Top five elements to include in a BPO contract

July 6, 2008

Success of any large-scale BPO project starts with contract negotiation and it doesn’t stop there. It is only a first step, the final success of your BPO project depends on how you structure your contract and what elements you put in your BPO contract.

1. BPO Contract Negotiation
Outsourcing buyers should not try hard for the cost during contract negotiation phase. Oftentimes outsource vendors will agree for the cost, once the contract is signed the outsource vendor will try to recover the margin by cutting corners. Quality of the service, performance and efficiency improvements will suffer. More importantly the outsource buyer will miss out opportunities for business process innovation and the provider will just do minimal services to satisfy the contract. So avoid aggressive contract negotiation and go for win-win solution.

2. BPO Contract Structure
Contract between the buyer and the outsource provider must establish a long-term relationship. Outsource buyer and the vendor must ensure the contract should have elements for BPO self-governance and change management control in it. This allows both the buyer and the outsource vendor to agree on a common set of goals and principles under which the project terms, conditions and SLA can be changed without affecting the overall project goals.

3. Project Transition Management
In big BPO projects buyer will outsource their entire department to an outsource vendor sometimes more than one vendor. During this time outsource buyer employees will become employees of outsource vendor and the loyalties change with the transition. During this time outsource buyer should pay close attention to make sure who is responsible for owning the business process and to make the smooth hand-over of the business process responsibilities properly. If not the project may collapse during the transition phase of the outsource deal. Outsource buyer should make sure the contract have proper mechanisms to address the transition issues.

4. Service Provider benchmark measurement
Outsource buyers must have a well-defined benchmark to measure the performance of the outsource provider, specifically they should ask the following questions and should have proper clauses for remedies in their contract if the outsource provider couldn’t meet the basic minimum requirements:

  • 1. What elements makeup the minimal user acceptance? Is it performance of the individual or overall outsourced business process? Is it quality? Is it cost?
  • 2. Once you define what is it you’re measuring, you need to identify how you’re going to measure it? For example, if it is quality how do you know the outsource vendor is doing a better job than your own employee? Are you comparing the your outsource provider performance with industry standard BPO benchmark?
  • 3. What is the time-frame for the outsource provider to achieve the benchmark?

As an outsource buyer you need to include proper verbiage to identify and measure the outsource provider performance.

5. BPO project governance
Outsource buyer should make sure they have proper mechanism for continuous BPO project governance in the BPO contract. This includes proper reporting structure, decision making mechanisms, issue escalation procedures are incorporated into their contract so the entire BPO project adds overall strategic value to their corporation.

Typically a BPO contract will have several different elements as mentioned in ITtoolbox blog. This blog contains five critical elements companies should incorporate in their contracts to succeed in their BPO projects.


5 Responses to “Top five elements to include in a BPO contract”

  1. RetaSaksTrerepPack on December 29th, 2008 8:28 am

    Hi admin,
    Nice forum indeed. how’s life? hope to read other blogs.

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