Outsourcing buyers gain control

The power balance in outsourcing contracts is changing, according to a new report by (PAC). The report argues that contracts are geared increasingly towards customers rather than providers.

"Contracts are being given more insulation with tougher service level agreements and break-out clauses," said Dominic Trott, PAC consultant.

The recent examples of TFL giving notice to on the London Underground contract and the announcement by Barclays that it will not renew its deal with both show customers’ increased bargaining power, said Trott.

Trott said the shift by businesses towards multi-sourcing strategies was partly responsible for the new shape of contracts. Customers will be able to play different providers off each other, driving the cost of outsourcing services down and increasing contract flexibility, he said.

But Duncan Aitchison from outsourcing advisory firm disagreed there has been a power shift in outsourcing contracts.

Instead, Aitchison said the new bargaining power used by customers is just a reflection of the outsourcing market maturing. Buyers are more informed and can construct better agreements that include more sophisticated exit provisions such as partial termination, he said.