The need to renegotiate IT supplier contracts can be minimised by making deals as flexible as possible, according to brewer InBev.

But business strategy changes sometimes mean it is necessary to return to the table with suppliers, said Leandro Balbinot, director of global technology operations the firm at last week's Forrester services and sourcing conference in London.

The 89,000 strong company, which produces a range of beers including Stella Artois and is attempting to finalise a deal to buy Anheuser Busch for approximately $52 billion, had had a “bad” seven year contract it had renegotiated, he said, not disclosing whether or not this referred to deals with IBM and BT signed in 2005.

“Most initial contracts are based on incomplete information,” Balbinot said, adding that companies often try to achieve annual cost cuts and forget overall strategy.

The original contracts that businesses sign often do not work later in their lifecycle, he said, because of “consumption increases, reductions in IT prices, or scope changes following acquisitions and divestments”.

But firms also make mistakes during renegotiation, he said, including aiming to change the entire contract at once, and approaching suppliers before defining exactly what the new aims are.

“You need to know what incentives you can offer to the supplier too,” he said. “One of the best incentives is offering additional areas of business, and this is the best route to go, if you can.”

InBev extends outsourcing contract

InBev regularly surveys its managers regarding supplier performance, he said. The company displays the results on dashboards for executive management to monitor how successful work is.

The calls for flexibility and fairness in supplier discussion reflect the experience of Procter & Gamble CIO Filippo Passerini, who said that a fundamental change in the company’s negotiations had turned around the success of services contracts.

Passerini said the household goods giant makes sure it gives real incentives to suppliers and co-operates on long-term goals so that its contracts remain valuable to both parties.

Related articles:

Whitbread CIO Ben Wishart reveals his tactics