Niyamath Parveez

One of the hardest issues when it comes to outsourcing is the length of contracts and the way that markets can change over the length of a contract. What may have seemed a fantastic deal when the ink dried on the initial contract may be a terrible deal over the length of the deal. Few predicted that the market would suffer in such a manner that has occurred in recent years and it has led many firms to count the cost of the contracts that they thought was going to provide fortune and long term security. Even aspects like the fluctuating exchange rates have dramatically altered the end value of many deals and as more and more businesses are going under due to the financial stress they are under, a number of companies are looking to alter their deals.

Of course, when one firm is unhappy with a deal, it is likely that the other partner may be extremely happy and therefore have no great desire to alter the deal. This makes it tricky to reach an amicable solution for both parties and this is behind the major problems and areas of conflict between firms who are supposed to be in partnership with each other.

Many firms are now entering break clauses into their outsourcing contracts to ensure that if a change has to occur, the issues that will allow a breaking of the contract are laid out in black and white. This is fine for contracts going forward from now but if the outsourcing contract already exists, it is not easy to insert a break clause in the contract. Again, this can be it may be more beneficial for one partner to break from the other and there needs to be a balance for both parties.
Whenever there is a contractual dispute and parties are unable to reach an amicable agreement, it quite often follows that litigation is the answer that firms turn to. This can be very costly and timely, which will drain even further resources from both parties and will have a bigger chance of grounding an organization than the original contract probably did. This is why it should always be recommended for all parties to try to negotiate their way out of problems as much as possible before heading for lawyers and costly answers to their problems. In the heat of the moment, litigation may seem like the perfect solution to break you free from a damaging contract but if you consider the long term negative effects of doing so, not always related to finance, and there will be a good argument for looking at alternative solutions.

A firm can pick up a damaged reputation amongst other firms and in their overall industry if they are seen as one that regularly relies on lawyers to negotiate settlements and deals, which may result in fewer firms being willing to work with them. Therefore, being able to negotiate your way out of a contract may allow a greater opportunity to work with other firms at a later date.

Even though outsourcing is billed as the simplest way to lower your costs and get some expert help on board, it is invariably going to be a little bit more complicated than that. Any business deal that is worth its salt will require some level of negotiation and of course contracts will have to be signed. This level of administration and paperwork may put people off the idea of outsourcing but as long as people understand what is required of them when it comes to outsourcing contracts, there will be no problem. In fact, outsourcing contracts are as much to protect and benefit the parties as opposed to giving them a greater workload. If the overall aim of the outsourcing project is to make life simpler, the contractual element wouldn’t be unnecessarily harsh; it is just the standard way of contracts.

Some of the things that you will be looking to have in your contract for the outsourcing project will be service level agreements and whether there will be penalties or rewards depending on when the contract is concluded. Applying some form of motivation or punishment to the contract will make the reciprocating partner more likely to meet the deadlines or standard set and this will make for a better result. The contract may also include matters such as the time-frame and deadline of the project and also how success or quality will be measured. There is no point in trying to set up a bonus deal for the agreement whilst having no ability to measure the true worth of the work done.

Another important issue for many outsourcing contracts to include are exit strategies, and given the current economic climate is hugely important to have these in place. A good deal now may not be such a good deal a few years down the line if the market change, which means it, makes perfect sense to have agreements in place about how to break the contract if the original terms and conditions are no longer suitable. There are obviously going to be costs and negative issues involved with an exit strategy in a contract but it may save a lot of time, money and potential legal involvement at a later date.

Another area to be aware of are service levels, which will be the targets and levels that the provider must reach. These should be clearly laid out with no room for ambiguity at all to ensure that everyone knows exactly what is expected from them.
This may sound very complicated but if you are already in business, it is likely that you will be more than used to contracts and what is contained within them. Many firms will have a legal department to help them out with these matters or a local lawyer may be able to assist a smaller firm or self-employed person. Having a tight and viable contract may cause a little discomfort at the start but it is extremely vital in the world of outsourcing.

The news of job losses is hardly a surprising story these days with so many firms having to cut back on their labor costs or even go release all of their staff. Such is the scale of the credit crunch that is blighting the world at the moment, no one is really safe with respect to their job but there are still companies where job losses make people wince. The banking industry has clearly been affected heavily and even though there have been a number of redundancies in the industry, there are still more expected to come. One of the recent announcements has come from Lloyds, who have said that over 2,000 jobs are being shed.

Part of the reason that a company like Lloyds can make this sort of decision and still keep trading successfully is due to the importance of outsourcing. There seems to be a difference of opinion these days over whether outsourcing is still popular and improving. Some say yes, some say no and it’s all a matter of what you are basing your expectations on. In the current climate, it is probably unlikely that any company or industry will have true success but the outsourcing industry appears to be reacting okay to the current slump and will likely be okay in the long run. However, there are some political pressures that are impacting on the ability of some firms and companies to offshore outsource. When jobs are being lost left, right and centre, it can be a PR disaster for some companies to offshore their work to a different country. They would be viewed as monsters by the public and it could lead to a massive drop in sales, which no organization needs at this moment in time. Therefore, some companies are finding it makes sense to place some clauses in their outsourcing contracts to ensure the public doesn’t think too badly of them.

The British government has long had outsourcing contracts which state that the jobs must be retained in the United Kingdom, which clearly negates some of the benefits that will arise from using outsourcing. As other countries have standard of living and minimum wage levels that are far lower than their UK equivalent, it stands to reason that it will be possible to find lower wage levels in other countries. Not being able to send tehse jobs abroad will make it harder for an outsourcing supplier to competitively tender for jobs but many are finding a way around it.

It has been noted recently that some Governmental departments and Lloyds Banking Group have had an increasing number of workers being shipped in to work with them as outsourcing staff from the company Capgemini. According to notorious right wing English newspaper the Daily Mail, these workers are being shipped over from India in an attempt to undercut the UK workers and the paper thinks this is a disgrace given that the UK unemployment levels have topped the 2m mark. Unsurprisingly, there has been no official comment made about this situation so it is unclear whether it is true or not but if so, it could well spark a dangerous precedent with regards the future of outsourcing.