IT Third-Party Labor Contracting Best Practices Guide


As organizations continue to scale and accelerate their technological capabilities, they require more robust resources to keep business initiatives on pace with the competition. This “need for speed” has shifted the reliance on traditional hiring practices to utilizing third-party labor to quickly on-board talent and drive results.

Outsourcing IT labor is a good way to trim employee costs and speed up projects, but it can turn into a nightmare when not properly managed. ClearEdge has observed many organizations fail to properly set up their labor spends for success. As a result, poor resource quality, slow on-boarding, and compounding fees negate any value of the increased “agility” or “speed” promised by the third-party IT labor provider


This IT 3rd Party Labor Report itemizes five key best practices that organizations need to implement when buying and managing 3rd party labor to achieve more productive relationships and desired outcomes:


1. Spend Analysis

To properly prepare and compete out any staff augmentation spend, buyers must first understand the deal structure. With limited knowledge of the contracting model used to procure these resources, there is a higher likelihood of mis-purchase, poor vendor performance in meeting service-level criteria, and increased cost over time.

To make a business case for executing a third-party labor spend instance, this section details the questions you should answer to ascertain whether this is the right solution to add value to the organization and help facilitate the completion of business goals. 

2. Title and Description Standardization


Clarity is important when requesting a proposal for resources from a third-party labor provider. Unfortunately, there are no universally accepted industry standards for titles and job descriptions to help buyers articulate exactly what they need from providers. This often results in many different and often confusing job titles requested by the business during the quoting process, which will yield a range of inconsistent proposals and make the process of comparing quotes all but impossible.

Clearly articulating your precise needs to a vendor yields more accurate quotes, which translates to reduced cost exposure, as suppliers tend to “over-quote” to protect themselves when the resource request is ambiguous. To help buyers standardize job titles and descriptions with a supplier, ClearEdge compiled a list of recommendations

3. Establish Rate Cards

Many organizations become hyper-focused on comparing prices to the market benchmarks instead of thinking about the best process to drive the desired outcome. Instead of price, you should focus on setting up a competitive bid through a formal Request for Proposal (RFP) process. A well-developed RFP will not only provide the necessary motivation for the suppliers to price competitively but establish a framework for the proposals so that competitive bids can be compared on an “apples to apples” basis.

In an RFP, organizations should ask that all resource quotes follow the same structure, so they can be easily assessed against other options. This guide provides an example illustrating the level of detail you should ask for when requesting proposals, as well as other terms to consider outside of rates.

4. Supplier Consolidation

Consolidating suppliers can be an effective strategy to drive better pricing while still maintaining supplier competition to influence behavior. We encourage clients to take a conservative and methodical approach to phasing out vendors to minimize disruption. Be careful that any consolidation efforts do not result in risk to the business, such as project delays, gaps in service, or a degradation in resource quality. This section outlines the benefits and risks of consolidation.


5. Establish Governance

Getting third-party labor relationship management “right” from the get-go requires a collaborative and flexible approach, and includes every aspect of the outsourcing effort, from the contract inception through project completion. Organizations must ensure everyone understands their responsibilities for managing activities such as standardized rate cards, establishing and revising technical roles and descriptions, on-boarding new vendors, and contract and transition management.

A well-developed governance process will solidify the relationship between the buyer and seller and make certain that SLAs and performance levels are consistently met. This section illustrates the cycle of managing the relationships with your third-party vendors to achieve competitive outcomes.

IT Third-Party Labor engagements fail because organizations do not take an effective approach to managing and preparing for labor spend activities. This report gives your the baseline steps and ideas to start building out an impactful strategy when engaging your Third-Party services partners.


Download Our IT 3rd Party Labor Contracting Best Practices Guide

Third Party Guide Booklet Image.jpg


See our other deal-making guides below.

Negotiating with SaaS Vendors

IT Services

Statement of Work Guide

Top 10 Gotchas in a SaaS Contract

Top 3 'Gotchas'

in a Managed Services Contract