Savvy IT outsourcing customers insist on including benchmarking clauses in their IT services contracts. Benchmarking clauses are beneficial to outsourcing customers because they allow the customer to bring in a third party to assess the competitiveness of the outsourcer's prices.
But benchmarking can be a daunting task. It requires the outsourcer's often reluctant participation. It's expensive. And it takes time.
Buyers often begin to think about benchmarking when times are tough and they need to renegotiate their outsourcing contracts to lower their costs-the very time when devoting additional funds and resources to a benchmarking effort is most difficult.
But there is an alternative, say some consultants-the proxy bid.
"A proxy bid represents what the benchmarker would bid to provide the services if the benchmarker were in the outsourcing business," explains Scott Feuless, senior consultant with Compass Consulting Services. "Independent [benchmarking] firms are not in the outsourcing business, but they have access to extensive data on what the services cost and how they are priced."
Unlike formal benchmarking, which requires the outsourcer to provide data and participate in interviews, a proxy bid does not require the vendor's participation.
Consequently, adds Feuless, the proxy bid process can be less contentious than traditional benchmarking. Outsourcers who get called on the carpet by third-party benchmarking firms are often reluctant to participate.
It's no wonder: By initiating benchmarking, a customer is essentially saying they don't think the provider's prices are fair.