The document discusses strategies for negotiating outsourcing contracts, including defining objectives, risks, costs, and terms. It recommends listing priorities, knowing constraints, and assessing liabilities before negotiations. The document also describes types of contracts like fixed price, time and materials, and gain/pain share agreements and potential advantages and disadvantages of each.

1. Strategic Global Outsourcing
Contract Negotiations
Start!

2. Objectives of Contract Negotiation
 Explain clearly all essential prerequisites, terms and conditions
 Goods or services to be provided are unquestionably defined
 Compensation is clearly stated: Total cost, payment schedule, financing terms
 Acknowledgement of: Effective dates, completion/termination dates, renewal dates
 Identify and address potential risks and liabilities
 Define and set reasonable expectations for this relationship currently and into the
future

3. Strategies for Planning
1. List / Rank Your Priorities Along With Alternatives
2. Know the Difference between What You Need and What You Want
3. Know Your Bottom Line So You Know When to Walk Away
4. Define Any Time Constraints and Benchmarks
5. Assess Potential Liabilities and Risks
6. Confidentiality, non-compete, dispute resolution, changes in requirements
7. Do the Same for Your Vendor (i.e. Walk a Mile in Their Shoes)

4. Preparations
Step 1
Determine If You Will
Need Legal Counsel
Step 2
On-Site or
Teleconference
Step 3
Make Sure the Person
Representing the Vendor
Has Authority to
Negotiate

5. Contract Negotiation Mistakes
● Thinking the Yard is Fenced In
● Failure to Study Your Opponent
● Too Aggressive
● It's All About Price
● Jumping Too Quick
● Terminology Not Defined or Understood
● Inconsistencies Within the Contract
● Concern in One Area Will be Overridden by Another Area
● Avoid Redundancies

6. Types of Contracts
Flexible Scope
Pain Share/ Gain Share
Fixed Contract
Time and Materials Contract

7. • The customer pays the supplier for work time (according to the prearranged hourly rate of each
member of the dedicated team)
• Materials used by the outsourcing service provider (e.g. using the software license or other assets).
• Before the cooperation starts it is important to learn about the total cost of ownership and possible
flexibility in this matter.
BUT: The project has to be very well managed and under control as the main responsibility regarding
its final price and deadlines lies with the client who delivers the idea and requirements. It is also possible
to analyse these issues together with the IT partner beforehand.
Time and Materials Contract

8. • Great level of flexibility in the development and focus on Agility
• Client deciding on the project’s priorities and functionalities to be developed and implemented
• General requirements of the project, as well as all the details, are discussed before every sprint
• Service is billed in relation to actual days/ hours of work
• It is possible to adjust the project to the market’s changing requirements even if work on it has
already begun
Main Advantages

9. Types of T&M Contract
• Labour Rate
The labour rate specifies a fixed rate for all labour including administrative and
management expenses. Contractors usually offer discounted labour rates to reduce the
total project cost.
• Maximum Labour Hours
This sets the maximum number of labour hours, using a clause similar to a not-to-exceed
condition. This helps to prevent the “lower efficiency = more money” issue that is a
common problem with T&M contracts.

10. Types of T&M Contract
• Material and Labour Mark-up
It is the difference in price between your costs and what you charge a client to help
maintain or boost your profits. T&M contracts typically include a mark-up of 15 to 35
percent on wholesale material and labour costs.
• Not-to-Exceed
This refers to the cap that represents the maximum amount that can be charged by the
contractor. This type of contract or clause can help to increase contractor efficiency
because the contract price is limited to the cap amount.

11. In this type of outsourcing contract,
• the customer and the supplier agree on a steady ‘fixed price’ for the service (i.e. for delivering the
solution).
• The price is estimated by a supplier based on well described scope of work to be done.
BUT: In this model, there is less flexibility, and even making changes is possible while the project is
ongoing, it strongly influences time and cost of delivery and
• May also result in contract modification. As this model requires a specification there is a great degree
of work necessary before embarking on the project.
• If the costs are more than the agreed-upon amount, the service provider bears additional costs.
Fixed Price Contract

12. • Product specification is delivered by the client or prepared together with the IT partner before
the work starts
• The time and budget are predetermined
• The customer has the least cost risk (assuming that the scope is well defined
EXAMPLES-
• A400M
• KC- 46 PEGASUS
• Construction
Main Advantages

13. Types
1. FIRM FIXED PRICE (FFP)-
• Most common type
• Price set on buyer’s request
• To be used for a product or service that is a repeated process
2. FIXED PRICE INCENTIVE FEE (FPIF)-
• Similar to FFP; it offers an incentive if product or service exceeds an exception
3. FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (FP-EPA)-
• Similar to FFP
• Exception- if product or service is largely reliant on an input with a price that is governed by supply
and demand, a seller could increase the price of overall contract accordingly.

14. • This outsourcing agreement framework is a stand-alone, full lifecycle Agile project
management and delivery method.
• It aims at delivering results to the customer quickly and effectively.
• The collaboration between teams and individuals is based on main principles and values of Agile.
• The key to the project’s success is its alignment to the company’s business goals.
RISK- shared (both parties divide the additional expenses for unexpected changes equally amongst
themselves) or one party leaving the contract at any stage
Flexible Scope

15. • Clear definition of roles and responsibilities for all involved
• Effective prioritising (use of the MoSCoW method)
• Consisting of detailed analysis and requirements gathering even though the development
itself takes place in an Agile manner
• Involving the collaboration of project’s decision-makers
Main Advantages

16. Main Disadvantages
• Unfixed budget and deadlines
• Risk of disputes
This model may be applied to the development of complex solutions which are to be built gradually.
However, the mandatory prerequisite must be long- term and trusted relationships between a client and
its IT outsourcing partner.

17. • Parties equitably share in the financial “gain” of a project’s success or the financial “pain” of a
project’s underachievement
• All parties to the contract therefore have a shared interest in the overall success of the project.
• Joint financial incentive for a project
• Requires strict change management processes, so it is not appropriate unless/until the design
is clear, and not for small or open-ended work assignments.
• Risks
• Practical Benefits
• Potential dangers
• EXAMPLES
Pain Share/ Gain Share

18. Principles of the Contract
• Aligning the interests of all parties involved.
• A no-disputes culture.
• Good faith obligations.
• Joint management structure.
• Transparency of information and costs.

19. • Risk and attitude to it is discussed by the parties at the initial stage of business cooperation
• The gain-share/pain-share mechanism is at the heart of target cost arrangements
• Contractor gains a bonus if the actual cost is below the target cost but shares the cost if
goes above it
• Both parties are incentivised to deliver to baseline
Main Advantages

20. Payment Provisions in the Contract
• Reimbursing all of the service provider’s direct costs, on the basis that costs are open and
transparent. There is no incentive to cut corners to make a bit of additional profit.
• Contributing to the service provider’s corporate overheads.
• A risk and reward compensation model that rewards the parties based on overall project
performance. The better the performance the more money the service provider receives. This is a
crucial point in terms of incentivising a service provider.

21. CREDITS: This presentation template was created by Slidesgo, including icons by
Flaticon, and infographics & images by Freepik.
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Presentation By-
Tanya Gupta- A1802019012
Saksham Agarwal- A1802019007
Mohit Govil- A1802019072
Sonal- A1802019025
Shivam Dahiya- A1802019080