The COVID-19 pandemic introduced unprecedented challenges, requiring companies to adapt quickly to the way their personnel work, changes in their business offerings, and how they interact with their customers and suppliers. With some time to adjust to the “new normal” of the pandemic (and hopefully soon, the post-pandemic), many companies are looking ahead—with a potential economic downturn being top of mind.
Over the last two years, many companies leveraged their outsourcing relationships as strategic and critical tools to (1) access talent that they would not otherwise be able to engage; (2) scale infrastructure and personnel resources to flex with increased and decreased business demands; (3) shift operations from on-premises models to the cloud (which, in turn, are designed to reduce costs and enable flexible consumption models); and (4) transform systems and digital environments on expedited timeframes to enhance user experiences and the ability to remain competitive in evolving markets. In parallel, these companies also reviewed and possibly updated their outsourcing contracts to keep pace with how these relationships were evolving.
In learning lessons from the last two years, companies are trying to be proactive in steering their business directions and putting plans in place to again adapt to external events.
Accordingly, legal and procurement teams are being asked to look at their company’s outsourcing contract provisions to see if the contracts adequately allow (or need to be amended to allow) companies to implement their business needs and objectives. Provisions to consider include the following:
- Mechanisms to market test and/or reduce cost
- Ability to increase resources based on changing demand
- Renegotiation triggers
- Insource and resource rights
- Termination rights (in part or in whole)
- Rights to implement corporate changes (including acquisitions and divestitures)
Now is the time to align your business and IT teams to discuss and understand short-term and long-term initiatives. This will allow legal and procurement to review the underlying outsourcing contracts and assess what levers are available in the event of significant business changes, and potentially what amendments need to be considered to enable your company to meet its business objectives.