How to Avoid the Risks of Renegotiating a Sole-Source Network Contract

A great deal can change over a three or five-year sourcing contract. A service provider that was the market leader at the start of a contract may now be considered a laggard. Renewing a contract without investigating the wider market may mean you miss out on newer solutions, more flexible contract terms, significant cost savings or improved service delivery models.

Looking back on the last few years, the explosion in SD-WAN networks has completely changed the way networks are delivered. The single-provider network model is now outdated. The rise in WLAN vs. fixed-desk LAN has made a massive impact on networks in the office environment and, of course, the hybrid work environment, which has moved security needs from the immediate network closer to the user.

What To Do Before a Network Contract Renewal

It may be tempting to simply renegotiate your existing network contract with your existing supplier, but by doing so, you risk missing out on many of the benefits of running a competitive bid to the open market. With careful planning and execution, you can enjoy a blend of the two.

Not having to go through a resource-hungry, risk-laden transition or transformation process with an unfamiliar partner can be appealing. But you also stand to improve outcomes with a full competitive RFP.

Before engaging with your service provider about a renewal, consider the following steps:

1. Comprehensive review of the existing contract: Include all aspects, from the technical delivery to the day-to-day service, including incident handling and new order provision. These reviews should engage all areas of your business that interact with the service provider and those receiving the service. Your review should cover the following questions:
   • Does the contract deliver what is needed in a technically competent way?
   • Are new orders and changes handled efficiently and priced fairly?
   • Are incidents and security issues dealt with quickly and is service restored efficiently?
   • Does your current service provider regularly propose technical innovations and service improvements?
   • Are your SLAs fit for purpose and is root cause analysis provided in an open and unambiguous way?
   • Do you have strong, collaborative relationships with the service provider’s contract, delivery and executive teams.
   • Does the current contract with your service provider allow you to flex your business and open or close sites without being subjected to punitive termination charges?
2. Review your current contract pricing levels: It is likely that, unless the service provider has applied year-on-year price reductions or you have invoked a formal benchmark clause, the pricing will be out of kilter with the current market level.
3. Get to know the leaders in the network market: They will have undoubtedly changed from three to five years ago. Get clear on their offerings so you can ensure any offer from your incumbent provider is a market-leading solution.

10 Steps to Ensure a Successful Network Contract Renegotiation

Once the decision has been made to pursue a sole-source renegotiation for your network contract, there are a number of things you can do to make the transaction easier.

1. Benchmark. Allow sufficient time to work with an external benchmarking organization to validate the pricing and terms being offered; this should help form the basis of the negotiation strategy.
2. Resource up. Line up an experienced team and consider whether to engage an external advisor. Commit additional resources to enable the contract renewal team to hand off their “day job.” It is a myth that it is quick and easy to resign an existing contract; it is both challenging and time-consuming.
3. Make “plan B.” Ensure the service provider knows that, while a contract renewal is your preference, you will not sign a contract at any cost. Be able to clearly articulate the benefits of the other leading service providers.
4. Build a timeline. Set an achievable project timeline with regular checkpoints.
5. Think like a customer. Early in the process, issue a set of detailed requirements and changes that need to be made to the current contract. Be aware of what solutions, services and terms are routinely available from other service providers. The incumbent service provider may be keen to maintain the “status quo” rather than adopt current best practices, and this should be agreed to only if it suits you.
6. Set a baseline. Issue an RFP-type document early on to clearly articulate the commercial terms you require and the level of detail around pricing you need to see. You can always negotiate different terms later. If you cannot reach common ground on the commercial aspects, it is best to find out early.
7. Share growth plans. Where appropriate, sharing your short- and medium-term growth plans will help ensure the provider makes a comprehensive proposal. This would be less viable in a standard RFP process, where you would be reluctant to share commercially sensitive plans.
8. Get executive-level input. Don’t try to re-negotiate the contract quickly and within the working team. Impasses often require leadership buy-in.
9. Review the provider’s deal team. Be sure they provide a deal architect and a bid manager. Experience tells us it is a frustrating and protracted engagement when the “in-life” contract team is trying to deliver a contract renewal at the same time as the day-to-day service. They generally lack the perspective of the bigger, long-term issues. This will also depersonalize any disputes and minimize damage to the ongoing working relationships.
10. Be willing to listen. The service provider has extensive experience working with your organization and has possibly had issues dealing with your delivery and service teams. Be prepared for some uncomfortable truths and obligations to be placed on you.

Making Good on a Sourcing Deal After Signature

Once the new and improved contract has been signed, it is essential that the improved terms are fully understood by the affected parts of the organization. It is common to celebrate the contract signature and then put it in a drawer as the service continues to run as before.

Don’t forget to involve the delivery teams and service desk interfaces in specifying and negotiating the technical and service design. Ask the service provider to run joint workshops to manage any changes to the service delivery model and provide full briefings to the executive board on the new contract terms. If the contract negotiations have been difficult and behaviors are challenging, consider asking the service provider to swap out the contract team. Then make sure the new team comes in with a fresh approach.

ISG helps organizations assess and discern whether to renew a network contract or run a competitive bid – and then sticks around to help throughout the process. Contact us to discuss how we can help you.