Companies Can Reduce Costs, Improve Service When Renewing Benefits Outsourcing Contracts
Other savings can be tied to renegotiating contract terms based on actual employee usage patterns and customer service trends, now that employers have several years' data.
"Many of the first generation total benefits outsourcing contracts negotiated five to seven years ago are up for renewal. While most companies are likely to renew their deals, doing so without significant renegotiation could be a financial mistake," says Robert Crow, a senior consultant at Watson Wyatt, who advises large companies on their contract renewals. "Employers have more leverage and information than when they negotiated their first contracts, and they should capitalize on this opportunity to reduce costs and improve customer service."
Crow says many employers experienced higher than expected outsourcing costs because of certain elements in their original contracts. Locking in long terms, for example, prevented employers from negotiating lower rates after just a few years. Not including reasonable transition fees in the event the employer's population size changed dramatically also benefited vendors.
"Employers are in a much stronger position today," says Crow. "Consolidation in the outsourcing market, combined with the availability of important usage trends and other data, give companies the leverage they need to negotiate more favorable terms."
To get the most out of the next generation of outsourcing contracts, Crow offers employers these negotiation tips:
- Focus on service needs: With advances in technology and growing employee comfort with web-based transactions, many of the service provisions necessary five years or so ago may no longer be needed. "More workers now use the web to conduct benefits-related transactions. This means fewer employees are calling outsourcers' customer service call centers than in the past, lowering the vendor's staffing requirements and costs. Companies must capture these types of shifts and potential savings during contract renewal negotiations," says Crow.
- Use acquired data: Original outsourcing contracts were negotiated without much information on potential usage levels and other factors. Now, after years of data collection, companies have real numbers at their fingertips to help them negotiate contracts that closely align with their needs. By looking at measures such as call volume, content and call resolution rates over a period of time (12-24 months), companies can better predict future service center usage for leveraging in the negotiations.
- Solicit stakeholder input: Input from employees, benefits staff and other key stakeholders can help companies get a better perspective of actual service quality and cost savings and translate this knowledge into action. If, for example, employees report frustration with long wait times during service center calls, the new contract should modify existing performance guarantees to address the changing requirements.
- Consider shorter contract lengths: By negotiating shorter contracts or contracts that allow for mid-term renegotiation, companies can obtain the flexibility they need to update their contract terms to reflect the changing environment. "It's important for companies to have the option to adjust their outsourcing strategies to use new technologies, incorporate new groups of workers added through mergers or acquisitions, and capture any benefits and savings associated with further consolidation within the outsourcing industry," says Crow. "We have seen a continued reduction in various service charges over the last six years. Because we expect this trend to continue, locking into a long-term contract may not provide the best deal.
"Industry consolidation and changes in service needs make this is a great time for companies to negotiate their next outsourcing contracts. But lowering costs and improving service quality isn't automatic. Companies must be proactive in their contract renewals to get the most competitive deal," concludes Crow.
About Watson Wyatt Worldwide
Watson Wyatt & Company, the primary subsidiary of Watson Wyatt & Company Holdings (NYSE: WW), is an international human capital consulting firm that provides services in the areas of employee benefits, human capital strategies and related technology solutions. The firm is headquartered in Washington, D.C., and has more than 4,100 associates in 61 offices in the Americas and Asia-Pacific. Together with Watson Wyatt LLP, a leading Europe-based consulting partnership, the firm operates globally as Watson Wyatt Worldwide. Watson Wyatt Worldwide has more than 6,200 associates in 88 offices in 30 countries.
Source: Watson Wyatt & Company