Charging models in outsourcing
Produced in partnership with Richard Stephens and Oscar Rowlands
Charging models in outsourcing

The following TMT practice note Produced in partnership with Richard Stephens and Oscar Rowlands provides comprehensive and up to date legal information covering:

  • Charging models in outsourcing
  • Initial considerations
  • Fixed price model
  • Time and materials
  • Pay as you go
  • Identifying the 'unit'
  • Volume changes
  • Pricing transparency—open book pricing
  • Changing the price
  • Changes in assumptions or dependencies—true-up
  • More...

This Practice Note considers the following key issues in relation to outsourcing charging models:

  1. Initial considerations

  2. Fixed price model

  3. Time and materials

  4. Pay as you go

  5. Pricing transparency—open book pricing

  6. Changing the price

  7. Expenses, tax and other costs

  8. Contract extensions

  9. Drafting the schedule

Outsourcing has been around for long enough now to be regarded as a mature business activity, and there is some degree of standardisation and established best practices in the market. This hasn’t prevented attempts to find innovative ways of harmonising a supplier’s need to make a profit with the customer’s need to save costs (and see an improved service) through re-evaluating the crucial outsourcing pricing model. While new approaches may be emerging, they are barely registering in terms of usage and the tried and tested models, described below, are very much still dominant.

When negotiating an outsourcing agreement, there are a number of crucial contractual provisions that have to be addressed. For example: limitation of liability, exit provisions, change control, indemnities, service levels and the charging model itself. Most of those provisions are effectively 'parked' once the contract is signed and have little or no bearing on the ongoing operation of the outsourcing. However, service levels, service credit regimes and the charging model itself are provisions that potentially have continuing impact. Of those three provisions, the charging model (into whose operation service levels

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