Contributors

Careening Toward Termination?

When your outsourcing agreement sours, make sure you take the appropriate actions to keep the relationship from getting worse.

by Mark Hodges

What should BPO buyers do when their level of dissatisfaction with their BPO agreement has caused them to seriously contemplate termination? What can buyers do to prepare for and enhance their position relative to a potential termination event? Before going further, an important disclaimer: What is said here should not be construed as legal advice. External legal counsel should always be sought when considering BPO contract termination.

BPO buyers considering termination should stop, take a deep breath, and review their options. Termination should be a last resort, but if the ultimate decision is to terminate, here are some DOs and DON’Ts when it comes to termination preparation.

DO:

 Ensure you thoroughly understand and are performing all of your obligations under the agreement. This entails investigation and diligence on each of these obligations and a “heat map” (red, yellow, green) on the status of each.

 If your BPO provider’s actions signal an upcoming breach, or if there are a series of breaches that are escalating in impact, you can request your provider’s assurance that it will perform under the agreement. This lays a better foundation in the event of a dispute.

 Ensure that the governance and dispute resolution procedures defined in the agreement are being followed. Detailed and accurate meeting minutes should be kept, and appropriate escalation points within the BPO provider organization should be copied on any material communications and notices. Document everything!

 For any BPO provider who defaults, ensure that the notice provisions are followed and no waivers are granted or implied. We often find buyers who have not held their provider accountable, and through poorly worded communications appear to endorse their failure.

For each default, implement a written “project” that addresses BPO provider remediation actions with measurable milestones. These milestones should be reasonable and achievable so the BPO provider can effectively remedy the default. Require the BPO provider to report each remediation project.

 Focus on exit rights in the agreement. Ensure that your BPO provider offers all required periodic lists, inventories, and updates of hardware, software, third party agreements, technical architecture, staff identification, etc. that you have the right to obtain at the time of a termination.  Continually assess and prepare an exit strategy. Are you adequately equipped and staffed to repatriate the services in-house, or will a new outsourcing initiative be required? Both are costly and difficult endeavors.

 Understand the differences between—and implications of—termination for cause vs. control vs. convenience. Each has its own decision set with serious consequences for both you and your BPO provider.

 What permissible actions can you take that would, for all intents and purposes, set the so-called “termination ship” sailing? As a buyer, you want to avoid unintentionally triggering a termination process that is difficult, if not impossible, to unwind.

DO NOT:

 Insource portions of services provided by your provider. Buyers often try to fix the problem by assigning internal resources, which can be construed as interference or scope reduction by the BPO provider.

Invoke “self-help” provisions by soliciting third parties to temporarily perform a portion of the services. Buyers often get frustrated and use a third-party point solution (without their BPO provider’s a permission) to apply a tourniquet to a given crisis, not realizing this puts them in a very difficult position during termination discussions.

Adopt a tit-for-tat mentality with your BPO provider and contribute any of your own breaches to the situation.

Leave the dispute and breach communications to junior staffers to convey dissatisfaction with the BPO provider. These are serious discussions that require senior involvement— typically the outsourcing management director or above.

Send formal notices of accrued termination rights. This is different from sending notice to the BPO provider of its breach and seeking remediation plans.

Create any negative public press about the BPO provider.

Widely broadcast your displeasure within your own company—your dissatisfaction should only be communicated to key individuals on a need-to-know basis.

Withhold significant portions of invoices.

Termination of a BPO relationship is not an action to be taken lightly. If it must be done, proper preparation and documentation will ensure that the outcome is as favorable as can possibly be negotiated.

 

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