18 months into a £150M, ten year contract, an outsourcing relationship was in deep difficulty. The outsourcer’s contact centres were delivering poor performance on sales and customer experience, a stalled transformation led to severe negative cash flow for the outsourcer and a growing, disputed liability, while the parties were locked into a destructive spiral of escalating conflict. Our client’s COO had a major merger integration to deal with, and asked for a rapid assessment of the complex situation they were in and provide a clear path to a solution.
We provided a highly experienced team of outsourcing and contact centre specialists toconduct an objective, structured assessment using Our Outsourcing Health Check framework. Scope covered.
Wedetermined and assessed a set of strategic options. This step concluded that our client would take back in housecall centre operations. Our project’s the key question was not “if” the outsource should end, it was “when”.
The contract’s allocation of risk was unbalanced. Our client was “prepaid” benefits from a planned transformation, though an annual service price of£15M pa, well belowthe initial,untransformed cost base of £30M.. With no transformation, the contract had been cash-flow negative for eighteen months.
A deep dive into the contract showed that the client retained decision making power on all matters of substance in the contact, and there was little delegation to the outsourcer. Much of the risk transfer to the outsourcer was only effective if the client was discharging its decision making responsibilities in a disciplined and reasonable manner.In practice contract management was lax, creating a potential case for relief from, for example, the pricing regime.
A key issue was a £25M termination chargedesigned to protect the outsourcer.We modelled the impact of a range of termination dates over a five year period. This showed that the earlier the services were taken back in house, the better.
To facilitate the negotiations, we developed scenarios for two key outcomes needed from negotiation– (1) a “Settlement Price” to settle all disputes and (2)an "Agreed Price for Future Services", for services delivered on a refreshed commercial model, with the Termination Charge negotiated out of the contract.