Beware of Minimum Commitments for Outsourcing Contracts

Avoid at all costs, says Tanowitz. They reset each month and do not allow the client to normalize any seasonal spikes or troughs in demand.

Not as bad as the monthly option, but minimum term commitments (i.e., over the life of the deal) allow shortfalls to be made up over time.

Providers may prefer service-specific commitments (in addition to aggregate commitments) because they may be operationally and financially independent or performed by different business units. A customer may prefer to forego the aggregate commitments, in these cases, or peg per-category minimums well below the aggregate percentage in order to maximize their flexibility, says Kimball.