As well as renegotiating supply contracts, organizations are also revisiting the early rounds of outsourcing contracts - and users are demanding more for less. The Commonwealth Bank renegotiated IT supply contracts recently and, according to one report, its mainframe costs fell $17 million in 2004 and its desktop computing costs dropped $19 million.

When you are under pressure to cut costs, HIC's Nahajan says there are two options: reduce staff or reduce the costs of your suppliers. "My preference is not to touch staffing. The implication for the vendors is that I'm hoping they make a little less money.

"The IT shops are constrained but IT is growing overall, and that's where they [the vendors] are looking for broader market share. With the new generation of contracts, we are looking for more flexibility and lower costs," Nahajan says.

The new generation of contracts that Andrew Newman is going to have to manage was thrust upon him when JP Morgan announced it was abandoning outsourcing and moving 4000 staff out of IBM and back in-house. Part of the deal with the $US5 billion outsourcing deal with IBM was that IBM had managed all the contracts with the subcontractors.

Now Newman, the vice president and regional sourcing manager for JP Morgan in the Asia Pacific, is going to have to start looking after those contracts himself. The way in which JP Morgan is structured means that Newman in his dedicated regional sourcing role is responsible for all contract management - not the individual business managers, and that includes the regional technology managers.

To better serve the needs of the IT division, a specialist technology sourcing group has been established in the strategic sourcing group. When CIOs or business units decide that they need new technology they forward the request to this group, which then manages the request, issues a request for proposals to the market and conducts any negotiations in alliance with JP Morgan's legal team.

The CIOs are given a choice of supplier - but only after strategic sourcing has narrowed the field considerably. "Say for example it's something worth $250,000," explains Newman, "we would go to the market for a competitive bid. Then we would take it back to the business and say: 'Here are four or five of the best bids - which one best meets your needs?' " Once the decision is made, the strategic sourcing team brings in the legal department, which then accesses a range of precedents to draft a contract with the winning bidder.

Starting from scratch won't be easy. There will be a raft of new contracts to manage with the subcontractors that had been supplying products and services to JP Morgan via IBM. It will be a big job, but Newman says he has help in the form of a Web-based program that the strategic sourcing team can use to access its store of documents used in the past for requests for proposals and contracts. "We can go to that precedents store in the US and grab all the RFPs we have done, say on networking. It's the same with contracts."

After a contract is signed off a summary detailing the process is prepared that also documents that the firm has met all its compliance targets and has established an adequate audit trail. The financial sector is big on internal audits and probity checks and Newman says having an electronic database detailing all the current contracts, and the audit trails that preceded them being signed, makes life easier when an internal audit is ordered.

In addition to the contract precedents it stores, JP Morgan keeps track of the background checks it performs on different suppliers around the world. Newman says that given the scale of some of the institution's contracts, it's important to understand how financially viable and reputable a company is, so his employer "performs pretty stringent tests". While he prefers not to describe the list of companies that do not make the grade as a "black list" of suppliers, he does say that the information is made readily available throughout the firm and is checked before contracts are signed.

Although at surface it might appear that there will be a greater opportunity for a raft of IT suppliers to strike new contracts with JP Morgan once it insources its IT, Newman is not so sure. He believes one likely consequence of the unbundling of those contracts "will be a lot of vendor rationalization and we will only deal with the reputable larger firms.

"The best way to get better rates is to get the volume up through a smaller number of contracts. There are also fewer issues with vendor management," Newman says.

Amuch leaner structure is in place at Austral Bricks, where Mark Meredith is group IT manager and in charge of all IT contracts for the organization. He conducts all the negotiations himself and does not generally involve lawyers. He says that vendors are prepared to negotiate in order to keep the business, although he says he rarely negotiates on price alone - preferring a "value"-based approach that takes into account pre- and post-sales service.

However, Meredith is a believer in the "shape up or ship out" approach. "Most contracts are for 12 months," he says. "Upon their anniversary I review the costs, terms, conditions, and so on. If the service level has fallen below expectations or there have been technological improvements, then I actively renegotiate. Otherwise I do not change.

"By communicating with the vendor, most problems can be resolved or measures put in place to stop them happening again. Penalty clauses and non-renewal are my last resort, and I therefore try to include a penalty clause or an easy termination clause in the contract."