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How Flexible Is Your Contract?

When negotiating with customers, give yourself room for change when circumstances call for a new course.

by John Gliedman

As an HR service provider, you know the importance of the next deal over the horizon. Ensuring that your company will thrive sufficiently for the next deal requires not only cost containment on current engagements but also platform flexibility for future deals without allowing customers to restrict this freedom. Consider the following when drafting a contract:
    
Problem No. 1: Does your outsourcing agreement afford you the flexibility to change your technology platform over time?
Consideration: You need to ensure your ability to change your technology platform as your business grows. Otherwise, your customer’s platform will require one set of technology even as you provide a separate technology for other customers. This does not mean that you have to disappoint customers’ requirements for service levels and technology refreshment over time; but it should allow you to meet these requirements in a flexible fashion.    

Problem No. 2: Is your contract “modular” enough?
Consideration: A “master” document that references concepts or attachments is suited to the ever-changing reality of an outsourcing agreement. For example, the terms of your contract should be a stated period of time after any transition period is completed rather than a specific begin and end date. With the former, if your transition effort runs late, the length of time for service delivery is effectively pushed back so that a provider will not find his terms shrinking. Contrast this with the latter—more limited, specific date-driven contract that is not flexible enough to recognize the manner in which project plans may change.

Problem No. 3: Do you have the freedom to move services offshore or use subcontractors as a cost-savings approach?
Consideration: To reduce costs, your outsourcing contract should allow you to relocate services and work with subcontractors of your choosing. The customer will require you to negotiate appropriate confidentiality provisions and may attempt to assert other limitations on these rights. The key to securing this right is to assure clients of seamless, high-quality service.

Problem No. 4: Do you own the work that you develop on a customer engagement?
Consideration: Your outsourcing contract should clarify which party owns work performed rather than leave this matter open to question or later negotiation. Vagueness could lead to conflict later on. You and the client should clearly define ownership of the contracted work, whether it is software, business processes, or other IP developed over the course of the contract.

Problem No. 5:
Do you have the ability to keep costs under control?

Consideration: If a “cost-plus” deal is not an option, alternatives include per-service fee increases. In this event, the contract should also give you the ability to process change requests through an orderly change control procedure. If there are increased costs, you should have the right to come to agreement with the customer on additional charges. Also consider attempting to get the customer to agree to shoulder some of the burden of unanticipated cost spikes caused by the customer not following agreed-upon procedures. 

To the extent that customers’ delays require you to sideline valuable resources, you should consider putting appropriate cost-containment provisions in the agreement. For example, if a customer’s delay forces your personnel to work overtime, the customer should pay for any increased wages. Additionally, the contract can allow for cost-of-living increases if appropriate.

Problem No. 6: Are you protected from your customer hiring your best employees away from you?
Consideration: Good talent is always in demand. Your outsourcing contract should reduce the likelihood that the customer will try to recruit your employees by having an appropriate non-solicitation and non-hire clause. The flexibility to grow your business is worth considering every step of the way to ensure maximum growth potential. Make sure that your contract allows for changes.

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