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The evolution of outsourcing contracts: past, present & future

More and more, organizations are becoming interested in pursuing new models of outsourcing. But what characterizes these new outsourcing contracts? And where is this evolution coming from?

During the last decade, we have noted that companies increasingly re-arrange and re-consider existing outsourcing contracts.

Traditional contracts based on inputs and focused on the number of people employed or the number of transactions going into the process, will soon belong to the past.

In a complex and highly competitive business environment, organisations will be forced to approach outsourcing in new ways that seek to maximize value, reduce risk and improve their positioning in the market. And as more executives recognize the strategic importance of Facility Management, there is a growing belief that conventional Facility Management outsourcing models will no longer be serving their purpose.

This is prompting a shift towards outcome-based, collaborative contracting in the Facility Management space. As shown in the graph below, 281 Facility Management and outsourcing professionals surveyed suggest that they are likely to use an outcome-based outsourcing model for facility management towards 2020 and beyond.

The emergence of strategic outsourcing contracts

The outcome-based outsourcing contracts and relationships will enable more strategic partnerships. In the most sophisticated arrangements, service providers will play a greater role in the strategic direction of customers’ companies, and contracts will serve as guidelines.

Contracts will be arranged by deal architects and handled by relationship managers – often with the assistance of management consultants. These contracts will generally tend to operate under a longer time frame as they become more strategic and require greater investment in the relationship. Such contracts will be rewarded according to successfully achieved business outcomes, not on compliance measures. The best service providers will move to a more collaborative structure fundamentally rooted in equal responsibility, with a high degree of openness and information sharing.

This article first appeared in Service Futures on 20 March 2017.

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