Gartner Says With Increased Merger Activity in IT Services Industry, It's Crucial for Companies to Negotiate Terms That Address Consolidation Issues
Outsourcing Contract Trends Are Being Discussed During the Gartner Outsourcing Summit in Los Angeles
LOS ANGELES, June 25, 2003 — With heightened merger and acquisition activity occurring, it's crucial that enterprises have terms worked into their outsourcing contracts to address this consolidation, according to Gartner, Inc. (NYSE: IT and ITB). Gartner analysts said companies need to have this addressed in their ASP contracts.
Gartner analysts are providing their outlook for the outsourcing industry this week during the Gartner Outsourcing Summit, which is being held June 23-25, at the Century Plaza Hotel and Spa in Los Angeles.
"Enterprises should consider including a 25 percent acquisition clause into their contract, which allows the enterprise to get out of the contract if the service provider is more than 25 percent acquired by another company," said Ted Chamberlin, industry analyst at Gartner. "The enterprise should also include a competitive pricing clause that forces an ASP hosting provider to match a deal it gave to another enterprise if the enterprise with such a clause in the contract could qualify for the volume commitments."
Gartner recommends companies also examine including a guaranteed refresh clause that enables enterprises to upgrade the look and feel of the contract - for example, incorporating new applications without having to extend the term of the contract and with no major changes in price.
Other important clauses include a preset pricing clause that says anytime a new application, server or business modeling applications is added, there will be a new cost. These costs should be known upfront so that the upgrade will not be delayed in negotiations. It can also be beneficial to include a service performance guarantee, which allows for credits and termination of the contract if the provider does not meet certain performance metrics.
By 2004, 70 percent of enterprises will selectively outsource applications using a variety of application service providers (ASPs), traditional outsourcers, niche applications vendors and offshore providers. However, Gartner analysts said enterprises must use structured evaluation and selection criteria or risk engaging with the wrong ASP offering the wrong level of service.
"Enterprises entering into an ASP contract should not be doing so without first understanding what is available in the market today," said Chamberlin. "To do this, they need to develop their enterprise needs and requirements, specific evaluation and selection criteria around the services available in the market, and a list of providers competent to deliver to their required service levels."
Gartner analysts and industry luminaries are providing further information on the outsourcing market during the Gartner Outsourcing Summit. The three-day summit is the most comprehensive conference ever organized for users of outsourcing services, providing a 360-degree view of today's most important outsourcing issues, and access to the market's leading solution providers. Additional information about the conference is available at www.gartner.com/us/itsourcing.
To keep up to date on latest outsourcing issues, please visit Gartner's Outsourcing Web site at www.gartner.com/outsourcing. This Web site offers content, tools, products and services that are needed to make effective, strategic decisions around outsourcing. When browsing the site, users receive a breakdown of key outsourcing issues, industry trends, and best practices for making smarter business decisions. This area also includes relevant research and links to Consulting and Measurement services. Custom Alerts are also available, enabling users to stay current on new research focused on their outsourcing agendas. Free copies of the Gartner outsourcing handbook, Outsourcing: The Real Deal, can also be ordered on the Outsourcing Web site.
More information on the industry is available in Gartner's IT Sourcing and Procurement Directors Membership Program. Gartner recently launched a robust new research tool that is focused on outsourcing, sourcing, and procurement, that brings together expertise from across Gartner in an integrated package specifically tailored to the business and technology issues facing the executives. The Gartner IT Sourcing and Procurement Directors Membership Program will help executives increase the visibility, reputation and success of IT sourcing or procurement initiatives. It will also enable executives to respond more efficiently and effectively to the multitude of demands typical of the current time-, budget- and resource-constrained environment. For more information, visit www.gartner.com/mp/ITSP, or call Gartner at 203-316-1277.
About Gartner:
Gartner, Inc. is the leading provider of
research and analysis on the global information technology industry. Gartner serves more
than 10,000 clients, including chief information officers and other senior IT executives
in corporations and government agencies, as well as technology companies and the
investment community. The Company focuses on delivering objective, in-depth analysis
and actionable advice to enable clients to make more informed business and technology
decisions. The Company's businesses consist of Gartner Intelligence, research and
events for IT professionals; Gartner Executive Programs, membership programs and peer
networking services; and Gartner Consulting, customized engagements with a specific
emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in
Stamford, Connecticut, and has 3,700 associates, including more than 1,000 research
analysts and consultants, in more than 75 locations worldwide. For more information,
visit www.gartner.com.
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