The Role of Procurement in Outsourcing Engagements

Spend Matters welcomes a guest post from Maureen Piché, Principal, Sourcing and Procurement Practice and Mark Woessner, Director, Sourcing and Procurement Practice at Archstone Consulting.

Procurement's Role in RFP Development and Issuance
Many companies partner with specialized advisors to lead them through the outsourcing process, including RFP development, service provider selection, contract negotiation and governance design. These advisors have in-depth knowledge of the outsourcing market, understand the inherent business risks and can recommend specific business terms to guide their clients through a successful contracting process. Advisors are particularly helpful in RFP preparation since outsourcing RFPs contain specific schedules and exhibits that differ from indirect and direct material RFPs. This partnership requires that the company's procurement group is fully engaged and plays a meaningful role in the entire process. Procurement is responsible for ensuring that the company's overall strategic sourcing and supplier policies are incorporated into both the RFP and contract. Compliance with certain policies such as minority owned and women owned businesses (MWBE), payment terms, PO policies, approval limits and other company driven procurement initiatives should be identified and included in the RFP.

Furthermore, existing contracts need to be reviewed to understand the effects of an outsourcing relationship on these vendors and agreements. Can these contracts be terminated if the new service provider is able to deliver that service cheaper? Can the service provider assume the existing contract and manage the vendor for you? Are there licensing rights for applications that the service provider will need access to? Is there a cost to transfer or terminate these licenses? These are just a sample of items that procurement needs to be involved in and help the organization make the right decisions.

Procurement's Role in Service Provider Selection
Although the outsourcing initiative may be focused on finance, HR or IT, procurement has a role in the service provider selection process. Specifically, procurement should be included in the evaluation of submitted RFPs as well as the establishment of selection criteria for choosing a provider. Procurement may have unique insights into previous experiences with specific providers and can give the selection team with a view into a Service Provider's past performance, their flexibility, cultural fit, compliance, etc. Procurement can also take a broader view of the supplier landscape across the entire enterprise and recommend actions to ensure adequate competition amongst a reasonably sized supplier base.

Procurement's Role in Contract Negotiation
Outsourcing contracts have many nuances related to the specific business and legal terms. Items regarding pricing mechanisms, service level methodologies and penalties as well as disaster recovery and business continuity all have unique terms and implications in an outsourcing contract. Procurement should be involved in the negotiation and/or review of all points of the contract and understand the exhibits and schedules and how they relate to the overall pricing and solution. Furthermore, there may be terms that procurement requires from its supply base that need to be incorporated in the final contract. Items such as data privacy policies and employee background and drug testing are just a few examples.

Procurement's Role in Ongoing Governance and Service Provider Management
Procurement should play an active role in the governance process. Contract management and invoice review are just a two areas that procurement should be involved in to ensure the value of the relationship. Change orders should be documented and tracked, as should metrics and service level credits. Oftentimes a member of the procurement organization holds the governance team's contract manager position. Most outsourcing contracts contain a benchmarking clause to ensure pricing is in line with the prevailing market throughout the term of the contract as well as clauses for ensuring DR/BCP testing is conducted annually and Sarbanes audits and reports are delivered as contractually agreed. These are all examples of items that the contract manager must track during the life of the contract to ensure the value of the partnership.

In summary, outsourcing advisors should be leveraged to help navigate through the nuances of the outsourcing arena but procurement will play a critical role throughout the outsourcing continuum of RFP to supplier/contract management.

- Maureen Piché, Principal, Sourcing and Procurement Practice and Mark Woessner, Director, Sourcing and Procurement Practice at Archstone Consulting

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