National Health System: ITO Contract Restructuring for Service Quality Improvements and Price Renegotiation
Background
The client had entered into a very large IT outsourcing contract with a global services provider with a significant offshore capability. The scope of the contract covered server, network, and end user computing. The contract was comprehensive in scope, with substantially all of IT infrastructure operations being handed over to the vendor. Due to several acquisitions and mergers, the scale and complexity of the engagement had changed dramatically. However, the performance against contract objectives was short of expectations due to a variety of reasons.
Specifically, the following issues were identified in the current state:
- The size of contract had increased significantly, both on the steady state work as well as on projects
- Market stakeholders believed that the quality of service has decreased significantly since the transition of the services to Vendor
- The business continued to suffer due to lack of stability in the IT infrastructure, lack of discipline in change management processes, and lack of thorough root cause analysis and proactive actions.
- The Service Level Agreements were not aligned with business objectives
- There were significant perceived gaps in the vendor’s technical capabilities
- The execution of project work was seen to be lacking in demand management, as well as quality of deliverables
- The cost base in certain areas was seen to be off market benchmarks
The client needed expert advice to restructure the contract and drive operational and service quality improvements, while adjusting contract pricing to reflect industry benchmarks.
Approach and Results:
Over a period of 12 weeks, by working closely with the CIO and the IT leadership, we were able to identify the appropriate measures of performance that would reflect internal stakeholder needs, and developed an approach and a framework for driving joint accountability for the future state goals and objectives. Through a series of workshops and in-depth discussions, we were able to drive agreement on the right critical performance indicators and a service quality improvement framework. We approached this effort as a 3 stage process:
| Assess | Prepare | Negotiate |
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- Assemble & align project teams
- Identify key documents & data collection
- Conduct pre-launch meeting requirements
- Release pre-launch data request
- Conduct project kickoff
- Analyze current state (contract, financial, operational, relationship & risk)
- Build consensus around sourcing objectives, scope and organizational readiness
- Conduct high level market and relationship assessment
- Conduct a workshop to align goals among various stakeholders
- Identify and assess sourcing options
- Develop high level financial cost/ benefit analysis
- Create business case and discuss options (renegotiate, recompete, repatriate)
- Develop and refine negotiating strategy
- Negotiate desired outcomes with vendor
- Finalize negotiated agreement
As a result of structured and facilitated discussions, the parties were able to arrive at a broad agreement on a variety of issues. These included:
- Redefining SLA’s to reflect end-toend system availability at a divisional/application level as against the earlier metric of computing availability and uptime in aggregate at the server level. A clear roadmap to achieve 99.99% availability was agreed upon with the vendor. Client level dependencies such as infrastructure upgrades, such as server/LAN refresh programs, were agreed upon, along with timelines, in order to achieve the agreed milestones for improved system availability.
- A revised computation of risk pools and weightages to reflect the future state focus on specific towers, regions and metrics
- Rebaselining of volumes and range of devices to be supported as a part of the contract
- Adjustments to the fee structure based on resource unit (RU) measurement, revised volume discounts, and a slab-wise fee structure for project work.
- Adjustments to the “dead band” and ARC/RRC to reflect the new agreement
- Agreement to upgrade project demand management processes, and a slab-wise fee structure based in increasing volumes beyond agreed thresholds
Key outcomes for client:
1. Application availability for critical systems: 99.95% minimum, increasing to 99.99% in 6 month period
2. Support SLA’s: 23 additional stretch SLA’s with substantial penalties for failures
3. Improved pricing and volume discounts: Nearly 20 Million in identified savings potential
