Are some back-office contracts too big to fail?

I am sure you heard this same term applied to banks, likewise this applies to large outsourcing and offsite records storage contracts too.

Many firms, however, just renew their outsourcing and offsite contracts with their current vendor. They accept the 5-10% discount the outsourcing vendor is giving them to renew–or in the case of offsite records, the 5-10% increase and move on.  In both situations, their pricing should be decreasing anywhere from 10 to 30% in addition to their terms having the capability to be vastly improved.

Why do firms just renew without looking at the market and reducing their costs by 20%?

  • If it’s not broken – If the services are running well, most firms don’t want to upset the apple-cart and are willing to bypass the 20% of savings.
  • Fear of failure and transition – Making a switch involves some level of risk and additional work; many firms do not want to jeopardize their current situation for a 20% reduction in cost.
  • Lack of in-house bandwidth and expertise – The vast majority of legal administrators and their staffs don’t have the expertise or the time to properly complete a Request for Proposal (RFP) to possibly initiate a change.
  • The vendors are running the firm – Many firms say they don’t want to put their vendors in a competitive situation because they are afraid of how their current vendor will react.

When the idea of looking at the market is broached with a firm, most will respond that they don’t want to make a vendor change. In reality, the firm doesn’t have to make a change to realize the reduced costs and improvement in terms, all they have to do is create a competitive situation for their current vendor(s).

Don’t set your vendors up to be ‘too big to fail.’  In the legal marketplace, there are firms that lead and firms that follow.  Leaders are not afraid to makes changes and sometimes you have to break a few eggs to make an omelet. The firms that lead are the ones that will survive long-term.

Which one is your firm?