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Things to think about when bidding for work contracts!

Outsourcing is often described as a “Partnership”, although it is rarely, if ever, a partnership in a legal sense. But like any long-term relationship, an outsourcing agreement will work best if it is to the benefit of both parties. A mutually beneficial relationship normally requires that each party understands the other’s aims.

However, because outsourcing can be entered into for various reasons, the understanding of each party’s aims is not always easy. It would be worth understanding why the your potential client or customer is outsourcing in the first place (for example, it could be to save money, get better expertise or phase out a system).

Outsourcing is now a familiar concept, although the term has been used in a number of different contexts and is divided into generations.

First Generation – When the provision of services is first outsourced from the customer to a service provider (you)

Second Generation – When a provision of outsourced services is transferred from the first service provider to a second service provider (you)

Contracting-in: - When the customer brings the provision of the outsourced services back in-house.

Looking at Outsourcing as a whole it can be divided into 3 elements:

1. A transfer of the internal resources - This could be assets and most probably staff. The considerations affecting the transfer element of the outsourcing process are primarily those, which affect any sale of a business or its assets. However, there are several features, which distinguish an outsourcing-related transfer from the usual business sale.

In an ordinary business sale, the principle objective of the seller is to obtain the highest price at the lowest risk. The seller is not concerned with the use the buyer makes of the business and if it fails, it would not normally adversely impact on the seller.

In the case of outsourcing, the buyer is usually providing a service to the seller. The price paid is reflected in the price payable for the services.

But what actually transfers to you as the new service provider? The main substantial transfer is that of staff. Under Employment Law when there is a service provision change (which is one of those generations mentioned above) this law will apply and staff who have been working on the contract are likely to transfer to you as the new service provider and new employer.

The other item that may need to transfer is software licences. You may require certain licences to enable you to carry out the service. What you should ensure is that either the licences transfer to you or that you are able to obtain the necessary licences.

2. An agreement to purchase services (Services Agreement) – This is the legal document setting out how the contract will be performed and most importantly how much you will get paid. It also covers other key provisions which you will want to be clear on before you enter into the formal agreement. These key provisions include, Length of Contract, Quality of Services, Service Hours, Warranties and Indemnities, your responsibilities and your customer’s responsibilities to enable you to perform the service, Management and Dispute Resolution, Remedies, Termination and Exit Management.

3. Exit Management – when the agreement ends – Although exit management can be treated as a separate functional element it normally becomes part of the Services Agreement and thereby contractually binding. Exit management is like discussing a divorce before you have decided to get married. Although that is right, it does serve a purpose and it allows both parties to agree procedures, which are fair to both sides at time when the relationship is sound.

An exit plan is essential whatever the duration of the contract and will deal with matter such as the return of the assets and software, the treatment of employees, and the provision of information and know-how to the next supplier.

There is so much to think about when bidding for work and legal issues that you will need to consider. If you are thinking of bidding for work or have won a contract for services and would like to discuss the Services Agreement or any other element of the process please contact us.

(This article should not be treated or relied upon as legal advice and you should seek legal assistance for your own individual circumstances)

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