegotiations can be necessary to account for changes to their business, advancements in technology or because of economic pressures. Suppliers also need to be able to alter the way they deliver services and it is in the interest of buyers to offer an element of flexibility in this regard to ensure that they continue to receive the best value service."

"There are several contractual mechanisms that can be used to trigger or promote renegotiation discussions, besides standard benchmarking of service delivery," he added. "Variation clauses can provide flexibility to allow for changes to be made to the way services are provided, and change control clauses can enable discussions about the nature of services, the scope of agreements and even price. Governance provisions can also require that both business and technology change issues are expressly explored during renegotiation discussions."

Seddon said that IT customers can also prompt renegotiations where there is general dissatisfaction with the way suppliers have been delivering services or the value of the service they are receiving for the price they are paying. He said that IT buyers need to ensure they speak to the right people at their suppliers about renegotiating their existing deal.

"How open suppliers are to the prospect of renegotiations can depend on how customers approach them," Seddon said. "Discussion at the right level is needed about how current contracts are not delivering on either current or future needs. It will generally be best to approach senior executives within suppliers. They will generally have a greater room for manoeuvring on terms, whilst account managers may not be as open to renegotiating existing deals because of potential impacts on the nature of their job or how they are paid."

"Despite the findings from the Alsbridge survey about how IT customers perceive suppliers' attitude to renegotiations, I'm sure that a similar survey of suppliers would show near-unanimous support for engaging in discussions with clients about changes in business, strategy, technology, for example, and how they would prepared to respond to those changes in order to keep their customers happy," he said.