UK forcing steep discounts on outsourcing deals

Companies negotiating discounts of up to 23 percent on outsourcing deals have been warned such cost cuts could drive contracts to failure
Written by Nick Heath, Contributor

Outsourcing prices have slumped in response to aggressive cost bargaining.

Buyers have forced discounts of up to 23 percent on outsourcing deals during the first two months of this year, a study by Compass Management Consultancy (CMC) has found.

The 12-month analysis of 120 deals worth more than £30m each showed UK companies opened negotiations with demands of cuts between 15 and 23 percent across the board, as long-term deals were renegotiated.

Compass claimed that many clients are renewing deals in order to get short-term discounts from vendors, without due diligence and with no understanding of the competitiveness of their current contract.

In a statement Geraldine Fox, director of sourcing services at Compass, said: "We are seeing aggressive, high-level targets plucked from the air in contract negotiations which bear little relation to what the business needs. Asking for a 20 percent cut across the board could be too much — and drive a contract to failure."

Fox said that some managers were overlooking the fact that outsourcing providers are delivering core services, and are treating them as discretionary spend that can be cut at will.

Compass warned that, even though outsourcing providers might offer discounts of 18 percent below the in-house operation on day one of a deal, they will often recoup the discount over the term of the contract.

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