Overview
A $28B energy company had a long-standing relationship with IBM with a current annual spend of $39M for Application Development and Management (ADM) Services. The client had not benchmarked its relationship with IBM in some time and wanted to leverage a benchmark assessment to determine if they should stay with IBM or go to market for these services.
The client engaged UpperEdge to do a benchmark assessment of its existing relationship with IBM to market to help the client achieve that goal.
Approach
UpperEdge secured copies of all in-scope services contracts, schedules, change orders and current Master Services Agreement (including all amendments) between the client and IMB to begin a comprehensive 5-part assessment process as noted below:
- Relationship Assessment: Detailed inventory of scope, spend, and delivery metrics to baseline assess current ADM service scope
- Contracts Assessment: Complete tear down and market comparison of expected, industry best practices terms vs. the contracted terms established at the Master and SOW levels of IBM’s services
- Financial Assessment: Mark to Market provider specific benchmarking of rates, resource units, rate locks, COLA caps, volume discounts and productivity
- Service Delivery Assessment: Provider specific benchmarking of Service Level Frameworks and individual service level terms
- Opportunity Assessment: Quantification of gaps to market identified in the prior 3 assessments that generate real savings targets along with the identification of negotiation leverage to secure concessions
Negotiated Outcome
Based on an addressable spend profile of $195M over the next 5 years, $23-40M in savings opportunities were identified based on current gaps in pricing to market. The following is a more detailed breakdown of these savings opportunities:
- Volume Discount Improvements: Incremental Savings of $7.8-13.6M over 5 years based on an average annual spend of $34M
- Productivity Improvement Commitments: $15.3-$23M in savings over the next 5 years to the client’s Managed Services fixed and variable pricing year-over-year
- Rates/Resource Unit Savings: ~$190K in savings over the next 5-years if SWL Server Database Support Unit Rates reduced compared to the market.
In addition to identified savings, additional improvements were uncovered that will improve provider accountability, create a more balanced risk sharing profile and limit IBM’s ability to raise change orders.
Improved Change Controls:
- Errors & Omissions: Prevents change orders due to IBM’s estimating errors
- Notice & Cure: Requires IBM to notify the client of the client’s missed obligation with time to fix it before raising a change order
- No Cost Change Orders: IBM will not bill the client for time to investigate a requested change
Service delivery Improvements also identified as noted below:
- SLA Modifications: Secure improvements to SLAs and commitments to penalties for missed SLAs
- Agile SLAs: Establish service level commitments to development efforts, including agile focused SLAs for persistent teams
