Look before you leap

managing the successful vendor transition project



Switching vendors can be quite costly and disruptive to the outsourcing company. The subject becomes more complicated in a global environment where companies do business all over the world and specific language, legal, trade and tax issues must be considered. This paper will cover the best practices for finding and securing a new vendor/supplier without alienating the current vendor, negotiating a contract that holds the vendor accountable to a certain level of performance, as well as minimizing the risks and managing the transition with minimal customer impact. The first part of this paper will cover the issues to consider before switching vendors. The second part will cover the planning activities and the third part will cover the implementation of the plan. The vendors in consideration in this paper do not provide simple outsourced services such as office supplies, but do provide major outsourced services with complex contracts.


Increasingly, organizations around the world outsource functions to vendors to help optimize business and cut costs. In the current downturned business environment, it is more important than ever to have strong contract relationships with your vendors and to optimize the value that your vendors bring to your business. When the outsourcing company, hereafter referred to as the ‘customer’, is not getting the optimum value from the current vendor, sometimes the best path is to seek out a better vendor solution.

Most of the issues and recommendations mentioned in this paper are related to the outsourcing of mission-critical business processes, but are generally applicable to all types of outsourcing.

Issues to Consider before Switching Vendors

Before making the decision to switch vendors, the customer should be careful to evaluate (1) the additional value the new vendor could provide, (2) the risks in changing vendors (3) the cost of exiting the current outsourcing contract and (4) internal costs including employee time, travel costs, legal and consulting fees, if applicable, and (5) the versatility of the current vendor to provide services to other elements of the business according to Peterson, Prinsley and Kalachman (2003).

The additional business value from the new vendor can include: (1) meeting the need to transform/improve a particular outsourced function, (2) taking advantage of superior offerings, methods or processes in a changing vendor market and/or (3) eliminating the customer dissatisfaction for breach of contract or lost financial stability (4) reducing ongoing vendor costs (p. 1).

Switching vendors has most of the risks of obtaining the initial outsourcing plus additional risks due to the fact that the functions have not been performed in house by the customer since the initial outsourcing. It will be challenging for the customer to complete the Request for Proposal (RFP) and/or Statement of Work (SOW) since there will be a lack of knowledge of the outsourced functions performed by the current vendor. The SOW with the current vendor is likely to be outdated. It is also possible that the current vendor has folded some or all of the outsourced functions into a shared service environment; in this case the new vendor will need to build this function from scratch and this could result in a greater risk of vendor transition failure. In cases where the date of business process take-over by the new vendor corresponds to the end date of the current vendor contract, there is little schedule flexibility for the project. There can be difficulties obtaining cooperation from the current vendor to transfer knowledge to the new vendor who may be a competitor. Termination at the end of the contract (or within the notification period, usually 90 days) is easier to justify to senior management, less costly (no termination fees) and minimizes the risk of degradation in service and vendor flight. Termination in the middle of contract is much more complicated, harder to justify to senior management, more costly (there could be heavy termination fees) and it also increases risks of degradation in service and vendor flight.

When considering the costs of exiting the current outsourcing contract, be sure to analyze termination fees, legal termination transfer rights and/or obligations and dispute resolution processes in the current contract. Develop a negotiation strategy with the current vendor based on the results of this analysis. The customer's goal is to determine the best exit strategy with the lowest termination fees. Usually there is no termination fee at the end of the contract or upon a breach of contract by the vendor (called termination for cause). On the other hand, there is usually a payment schedule for termination for convenience (when the customer cannot prove a breach of contract or would rather not go through that process). The closer the termination date is to the start date of the contract, normally the higher the termination fees. The customer and the current vendor may be willing to negotiate a lower termination for convenience fee if the decision to terminate is mutual or if facts indicate (not necessarily conclusively) that there has been a breach of contract.

As a result of the analysis of the legal termination transfer rights and/or obligations, the customer may find there is a need to purchase assets the vendor uses to provide services, take over contracts or employ resources currently providing services. According to Peterson, Prinsley and Kalachman (2003), the current vendor's resources for the subject processes may transfer automatically to the customer or to the new vendor (in European Union countries) under the Acquired Rights Directive. It is also possible that the existing contract may require the current vendor to assist in the smooth transition to a new vendor (called termination assistance services). These services may include documenting processes and requirements for the Request for Proposal (RFP) or transferring knowledge to the new vendor. If no transfer rights have been documented, the rights may be negotiated depending on the current vendor's interest in maintaining a good relationship with the customer with hope to gain new business (p. 4).

In reviewing the dispute resolution process with the current vendor, you may find there is a form of escalation that could provide a method that would address concerns about the current vendor and thereby possibly avoid switching vendors. In addition, you may find methods to solidify the argument that the customer is entitled to termination for cause.

To ensure optimal levels of vendor performance and clear understanding of customer expectations, it is best to have clearly documented Service Level Agreements (SLAs) as part of the contract where the expected levels of service are formally defined for the new vendor. If there are already SLAs in existence with the current vendor, now is the time to revisit them to see if they need updating and to consider providing measures to be enacted for vendor noncompliance to SLAs. According to Halvey and Melby, while most vendors agree to include service levels in the outsourcing contract, they also look for allowance during certain conditions (such as system down time, power failure, break-down of third-party equipment, etc.) The customer may also have SLAs that relate to customer satisfaction, the guarantee of productivity improvements over a period of time and the guarantee of certain cost savings over a period of time. It is also advisable to revisit the SLAs yearly during a multi-year contract with the vendor to make any necessary adjustments in light of changes in services, methodologies and customer's changing business needs.

To avoid breaks in services due to outages and/or disasters, it is best to have clearly documented business continuity plans (BCP) and/or disaster recovery plans where the vendor clearly states their logistical plans to recover and restore the outsourced business functions in the event of a disaster. The new vendor will be expected to present the BCP and/or DRP for the outsourced services and the customer should have the plans reviewed by in-house and/or outsourced specialists.

Planning for the Transition

Once the decision is made to switch vendors, the planning for the vendor transition project includes most of the planning required for any outsourcing project plus additional activities as described in this section.

Define the Steering Committee, working project team and extended support personnel to ensure proper representation from the stakeholders. Define roles and responsibilities and complete the communication plan.

Develop the business strategy for switching vendors. Here is an example business strategy:

  • Establish a scalable and stable platform for outsourcing.
  • Take advantage of talent pool and low labor costs in a particular region.
  • Reduce high cost associated with the current vendor.
  • Improve vendor performance

Communicate effectively the reason for switching vendors through careful socialization of the business strategy with senior management, program managers, vendor managers and the subject matter experts who will be involved in the selection and transition process (such as legal, tax, trade, procurement, etc.). To prevent deterioration of current vendor performance, emphasis must be placed on the correct approach for communication with the current vendor prior to the actual selection of the new vendor. During the socialization process, it is recommended to obtain consensus on a list of potential vendors from senior management and get agreement that the current vendor will be included in the process to ensure a smooth transition.

In the project charter, clearly define the goal statement and the business outcome you hope to achieve based on the business strategy above. State the targets for the performance metrics that the new vendor will be expected to achieve. Use the opportunity statement to define what currently negative trends that will be eliminated and the advantages that will be gained

Develop the Risk Management Plan based on the input from vendor managers, especially those who were involved in transitioning to the current vendor, and from the project team. Example risks are included in Exhibit 1 below.

Risk Matrix

Exhibit 1: Risk Matrix

Plan on a period of time (Transition Period/Parallel Operation Period) when the new vendor and the current vendor will both be performing functions (but not the same functions). Transition one function/process at a time from the current vendor to the new vendor. Have the current vendor resources shadow the new vendor resources to maximize the knowledge transfer. This period of time is referred to as parallel processing, overlap period or transition period. If the current vendor is not part of the RFP process, have the current vendor prepare a detailed plan for the timely transition of knowledge and services to the new vendor.

Decide the date that the new vendor will take over service from the current vendor. It generally takes 6 to 9 months to complete the RFP process, select the vendor, negotiate the new contract, hire and train new resources and transition function to the new vendor. Review the contract with the current vendor for any constraints.

Determine the termination strategy based on the research of the current vendor contract and risk mitigation for the issues identified earlier. Here is a sample strategy:

  • Extend Contracts with Existing Vendors to cover the transition period if needed
  • Include Existing Vendors in RFP Process
  • After New Vendor is Selected, notify Existing Vendors personally that they were not selected instead of using a Rejection Letter
  • Ask Existing Vendors to assist with Training and Transition
  • Consider using Retention Bonuses to avoid vendor flight
  • Consider extending offers to selected Existing Vendor resources to retain business knowledge and skills

Develop the Budget based on input from senior management and the project sponsor. Include the following:

  • Customer Labor
  • Current Vendor Labor (for extension of contract period, if applicable
  • Current Vendor Retention Fee (if applicable)
  • Travel for training and support

Develop the Project Schedule to include time for negotiating with the vendor, hiring of new vendor staff, training of new vendor staff and the transition period. Here is an example schedule (Exhibit 2):

Project Schedule

Exhibit 2: Project Schedule

Plan to give notice to the current vendor at the prescribed time, according to the contract, to avoid automatic renewal of the contract. According to Peterson, Prinsley and Kalachman (2003), it is a good idea to notify the current vendor ahead of time to begin obtaining transition assistance services.

According to Peterson, Prinsley and Kalachman (2003), consider creating a three way governance agreement between the customer, current vendor and new vendor to ensure effective cooperation during the transition period. The agreement would clearly define the roles and relationships.

Identify the equipment and/or contracts presently used by the current vendor to be purchased for use by the new vendor and determine the pricing. Identify any leases, licenses and other contracts that should be assigned to the new vendor. Some vendors have long term contracts that can be costly to terminate – they may willing to pay to have these assigned to the new vendor to avoid termination fees.

Determine if the new vendor should use the services of any sub-contractors presently providing services to the current vendor. Assess the importance of the sub-contracting function and the level of knowledge they have of the customer's services.

Review the contract with the current vendor to determine how customer data will be transferred. The customer should obtain copies of its own data as much as possible under the terms of the contract including service level data, financial data, customer lists, etc.

If the customer determines that there are employees of the current vendor it would like the new vendor to hire, the customer should encourage the new vendor to initiate this hiring process. Before doing so, no-hire and right-to-solicit clauses in the contract with the current vendor should be reviewed. According to Peterson, Prinsley and Kalachman (2003), if the outsourcing function operates in any part of the European Union, the Acquired Rights Directive stipulates that employees will move from the current vendor to the new vendor at the time of transition (p. 3). Most vendors will expect to have autonomy in the hiring process. To avoid problems later, include within the transition plans a screening of the resources selected by the vendor before they are hired.

Consider how to allocate responsibility for projects the current vendor will still be working on at the end of the contract. Determine if the project will be completed by the customer, terminated, transitioned to the new vendor or completed by the current vendor on an accelerated schedule.

Present the Charter, Project Budget, Project Team structure and Roles and Responsibilities, Communication Plan, Risk Management Plan, Milestone schedule, potential list of vendors for discussion and review at the Kick-off meeting with the Steering Committee. Obtain input and approval to proceed with the project. Discuss allowable price ranges for the vendor bidding. Discuss type of contract desired. Discuss allowable length of contract. Determine roles and responsibilities of resources to be involved in the negotiation processes. If necessary extend the contract with the existing vendor to cover the transition period. Start the process of updating documentation for business processes and procedures that will be transitioned.

Implementing the Plan

When considering how to solicit the new vendor, the customer has several choices including the following: Advertising, Request for Information (RFI), Request for Quote (RFQ) or Request for Proposal (RFP). The advertising choice involves asking for sealed bids and there is no negotiation. The vendor reply to the RFI is limited to the information that the customer requests and does not include a price bid. The vendor reply to the RFQ is limited to the price bid and does not include other information. The RFP is the best choice to gather the most amount of information from the vendor and requires a detailed proposal from the vendor including a price bid.

When considering what type of contract to use, the best contract type for business process outsourcing (BPO) services is the fixed price because the majority of the risk lies with the vendor not the customer, the ultimate cost is assured, customer follow-up on services provided is minimized and the vendor is incentivized to complete the services as quickly as possible at the lowest cost.

Make sure the customer has an existing NDA with potential vendors before entering into the RFP process to cover confidentiality since is it a legal contract that outlines confidential information that the parties wish to share but restricts access to third parties.

Using previous customer RFP and SOW documents as a starting point develop the RFP to be distributed to the potential list of vendors. The RFP must clearly communicate the scope of work required of the vendor – the clearer it is, the better the response (Proposal) that will be obtained from the vendor. Make sure that the RFP is approved by Legal Counsel before finalizing and ask for legal input on the terms and conditions.

Identify resource hiring criteria to be communicated to the new vendor. Update job descriptions for new vendor resources with as much detail as possible, including any foreign languages required and level of proficiency, education levels, etc. Begin development of the training plan. Manage the updating of documentation of business processes and procedures that will be transitioned.

Establish a temporary generic e-mail address and assign a team member(s) to be responsible for the communication channel. Use the generic address for sending communication including the RFP to potential vendors, receiving questions and proposals from the vendors, etc.

Be sure to outline the following in the RFP:

  • Executive Summary – State the purpose of RFP, what are your intentions.
  • Intent to Bid Form – Ask vendor to complete form within one or two weeks with intention to bid or not and include any questions to be addressed during the vendor conference calls.
  • Stakeholder Relationship – the roles and responsibilities of the outsourcing company and the vendor throughout the RFP process
  • Legal Terms and Conditions – Customer has right to accept or deny proposals, Confidentiality in the existing NDA will cover this RFP. If vendor is selected, they must sign a new agreement or an amendment to an existing agreement. According to Halvey and Melby, include salient terms of the contract up front in the RFP (called a term sheet) to and set the stage for the negotiation process. This creates a framework for the parties to build a viable contract during the negotiations. The vendor can note any objections to these terms in their proposal (Halvey & Melby, 2000, p. 47).
  • Instructions for Responding to the RFP – Date to Submit Questions with Intent to Bid Form, Vendor Conference Date, Proposal Submission Date and Address.
  • Reporting Structure of vendor personnel to customer personnel, organization structure for vendor personnel
  • Approach for Transition – describe the transition approach including period of time that the new vendor and current vendor will both be providing services while the functions are transitioned one by one from the current vendor to the new vendor. Define the roles and responsibilities of the customer and the vendor during the transition including a screening of the resources that the vendor has selected before they are hired.
  • Assets, Contracts, Sub-Contracts and Data – Identify equipment, contracts and subcontracts to be transferred from the current vendor to the new vendor. Identify how customer data will be transferred.
  • Project Tasks and Deliverables – clearly identify the difference phases of the project and how the transition will take place. Include due dates for proposals, contract signature date, deadline for hiring resources, beginning of transition and end of transition (when vendor becomes fully operational).
  • Vendor Presentations – Include a provision either requiring or giving the customer the option to require the vendor to make a presentation of their proposal, if needed.
  • Scope of Work – include location (if applicable), statement of work, services to be provided, escalation support structure, volume of work, etc.
  • Vendor Background Information – ask for general background information, vendor's industry experience with the specific activities being outsourced and with the transition activities, financial information, customer base/references
  • Expected vendor performance – clearly identify the SLAs the vendor will be required to meet.
  • Vendor capabilities form (to be completed by the vendor) - list out all the capabilities expected of the vendor and allow them to identify their level of proficiency in each capability.
  • Job Descriptions for vendor resources
  • Employee Issues – Does the customer wish the new vendor to hire existing resources from the current vendor?
  • Additional Capabilities – a structured list of capabilities the customer is seeking including security measures, ongoing personnel training, development and retention, disaster recovery plans, infrastructure, etc. The vendor determines the format of this section in the proposal.
  • Implementation Approach – allow vendors to communicate their suggestions for implementation methods.
  • Termination – Specify conditions that may trigger termination: failure to provide critical services, failure to meet performance standards, change of control, etc.
  • Price Bid Response form – this should include individual personnel roles with applicable monthly and yearly costs. State the type of contract to be awarded. The type of contract should not be negotiable.

Select a scoring mechanism for the raters to use when evaluating the proposals. An example scoring matrix using scores from 1 - 5 is shown below (Exhibit 3):

Scoring Definitions

Exhibit 3: Scoring Definitions

Develop the evaluation criteria worksheet corresponding to the RFP sections that require a response from the vendor (include price as a capability). If some capabilities are more important than others, use a weighting scheme. See example evaluation sheet (with sample ratings) completed below (Exhibit 4):

Vendor Evaluation – Rater #1

Exhibit 4: Vendor Evaluation – Rater #1

Hold a second Steering Committee meeting to review the contents of the RFP and the evaluation criteria and obtain sign-off.

Communicate carefully with the current vendor the purpose of the RFP process and the need for their support – let them know at this time that they have an equal opportunity to obtain the winning bid. Notify them of the transition approach. After the completion of this communication with the current vendor, send the RFP to the potential vendors using the previously created e-mail address.

Hold Vendor conference calls (a.k.a bidder conferences) for each vendor, at a specific time. Conduct introductions and cover general purpose of the RFP. Cover the questions that are submitted ahead of the conference call by each vendor. Ask for any additional questions and communicate that all vendor questions and answers will be distributed to all vendors.

Review the Proposals and determine if they meet the essential requirements – are they complete? Send a thank you note confirming the receipt of the Proposal to each vendor. Distribute Proposals to all team members for their review and ask them to complete the evaluation criteria worksheet by the expected due date.

Hold a meeting with the team members responsible for reviewing the proposals to review their feedback. Look for vendors to eliminate and develop a short list of candidates. If necessary develop new criteria based on the results and comparisons of the proposals. Score each capability for each vendor and calculate the percentage achieved as per exhibit 5 above.

Develop a matrix to compare key factors that the Steering Committee can use for decision making. A sample matrix is shown here (Exhibit 5)

Vendor Comparison Matrix

Exhibit 5: Vendor Comparison Matrix

Hold a third Steering Committee meeting to share the proposal evaluations and get approval to proceed. Notify the two top ranked vendors that they are on the short list and that negotiations will commence to finalize the selection of one vendor. Narrowing the selection to one vendor from the beginning will limit the negotiation process. If the first ranked vendor is unwilling to make certain commitments or lower its price, then the second ranked vendor might be a better choice. Thank the other vendors and notify them they were not selected. If asked, provide reasons why.

The customer is often at a disadvantage during the negotiation process because the vendor is usually more experienced in negotiating outsourced agreements. According to Halvey and Melby, the customer should view the negotiation process as a major part of the outsourcing process, allocating sufficient time and resources to this phase of the project (2000, p. 43). The customer should consider the value of the contract to the new vendor. In addition to the revenue the contract can generate, there is public relations value for the vendor to gain. There is also psychological and financial impact associated with not finalizing the contract. Both parties will invest money in the process. Vendors usually want to dominate the negotiation process. Be sure to determine up front whether the standard contract (SOW) form used by the vendor or the customer will be used for this contract. It is recommended that the customer create the SOW based on standard forms, best practices, previous agreements and input from legal and procurement SMEs giving the customer the upper hand during the negotiations.

According to Halvey and Melby, do not present a huge amount of requests at the beginning of the negotiations, as this sets a confrontational tone. If the vendor has already received the terms and conditions within the RFP term sheet described above, then the vendor is aware of the customer's legal concerns and has come to the negotiations table willing to negotiate and discuss these terms. Have a fall-back position for each issue under discussion (p. 49). Determine which issues are deal-breakers and which are not before entering into negotiations.

Establish how currency exchange fluctuations will be handled and determine who will bear the currency risk – the customer or the vendor Use an agreed-upon index (e.g. Bloomberg index) for currency exchange and a date each year when the exchange rate will be calculated using this index. Establish an agreed upon threshold amount (such as +/ – 5%) that the currency exchange rate can fluctuate before service fees will be recalculated.

Establish how changes to the cost of living will be handled, especially if the vendor will operate in a Third World country. It is recommended to use a three year average (called a Current Average) of increases in cost of living according to several indices in the country of operations for the vendor. Each year when the Current Average is calculated (using the % for the previous three years), if the average is greater than a threshold (say 9%), the parties will meet to agree on an adjustment to the service fees.

Establish how fluctuations in volume of work will affect service fees. Additional volume adjustment service fees should only be paid when approved in writing in advance by the customer. For the beginning of the contract (6 months for example – called the base-lining period), the company should not pay for volume adjustments. An agreed upon threshold should be established (say 8% for example) that will be used to trigger service fees for volume adjustment. The threshold should be re-established annually in correlation with the capacity planning process.

Settle on the price and the contract duration before negotiating other terms of the SOW for simplicity and clarity. During the negotiation process, document the customer replies to the vendor proposals in an e-mail that includes details of counter offers, backup material and questions. Once a reply is received from the vendor, hold a conference call to discuss the current state of the negotiation. Repeat this process for all aspects of the negotiations. Summarize the negotiations for your senior management at every step of the way. Ask senior management when they want to be included in the negotiations.

SLA metrics are useful measures of ongoing performance and can include response times, delivery requirements, reporting requirements, customer satisfaction, and guaranteed saving or cost reductions. Use Service Credits (also called Performance Credits according to Halvey and Melby (p. 76) as an incentive for performance or a penalty for non-performance of the SLA metrics, depending on your perspective. For example, the amount of monthly service credits to be applied to the monthly payment depend on (1) maximum overall applicable monthly payment amount (5%, for example) which is the same for all SLAs (2) weights or percentages applied to each SLA (40% or 60%, for example) depending on the level of importance (3) percentages for each SLA depending on the ratio of the price for that service/process to the overall monthly price. In the example, Level 1 metrics are weighted at 60% and Level 2 metrics are weighted at 40%. Exhibit 6 below outlines the calculation of service credits for two specific processes.

Service Credit Example Calculations

Exhibit 6: Service Credit Example Calculations

To balance the negative connotation of Service Credits, the contract can also include wording that allows the vendor to Earn Back the Service Credits (also called Performance Bonuses according to Halvey and Melby (p. 76) if the vendor meets or exceeds the service level in each of several subsequent months following the month in which the failure occurred.

Include details of the process to handle ongoing performance problems. According to Halvey and Melby (p. 76), the customer should include a mechanism in the contract that requires the vendor to investigate the root cause of the failure to meet an SLA and outline an action plan to ensure the failure will not occur again. The Right of Recourse process in the matrix below has two levels and includes conditions for (1) producing this action plan, (2) entering a Dispute Resolution Process (documented within the Master Service Agreement) and (3) escalation to the next level (4) termination for cause and (5) ending the right of recourse process.

Right of Recourse Process Example

Exhibit 7: Right of Recourse Process Example

Establish an Exit Management Plan that outlines the steps to be followed if the customer terminates the contract for convenience or for cause. The steps should include how to transfer service to a new vendor, transfer of knowledge, transfer of resources, roles and responsibilities during the transfer and transfer assistance services terms.

Once the contract negotiations process is complete, assemble and finalize SOW (contract). If the negotiations are not finalized in time for the vendor to begin ramping up for the transition (including hiring staff), do not make use of a letter of intent to temporarily serve as an agreement as it is not a true and binding legal document. It is preferable to make adjustments to the timeline where possible instead. Obtain assistance from legal, procurement, tax, trade personnel as needed for the crafting of the SOW.

The SOW should answer the following questions (1) what is it? (2) Who does it? (3) Who owns it? (4) How much is paid for it? (5) What happens if it is not done? Create a (or use an existing) Master Agreement with this vendor which sets out terms and conditions governing the overall provision of services. The SOW is subject to and governed by the Master Agreement should be referenced within the SOW. Content of the SOW should contain/address the following:

  • Executive Summary – Purpose of this contract
  • Term and Termination – length of the contract and rights of termination
  • Vendor Scope of work/ Scope of Services – High level outline of the services to be provided.
  • Vendor Statement of Work – a more detailed description of the statement of work than presented in the RFP. A complete description of the processes and requirements.
  • Documentation and Business Reviews – the documentation and reports that the vendor responsible for including delivery times and business review schedules.
  • Management reporting relationships between vendor and the customer
  • Transition Plan – deliverables and timeline. Roles and Responsibilities for both parties during the transition. Include how the business processes and procedures, operations, assets and resources be transitioned to the new vendor.
  • Assets, Contracts, Sub-Contracts and Data – Identify equipment, contracts and subcontracts to be transferred from the current vendor to the new vendor. Identify how customer data will be transferred.
  • SLA Metrics/ Vendor Performance – It is recommended to assign SLAs to categories depending on their importance to the business and quantify the service credits that will be collected for non-performance. This can be a very contentious issue in the negotiations. See details in Exhibit 6
  • Right of Recourse for ongoing non-performance – This should make reference to a dispute resolution process within the Master Agreement. It is recommended to have several levels of recourse. See exhibit 7
  • Transfer of staffing
  • Disaster Recovery/Business Continuity Plan
  • Operational calendar – holidays observed, hours of operations
  • Change control procedures for the SOW
  • Service Fees
    • Currency Exchange Fluctuation allowances
    • Fee adjustments due to Standard of Living adjustments
    • Fee adjustments for fluctuations in the volume of work
  • Length of contract
  • Service Level Credits and Earn Backs
  • Termination Fee Schedule – state what fees will be paid for termination for convenience up on a decreasing amount schedule. If the contract spans several years, there should be no fees for termination for convenience after a certain number of years of service.
  • Exit Management Plan

Hold a fourth Steering Committee meeting to review the contents of the SOW, the results of the negotiations and obtain approval to proceed.

After the SOW/contract is signed, schedule meetings to discuss status of hiring, training and business transition. Finalize the training plan in detail; end each training module with testing of the knowledge proficiency of the new vendor resources.

Implement the transition plan. To allow for flexibility and save time in the schedule, use a staggered schedule for hiring, training and implementation of parallel support. Have the vendor hire the critical business teams first to allow for maximum training and transition. Schedule the training according to length of time needed for each team. Phase in the new vendor one process at a time. Schedule the parallel support to cover the end of a quarter for teams that have quarter end processes. To ensure effective knowledge transfer, include objective metrics and checkpoints during the overlap (parallel processing) period. Have the new vendor interview current vendor resources that were identified as potential resources for the new vendor. Have the new vendor enter into subcontracts with vendors that were identified during the planning process. Complete the bill of sale or other transfer for any equipment you decided to purchase from the current vendor during the planning process and make sure you obtain any licenses that accompany the equipment. Work with current vendor and new vendor to transfer any equipment leases, software licenses or other contracts that were identified in the planning process. Make sure to obtain a waiver of any past claims from the third party.

Obtain policy and procedures manuals, descriptions of systems, equipment, software, architectural standards and materials used by the current vendor to provide services. Obtain materials developed by the current vendor under the outsourcing agreement (including source code) before the transition. Arrange for the employees of the current vendor who have been identified to provide knowledge transfer to have access to the new vendor facilities during the transition period.

Closing the Vendor Transition

Close out the project by reviewing the lessons learned with the project team and closing out contracts with the previous vendor. Ask the previous vendor to destroy any customer data still in its possession. Conduct ongoing performance measurement through periodic checking of SLA metrics. Revisit the SLAs yearly during a multi-year contract with the vendor to make any necessary adjustments in light of changes in services, methodologies and customer's changing business needs.

Every change of vendors is unique, with its own specific issues arising from the particular aspects of the current outsourcing contract, the scope, the technology and the business. However, by following the recommendations and basic roadmap in this paper along with good sourcing and project management practices, a customer can significantly increase the business value, minimize the risk and minimize negative customer impact when changing vendors.


Halvey, J.K., Melby, B.M., 2000, Business Process Outsourcing, New York, NY: John Wiley & Sons.

Kerzner, H., 2001, Project Management, A Systems Approach to Planning, Scheduling and Controlling, New York, NY: John Wiley & Sons, Inc.

Peterson, B., Prinsley, M, Kalachman, M. (2003) Second Stage Outsourcing: Keys to Success in Switching Suppliers. Mayer, Brown, Rowe & Maw's International IT and Outsourcing Newsletter, Issue 3. 11.03. Retrieved June 11, 2010, from http://www.mayerbrown.com/publications/article.asp?id=1829&nid=6

Project Management Institute. (2008) A guide to the project management body of knowledge (PMBOK Guide®) (Fourth Ed.). Newtown Square, PA: Project Management Institute.

© 2010, Patricia Garofano
Originally published as a part of 2010 PMI Global Congress Proceedings – Washington DC



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