Obviously, every customer (in whatever walk of life!) wants to feel “special”. This doesn’t change just because one is looking at the IT and outsourcing services market.
What “special” means, though, is up for debate. It could mean a particularly keen price point. Or fantastic service levels. Or a great customer experience overall.
Some – albeit by no means all – of this may be provided for in the specific provisions of a contract as at the day that it is signed. Some larger customer organisations, however, can try to go a step further, particularly when looking to sign up to especially large or noteworthy contracts. What sometimes then appears in the contract is a variant of what is referred to as a “Most Favoured Customer” clause. Although the actual wording can vary, the effect is usually to oblige the service provider – on an ongoing basis – to treat the customer at least as well as (if not better than) all of its other clients.
So what does this actually mean? In the harsh glare of reality, this comes down to a matter of price. In other words, the customer is seeking the assurance that it will be charged the same kind of “beneficial pricing” that the service provider may in future extend to any other large client that it takes on
Is this actually fair? Well, the service provider will obviously argue that it is not. After all, the pricing will likely have been set as a result of a comprehensive negotiation process, and often after market testing in the form of a competitive tender process. There will quite likely be further price-related protections in the contract, such as restrictions on indexation related price adjustments, or the incorporation of detailed benchmarking provisions (potentially with automatic price adjustments as a consequence of an “adverse” benchmark report). The customer, on the other hand, may simply say that it wants the contract to reflect the language used with it during the bid process vis a vis how important this project would be for the service provider not just as at the point of signature, but throughout its term….!
Leaving aside the potential merits of each side’s arguments, if there IS to be such a clause, then both parties will have issues to address.
From a service provider perspective, one would want to ensure that the assessment is a holistic one. For example, it would be unfair to judge the treatment of a customer on price alone, and to omit consideration of the rigour of service levels and contract terms, or the degree of financial engineering/amortisation of costs which may have taken place at the outset. Equally, the clause would need to ensure apples were compared with apples in terms of not just the overall size of the deal in terms of potential fees, but also the type of services and geographies involved, for example.
From the lens of the customer, the key issue is usually one of visibility. With each new deal potentially being confidential (or least vis a vis the finer details of the charging and contract provisions), how can it actually be certain that any MFC commitment is actually being honoured? Having contractual rights of audit feels a bit like having a sledgehammer to crack a nut and may be imperfect in any event, but an alternative may be to require a form of written certification from a sufficiently senior executive from within the service provider organisation.
The devil is inevitably in the detail, and with ways and means of either firming up or undermining the level of effectiveness of such provisions. But that’s the story of another blog post…..