Outsourcing and the Economic Crises, Part II: Re-structuring Existing Outsourcings

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In our previous Morrison & Foerster update, we discussed outsourcing as a tool for significantly reducing costs as the global economy heads into what may be a prolonged recession. In this update, we turn our attention to the effect of an economic downturn on outsourcing deals entered into during better times. Companies that negotiated deals over the past five years could not have possibly anticipated economic upheaval on the scale that we are witnessing today. Accordingly, outsourcing customers should be reviewing their existing outsourcing arrangements and determining whether, in light of what experts are predicting will be at least a three-year downturn, such outsourcing arrangements need to be re-structured to reflect the realities of today’s business environment.

The economic downturn provides outsourcing customers with the opportunity to re-assess the sourcing arrangements they made in different times and ask themselves:

“If we were to outsource today, would we structure the deal in the same way?” An outsourcing arrangement that was designed for more positive economic conditions – perhaps designed primarily to deliver service improvement or transformation – may not be appropriate in a downturn, where cost reduction may have become the priority. Sourcing customers should be examining whether they are getting the best out of their current outsourcing arrangements and whether they should be seeking to re-negotiate contract terms to allow for greater flexibility to deal with the changing economic climate. This update describes practical steps that can be taken to improve an existing outsourcing arrangement.

Please see full update for more information.

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