Three Ways Outsourcing Providers Can Get Caught Out

If you provide outsourced services like IT support, HR, marketing, finance other specialist services securing a new client is only the first step.

Ideally, you then move on to develop a trusted long-term relationship and deliver a consistent high-quality service. However, we all know that over time, lines can get blurred and your client's expectations can expand. You don't want to rock the boat but likewise you can find yourself doing more than you agreed, taking risks you never intended or losing control of your valuable intellectual property.

Too many outsourced service providers simply accept the client's standard terms even though they're generally written to protect the client rather than the supplier. In this blog, we'll look at three common scenarios that illustrate this and show how a well-drafted outsourcing agreement can help protect you and your business.

The Slippery Slope

Imagine an IT support company agrees to provide remote helpdesk support for up to 50 employees. However, a few months later, the client asks if they can also support employees working from home. Over time it grows to installing software for new starters, managing Microsoft 365 licences, and conducting monthly cyber security checks. None of these requests are unreasonable but added up they mean a significant increase in workload. Without a mechanism for reviewing the scope of services and agreeing additional fees, the provider could end up delivering thousands of pounds worth of extra work at no extra charge.

From the client's perspective they have a great relationship with a trusted provider, but what started as an occasional favour can gradually become part of the expected service. In this situation a well drafted outsourcing agreement can provide a clear process for agreeing changes.

Shifting the Risk

Suppose an outsourced HR provider is engaged to advise on day-to-day employment matters, including disciplinary processes, grievances, and redundancy situations.

However, over time, the client begins to rely heavily on that advice in higher-risk decisions such as drafting dismissal letters, supporting a redundancy consultation, advising on settlement agreements, and assisting with complex employee relations disputes. Each of these may feel like part of a routine HR service but the risk attached grows. A flawed dismissal may lead to a compensation claim, a grievance involving a protected characteristic can escalate into a discrimination claim and errors in a redundancy consultation could lead to tribunal claims.

What began as routine HR advice can end up being linked to significant legal decisions and costly liabilities. Clients may not realise this extra reliance can increase their providers liability risk so there needs to be a clear distinction between advisory input and decision-making responsibility within the outsourcing agreement.

Protecting Your Know-How

Let's say an outsourced finance provider builds a bespoke, efficient internal system for accurate financial reporting for their clients. For instance, it could include tailored spreadsheets, management accounts templates and reconciliations processes. These are further refined as time goes on.

But who owns the systems? Do they belong to the client for them to reuse or replicate after the relationship ends or do they remain the intellectual property of the provider as they were developed as part of their wider operational expertise?

Clearly, a robust outsourcing agreement should clearly define what is shared for the purpose of the task at hand and what remains the provider’s own intellectual property.

Conclusion

These examples illustrate how important a well-drafted agreement is to prevent unnecessary misunderstandings.

The best agreements create a clear framework that define:

·        Services and scope of work

·        Responsibilities and obligations

·        Payment terms

·        Risk and liabilities allocation

·        Confidentiality

·        Ownership and use of intellectual property

·        Exit and handover arrangements

By covering all angles lines don't become blurred and expectations don’t drift!

If you’d like to discuss outsourcing agreements, please reach out for a no obligation chat. It would be great to hear from you.

📞Contact Richard Jenkins on 024 7698 0613 or Richard@clariclegal.co.uk

Disclaimer: This blog is for general information only and isn’t legal advice. For guidance tailored to your situation, please consult a qualified legal professional.