At a time of growing merger and acquisition activity, clients of outsourcing companies are being urged to negotiate contract terms that offer them some protection if their service provider is acquired.

Experts say that enterprises should consider including what is being called a ‘25% acquisition’ clause into contracts, allowing them to get out of the contract if its service provider is more than 25% acquired by another company. “It’s crucial that enterprises have terms worked into outsourcing contracts to address this consolidation,” says Gartner analyst Ted Chamberlain. The possible acquisition of a service provider is not the only issue that should concern businesses negotiating new contracts with third parties.

They should also seek a ‘guaranteed refresh’ clause enabling them to upgrade the contract without incurring extra charges or having to extend the length of the contract. Another must is ‘preset pricing’ terms that specify at the beginning of the contract the cost of possible future applications and services.

These recommendations were published at Gartner’s recent outsourcing summit in Los Angeles, California.