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There is little transparency in the IT outsourcing market, so there is no substitute for reliable information in getting a good deal from vendors. For much of my career, I was involved from the client side at selecting & vetting IT Outsourcing partners. This article will provide some perspective of the things to do during the process of finding an outsourcing partner.

IT Outsourcing is not like buying a car. With a car, you can speak to several dealerships, or search on websites to get a good idea about the going rate for a car. The outsourcing market is not nearly as transparent; therefore, the going rate is uncertain. Procurement departments the world over try and beat up suppliers to find out what the actual cost of services is. This is further complicated with off-shore providers, as buyers may have little knowledge about local conditions. Therefore, as a buyer it is important to understand and investigate what the going rate is for the services you are procuring. Always get a list price from the short-listed vendors on various types of resources, and remember these initial rates will help you benchmark them on price, but should by no means be considered 'final'.

Competition is paramount in ensuring that your company gets a good deal. If you carry out your vendor assessment, and select a winner before negotiating price, you will likely be paying too much for your services. It is essential during the selection process to keep the short-listed vendors fully engaged and uncertain about the outcome. One way to help drive down price is to run a reverse auction which can be even more effective than traditional negotiating styles. If your requirements are well documented it will be possible to run an auction which is much faster, and often more palatable than traditional methods to reduce prices.

Always remember to read contracts carefully and ensure you have experienced lawyers around the table. I have seen scenario's where clients have had little bargaining power, and the service provider delivered a poor service. Additionally, because the contract did not have wording that clearly defined requirements & agreed deliverables the client was left with little room for improvement. This can be avoided by having experienced advisors on your side combined with legal expertise. Furthermore, the legal expertise available today is far more competent in arranging outsourcing deals than just a decade ago.

Price is only one variable that is important when selecting an outsourcer. Industry experience, technology expertise and the size of projects they have delivered in the past should also match your requirement. If you push too hard on price the quality of the resources and service delivery may well be impacted. If the vendor feels you are undervaluing/underpaying their services, it will not be as supportive at resolving issues. Remember that no matter how you structure your outsourcing contract, you are ultimately paying for the professional services of people. If you were an outsourcer - would you put your best people on a project with little margin, or one that is more profitable?

Getting good IT Outsourcing deals used to be more like art than science, so do your research, gather market data, elicit advice from experienced teams, and you will be in a significantly stronger bargaining position, and remember to keep at least 2 or 3 vendors in the mix, to ensure healthy competition until the day the deal is awarded.  
 

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