by Thomas C. Greble

A master services agreement is often the best basis, and the provider’s form may be preferred.

The HRO contract has a body of terms and conditions, a statement of work (including roles and responsibilities) for each service provided, a performance or service-level agreement for such service ("SLA"), a pricing schedule, a transition plan, a schedule of affected employees, a governance document, and exhibits or attachments specifying details of the customer's existing HR functions and platform as well as the provider's solution. These documents are negotiated as a set, although different skill sets are required to deal with each subject matter.

Often, the best structure for HRO deals is the use of a Master Services Agreement or "MSA". This allows the parties to approach the outsourcing in a flexible manner as far as agreed scope. For example, the parties may agree upon a solution that provides recruiting services, but may understand that further down the road additional services, such as training or travel management, may be added to the relationship. In the MSA, the parties agree on a set of terms and conditions that are generally applicable to all services, and provide a template to be used when agreeing on each new particular service. The use of this structure eliminates the need to renegotiate legal terms except as may be necessary to override the prior agreement in connection with a newly contracted-for service.

The terms and conditions of the MSA provide "hooks" onto which may be hung the specifics of each outsourced process or function. Sections will reference the statement of work, the pricing, the SLA, the transition plan, etc. The "t's and c's" will also define the scope of any agency required by the provider to act on behalf of the customer, identify the IT platform and facilities to be used by the provider, list representations and warranties of the parties, provide for appropriate legal indemnities, deal with ownership of intellectual property and confidentiality of data, privacy and compliance with laws, limitations on liability, restrictions on subcontracting and permissible assignment, termination rights and remedies, and specify remedies that may be necessary to deal with various business risks of the customer.

An important element of the MSA addresses transition at the onset of the agreement, as well as transition at the termination or expiration of the agreement. As of the commencement date of the services, the parties must specify who will obtain and pay for any required consents of third parties (e.g., software suppliers, third-party contractors) affected by the arrangement, and who is responsible for what aspect of transition, including making offers of employment to the customer's existing employees.

Termination

Upon termination, the opposite must be dealt with: how is the customer to obtain transition to another supplier or back in-house? Will the solution or platform be available on such a basis, and if so, at what price? How is knowledge to be transferred back to the customer's people? May the customer make offers of employment to the provider's staff then providing the services? Does it matter whether the contract has expired or been terminated for a party's breach? Does it matter whose breach? Think about it: Whether or not the parties are fighting about a breach, to assure business continuity the customer needs an iron-clad clause providing that the HR function will continue to be performed while the parties are litigating or arbitrating (although the provider just might want to be paid in advance if the customer has breached).

The schedules to the MSA constitute the real "meat" of the deal. And finding the meat to put on the bones of a simple template requires complete and focused attention by both parties. From the customer's perspective, avoid "agreeing to agree" on scope, price or performance. Nail them down. This does not mean that the parties cannot agree on a verification or true-up process if any underlying data proves faulty, but it does mean that such a process needs to be clearly understood.

The question is often asked: Which form do we use, the customer's or the provider's? The answer is not as simple as it may seem. The customer form surely will cover most if not all of the potential nightmares. But certain HR outsourcing deals can be simpler to negotiate when the functions are defined by the provider as more of an out-tasking. The provider should consider this and attempt to simplify the offer as a set of well defined outtasked functions. If this meets the customer's needs, and the provider's contract documents are balanced and integrate the offer, its pricing, scope, and performance characteristics, the provider will be in a better position to suggest that its form be used as the basis of the deal.