Trends and paradigm shifts
– What the 2026 outsourcing contract will look like
For many years, outsourcing evolved incrementally, with only modest changes to contracting practices and drafting conventions. Whilst service delivery models have adapted—particularly with the emergence of private, public and hybrid cloud architectures—the fundamental structure of outsourcing contracts has remained largely unchanged, relying on the same allocation of rights, risks and bargaining power for decades. Outsourcing became standardised, almost commoditised, with only the largest and most complex transactions demanding genuine innovation.
Various trends emerged and faded—”strategic outsourcing”, “outcome-based outsourcing” and “vested” models among them—without achieving critical mass across the full spectrum of outsourcing segments (IT, business process outsourcing, facilities management and logistics). Similarly, measurement frameworks evolved through “XLAs” and balanced scorecard approaches before reverting to conventional SLAs and KPIs.
The Traditional Paradigm
The outsourcing paradigm that dominated from the 1990s onwards rested on several foundational assumptions:
• The perception that buyer requirements could be fully anticipated and expressed as final specifications
• The majority of requirements articulated as output-based obligations supported by concrete service levels (save for security and business continuity requirements, where input-based specifications remained relevant)
• Services defined within largely independent service towers
• Evergreen provisions of a general nature, typically impractical and difficult to enforce
• Pricing models that evolved from initial “black box” approaches to resource unit and ARC/RRC-based structures over the past two decades (though resource units rarely reflected true costs)
• No currency or cost-of-living adjustment during an initial period (often three years), followed by at least inflation-linked adjustments
• Flexible asset ownership models, allowing customers to select arrangements aligned with their strategic objectives, with pricing adjusted accordingly
• Financial engineering commonly deployed, with extensive customer termination-for-convenience rights exercisable against payment of fees based on pre-agreed non-depreciated supplier investments (excluding lost future revenue or profits). Suppliers held no reciprocal termination-for-convenience rights
• Subject to customer termination rights, contract terms consistently shortened to a standard three-tofive-year duration
• Detailed and multiple termination-for-cause triggers for customers, whilst supplier termination-for-cause rights were curtailed
• Benchmarking provisions—often with automatic adjustment mechanisms—included but rarely invoked in practice
• Elaborate and practically feasible exit assistance obligations, typically requiring separate payment
• Effective dispute resolution processes through standing neutrals, expert determination or fast-track procedures
This customer-friendly approach reflected the buyer’s assumption that a robust contract weighted in their favour was necessary to counterbalance the inherent imbalance, practical monopoly and deep dependency characteristic of outsourcing relationships.
The Fundamental Problem
The fundamental challenge in outsourcing has always been misaligned financial incentives. Customers seek cost reduction and expanded services, whilst suppliers aim to maintain contracted consumption levels, revenue and margins. The combination of financial and practical lock-in effects—arising from the costs, risks and effort required to change suppliers—meant suppliers invested minimally in service improvements and rarely passed cost efficiencies to customers. Simultaneously, buyers had little incentive to reconsider requirements in ways that would enable suppliers to optimise delivery. Outsourcing thus became a zero-sum game, with parties failing to recognise the value of long-term relationships. Most procurement exercises operated within this paradigm, becoming margin-squeezing exercises disguised as collaborative service or solution design.
Outsourcing played out mostly as a zero-sum game without the parties considering that they may meet again.
Perhaps for these reasons, customer dissatisfaction remained persistently high and contract renewal rates low. Whilst recognising that outsourcing likely delivered better outcomes than insourcing, buyers perceived adversarial relationships, short-term supplier focus and business cases that failed to materialise due to naïve assumptions, scope creep, value leakage or changing requirements. The result was a reluctant acceptance that outsourcing remained management-intensive, time-consuming and dispute-prone.
Suppliers, meanwhile, complained persistently about customers failing to perform their obligations or involve them in strategic technology decisions. This perception and underperforming contracts frequently led to “shading”—actions designed to expend minimal effort whilst performing nominally to contract, or underperforming where enforcement proved impractical.
The Modern Paradigm
Against this backdrop, recent years have breathed new life into conventional thinking, offering the potential for more effective and economically efficient outsourcing. The components of a modern outsourcing contract (excluding low-value commoditised services) include:
The modern ‘2026’ outsourcing contract is a hybrid between the traditional transactionally based contract and a relational type of contract.
• Recognition that successful transformation and service delivery require collaboration and continuous adjustment of services, delivery models and associated pricing structures
• Acknowledgement that outsourcing must deliver real and measurable business benefits pursuant to a co-created business case. Suppliers underwrite “warranted savings” with clearly defined customer dependencies and volume assumptions
Short-term deals make little sense because the supplier is disincentivised to invest its best people and other resources in the long-term interest of the customer.
• Longer contract terms, typically ranging from five to ten years or more, reflecting the reality that short-term deals disincentivise suppliers from deploying their best resources in customers’ long-term interests. The greater the transformational scope and level of projected or warranted savings, the longer the term
• Innovation and continuous improvement contingent upon feasible governance models and customer willingness to invest. Where innovation obligations and evergreen provisions are included, these prerequisites are expressly documented
• Agile and collaborative processes applied wherever practicable—for instance, in application development—accepting that agile methodologies require customers to assume greater responsibility for achieving faster and more efficient business change
• A hybrid contracting model combining traditional transaction-based elements with relational principles. The hybrid contract contains clear, measurable and enforceable output requirements whilst resting on a partnering foundation that establishes binding principles on: a “what’s in it for us” and “one-team” mindset; projected mutual business benefits; must-win battles upon which benefit realisation depends; benefit realisation measurements; alignment of financial incentives; and norms of collaboration and partnership behaviour. These binding foundational principles are developed through workshops inspired by the “vested” outsourcing methodology
• Supplier termination-for-convenience rights to balance contractual power and protect suppliers from financially detrimental arrangements, with suppliers paying termination fees to finance any undepreciated customer investments and consequential premature procurement costs
The modern “2026” outsourcing contract incorporates three decades of outsourcing practice and adds an essential partnering element without sacrificing contractual rigour. It is built upon the understanding that relationship-based collaboration offers a greater prospect of driving desirable outcomes when conditions change and circumstances affect the parties in ways that could not reasonably have been predicted at contract inception.
Contact
Ole Horsfeldt Partner
T +45 33 41 43 65
M +45 24 28 68 40 oho@gorrissenfederspiel.com
T +45 33 41 42 03
M +45 24 28 68 75 tgg@gorrissenfederspiel.com