Legal Pitfalls in IT Outsourcing: How to Minimize Transactional Costs

Principle No. 5: Recognize that outsourcing contract negotiation is all about allocating risk

Recognize that outsourcing contract negotiation is all about allocating risk while building a foundation to work as strategic partners going forward. By understanding the anticipated risk allocation prior to the contracting process, you can more effectively maintain the relationship while finalizing the contract terms that allocate risk.

Principle No. 6: Understand that vendors have fairly standard parameters

Understand that vendors have fairly standard parameters in their contracts within which they will work; the key is to acknowledge those parameters and communicate what is most important to you. They want the relationship to be successful and to get the deal.

Principle No. 7: The more alternatives you have, the greater your ability

The more alternatives you have, the greater ability you have to push for the terms you want. This is the golden rule of all negotiation. If you do not have viable alternatives to the vendor with whom you are negotiating, you do not have a strong negotiation position. If this is so, you should not waste valuable time or money arguing over points that may not significantly change. There is a constant balance of risk in pushing too hard versus the ultimate reward—is it worth it?

The time, money and resources required in the outsourcing contracting process can be significantly reduced if the stakeholders are willing to invest a little time upfront for careful planning and preparation. If the team is willing to do the pre-work necessary to determine acceptable risk allocation positions, key goals in building relationships with the vendor and determining what matters most, then the contracting process can be significantly less painful and less costly. While so often overlooked, this critical step can have a dramatic impact on the transaction costs.

Jennifer C. Wolfe, Esq., APR, is founder and CEO of Wolfe, LPA. Jennifer is an award-winning attorney and executive leader whose published articles cover topics ranging from strategic planning, negotiation and communication to women in business and the law. Jennifer is a regular legal columnist in Pink, a national magazine targeted to women business owners and executives. Jennifer provides continuing education to organizations throughout the country on a variety of topics, most notably, negotiation, best practices in contract management, branding and innovation.

Prior to attending law school, Jennifer worked as the Marketing and Communication Director for Reach Publishing, where she managed marketing, public relations, advertising and franchise relations for the national company. She received her Juris Doctorate and Masters Degree in Organizational Communication from the University of Cincinnati, graduated magna cume laude in Journalism from Ball State University, and has been trained at Harvard Law School in negotiation and mediation. She can be reached at jwolfe@consultwolfe.com.