Benchmarking in outsourcing

The following TMT practice note provides comprehensive and up to date legal information covering:

  • Benchmarking in outsourcing
  • When are benchmarking provisions used?
  • Key considerations
  • Benchmarking strategy and the importance of bargaining strength
  • What goods and services can be benchmarked?
  • Frequency of benchmarking
  • Choosing the benchmarker
  • Comparators
  • Who bears the costs?
  • Consequences of benchmarking
  • More...

Benchmarking in outsourcing

Benchmarking is the process by which the services of an existing outsourcing supplier are compared to the same or similar services of other suppliers.

A customer may want to undertake this kind of comparison to establish whether or not the services provided by its existing outsourcing supplier are of an equivalent price and quality compared to the market generally and to check that it is still receiving value for money.

This Practice Note considers the following legal and commercial aspects of benchmarking in outsourcing deals:

  1. When are benchmarking provisions used?

  2. Key considerations

  3. Consequences of benchmarking

  4. Supplier considerations

  5. Customer considerations

For a template benchmarking schedule see Precedent: Benchmarking schedule.

When are benchmarking provisions used?

Benchmarking provisions are often found in outsourcing agreements (particularly IT-related outsourcing agreements) which are: (i) bespoke deals between a customer and supplier (rather than being on essentially the supplier's standard terms and conditions); (ii) relatively long term (eg three years or more); and (iii) relatively high value such that any benchmarking exercise could lead to potential savings for a customer which justify the time, effort and cost of going through a benchmarking exercise.

For any number of reasons, the general market price of the goods and services being provided under those outsourcing agreements may reduce significantly in the market during the contract term.

For example, at the start of a data hosting contract the

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