At the 2013 ISG Sourcing Industry Conference, a panel of experts from ISG, WilmerHale and IBM discusss how commercial agreements will evolve going forward.

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Market Trends
Richard Fogel, ISG Vice President and General Counsel
Robert Finkel, Partner - Wilmer Hale
John Funk, Senior Counsel - IBM
Thomas Young, Partner – ISG
9 September 2013
How will Commercial Agreements Evolve Going
Forward?

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Over the past decade, many sourcing decisions and projects have evolved to from
the strategic to the tactical. The larger the company, the more this is true.
Sourcing and the CxO
CxO
N-1
N-2
SourcingRelatedProjects
Strategic
Tactical
Higher
Lower
Engagement Size
Engagement Margins
Lower
Higher
Competition
CostofSales
GeneralTrend
For higher margins and better overall engagements, firms need to get
back to the C-Suite to solve problems and address strategic imperatives.

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MARKET TREND
As technologies evolve, Functional Out-Tasking will become a more pervasive in the
industry. The commercial contracts will have to evolve as well.
Services Supply Chain Fragmentation
Multi
Tower
One Neck
To Choke
Model
Tower 2
Tower 3
Tower 4
Tower 1
1000 Page
Contract
100 Page
Contract
As commercial arrangements
shrink in size and scope, so
must the legal and commercial
framework of the relationship

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Misalignment of Business Practices & Services
In today’s market, the pace of change exceeds our pace of learning. The divide is
noticeable and increasing at an alarming rate.
Business
Alignment
Technology
& Services
Business
Practices
We are
here
Growing
Misalignment

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Where are we going?
In 2012 ISG suggested that the RFP is dead (or should be) in today’s market. In
2013 it is time to explore a framework of Evolutionary Contracting
RFP is Dead
► RFP is too prescriptive.
► RFP limits innovation.
► RFP’s are too formal and they do not foster
trust or transparency
► Need something more flexible in the market 
RFS process.
► RFS can yield more innovative solutions for the
base contract.
► RFS with Collaborative Contracting, done well,
can foster trust and transparency.
Time for Evolutionary Contracting
► Contracts need to evolve over time.
► Static operating models for multi-year durations
do not make sense.
► Base Contract is just the beginning of the
business relationship – it must grow/evolve or
run the risk of becoming outdated and
irrelevant.
► Buyers and Sellers need to engage in Mutual
Consent Commerce.
 True win/win with easy on easy off terms.
 Think handshake with 100 pages vs. classical 1000
page contract.
 Think dating vs. marriage

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Appendix Slides

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Year 5/7
Contract Term
Base
Contract
The focus of the Classic RFP approach is to get to the “perfect” Base Contract that will
support a services agreement for a typical term of 5-7 years.
Visualization of Classic RFP Process
Classic RFP Approach
Transition
Phase
Transformation
Phase Steady State
Service Provider Executing Solution Defined in
Base Contract
No Innovation or Limited
Average Point Where
Buyer to Rebid/Renegotiate
Focus on Getting to “Perfect” Base Contract
Process is Formal – Trust is Thin
Approach is Closed Book
Seller is Restricted in Solution
Buyer is Prescriptive
Slow/Expensive
Buyer Solution

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Year 5/7
Contract Term
Base
Contract
The focus of the RFS is seek solutions from the market that fit your environment, but do not
prescribe the solution.
Visualization of Typical RFS Process
Transition
Phase
Transformation
Phase Steady State
Service Provider Executing Solution Defined in
Base Contract
Initial Innovation
Avg Pt Rebid/Renegotiate
Generally further out than RFP
Seller SolutionRFS
Collaborative
Contracting
Faster Less Costly
Buyer Unconstrained
Seller Innovative & Creative
Approach Requires Transparency
Process Builds Foundation of Trust
Focus on Evolutionary Contract Phase
RFS

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Foundation – Trust & Transparency
Outcome Based
Stage 3
Evolutionary
Contracting
Base*
Contract
2.0
The primary focus of most sourcing initiatives is to get to the base contract. However, the
value of a relationship is to be derived in the evolutionary contracting phase.
Evolutionary Contracting: Key to Continuous Value
* - Base Contract 2.0: Solutions may be different, but regardless of the approach (top down or bottoms up), a well run process will end up with similar T’s & C’s and market pricing.
Input Based
Stage 1
Transaction Based
Stage 2
Contract Pricing & Terms
Faster Less Costly
Buyer Unconstrained
Seller Innovative & Creative
Approach Requires Transparency
Process Builds Foundation of Trust
Focus on Evolutionary Contract Phase
Focus on Getting to “Perfect” Base Contract
Process is Formal – Trust is Thin
Approach is Closed Book
Seller is Restricted in Solution
Buyer is Prescriptive
Slow/Expensive Innovation
Seller Solution
Buyer Solution
Mutual
Consent
Commerce

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What needs to Change?
The focus of commerce needs to shift from the “deal” or event of signing, to the
framework and evolution of the deal as we move through a dynamic market.
► Base Contract 2.0
 Looks more like 100 pages than 1000
pages
 Ease of expansion AND exit for both
parties
 Focus on bi-lateral transparency
 Rely on trust not legal terms
► Evolutionary Contracting
 Mindset that the contract is an
understanding not a document
 Focus on change and evolving structure
 Input  Transaction  Outcome
 Mutual Consent Commerce
 Both parties need to ensure that the
other party is succeeding.
Base
Contract
Base
Contract
2.0
Contract Term
Evolutionary
Contracting
Typical Base Contract
& Governance Framework
New Framework that recognizes
that the world is changing
faster than we are

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