Negotiating a contract for managed services is radically different from any other kind of IT procurement process, where the best price for a server, router or storage device tends to win.

But too many organisations fail to make the differentiation from standard IT buying processes, leading to an over-emphasis on price of service at the expense of other critical considerations - quality of service, compatibility of working styles between customer and provider, and mutual benefit for both parties.

"Buying managed services isn't like buying hardware - you can't just agree on a price at a given moment in time and then move on," says Ian Hodgson, a managed services specialist at Logicalis. "A services contract is a living entity. It evolves over time, as requirements and expectations change, and that needs to be factored in to negotiations," he says. For that reason, service-level agreements (SLAs) and other contract provisions must be flexible if the relationship is to thrive.

Nor is the outsourcing provider ‘the enemy', says Hodgson. Treating the managed services contract as a battle where there can only be one winner again puts too much emphasis on cost and is hardly likely to lead to a productive working relationship, he says: "Ideally, you want the provider to be a valuable extension of your own capabilities and it simply won't be able to fulfil that role if it has been bullied on price."

For these reasons, Hodgson insists on team-building sessions in the early stages of a managed services contract, so that individuals from both customer and provider can make personal contact with each other. Visits to each other's sites are also useful in fostering a strong and productive bond, he adds. And if you're talking penalty clauses too early on in the relationship, he says, then you're already anticipating that things are not going to go well - hardly the best start for any kind of relationship.

But if you're still not persuaded that you need to be negotiating on more than cost of service, Hodgson says, just think of the potential costs of getting this kind of relationship wrong. "It could be a matter of business disruption, wasted time and energy, even legal fees," he warns.

If procuring enterprise-level technology can be tricky, negotiating the right outsourcing contract is an art form. But at the start of any long-term relationship, a strong sense of common interests and mutual respect, plus a healthy dose of optimism, can go a long way to smooth the path ahead.

Your Comments and Questions

Steve Crowe, 3 months ago

Hello. You mention penalty clauses and not talking about it too early in the relationship, which is a good point. But conversely of course it's important that they're not left too late. So what would your advice be in terms of negotiating penalty clauses?

Archie Dean, 3 months ago

I agree that a managed service relationship is more akin to a partnership than a typical buyer/seller arrangement, but I would be wary of a situation where SLAs are changing too frequently in case they fail to provide any meaningful way of measuring service quality. Just as the HR team reviews its relationships with payroll administrators and service providers every year, I would consider it reasonable to do the same with IT services – or do you think there is a need for even more flexibility in this area of service provision?

Victoria, 3 months ago

It will be interesting to see how many organisations first discussing managed services this year will pick up on any of these points, as one can only imagine that if the economy worsens, many IT directors will have their finance director watching the cost of any new IT deals they sign very closely indeed.

What's Your Question or Comment?

Name

Email Address

Your Website URL (please include http://)

Your Question or Comment

type the text from the image