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9 ways to find hidden savings in your outsourcing invoice

Stephanie Overby | Jan. 20, 2011
Are possible savings hiding in your outsourcing invoices? Here are nine areas -- from staffing secrets to superfluous software licenses -- where you'd be wise to look for common overcharges or under-delivery by your outsourcing provider.

Here are nine common areas for errors in outsourcing invoices.

1. Leased Space

If you are renting space to your provider, double check their leasing obligations and responsibilities. Many times the customer continues performing certain data center duties, unaware that the provider is now liable for them. The potential cost savings increase with the size of the facility.

2. Secret Offshore Staff

It's an open secret that most outsourcing providers have been shifting more of their workload to lower cost location. But they may be quietly offshoring your work—particularly non-client facing roles—and pocketing savings as their profit.

You may be paying $100,000 a year for a database administrator per your IT services contract while your vendor has been sourcing that work in India for $30,000 annually.

Request a list of all full- and part-time staff working on your account outside the U.S. and review past invoices to figure out if rates decreased with additional offshoring. Review your contract for language dealing with use of offshore labor.

3. Cost-of-Living Adjustments (COLA)

COLA contract provisions call for an adjustment to the fees to reflect inflation. Improper inflation calculations are rare, says Strichman, but they can have a huge impact when discovered.

Vendors are adept at increasing their costs each year along with inflation, but in 2009 COLA actually went down for most outsourcing customers. Did their fees? Confirm that the COLA is calculated correctly and your monthly invoice moved in tandem with the adjustment. If you're renting space to your provider, the lease normally includes a COLA clause. Make sure that you actually increased the rent each year along with inflation. Thousands could be hiding here.

4. Temporary Labor

"The most common areas we find include improper use of contractual labor rates," Strichman says. "Hours calculations are usually correct, the problem is whether or not those hours are actually chargeable for the work performed per the contract, and whether or not the proper rates were correctly applied to the labor in question."

Review past invoices and compare contract labor rates and invoiced rates—and don't forget to apply COLA to the rates. There are two kinds of temporary project staff from a provider: short termers that work one to six months and long termers working six months or more. Were you charged short-term rates when a person was working on a long term project?


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