Beware of Minimum Commitments for Outsourcing Contracts

"In today's economic conditions, no client can safely and accurately predict longer term departmental budgets and thus there is no clear vision on outsourcing budgets," explains Vashistha. "Keeping up with minimum volume commitments can become very challenging."

Despite vendor pressure, some outsourcing customers are successfully pushing back on minimum volume commitments, says Tanowitz. They're finding other ways to satisfy an outsourcing vendor's need for ROI:

1. The client compensates the vendor for documented costs that cannot be reduced, eliminated or mitigated should they terminate the contract.

2. Client and provider agree to a tiered discount structure. The vendor captures a bigger (but reasonable) margin at lower volumes while the customer reaps lower costs when work increases.