Planning to change service providers? Ensure ten provisions are in your contract

In my experience, when organizations begin planning a procedural exit -- like changing service providers -- their rationale varies and that’s fine.  But gaps in contract or agreement provisions -- like outdated scopes of work or unclear contract terms  -- can cause all affected parties to misinterpret contractual intentions.   That’s why we need to first ensure that the following ten considerations are included in the applicable contract before we plan an exit.  Carefully reviewing the agreement can also save time and money.

1. Termination The current agreement should provide for transitional support during the termination period. If the original contract was properly drawn up, then it will specify the need to develop a transition plan and coordinate this with new provider. The agreement should also include the need or requirement for the current provider to deliver relevant services for a specified timeframe at specific rates and costs.

2. Costs and Assets The agreement needs to address the return of tangible or intangible assets from the current service provider. Assets may include equipment used by the current provider and any Intellectual Property (IP) that belongs to the contractor like construction drawings, designs, or operating manuals. However, depending on the services provided, the organization may consider licensing critical software directly to mitigate any transition risks.

3. Implementation costs An organization will need to budget for the implementation costs associated with onboarding the new provider. Therefore, management might need to create a well-resourced project team to manage the process. They might need to seek support and advice from legal counsel and/or consultants. These costs will also include any internal management changes.

4. People An organization will need to ensure employees managing the process have continued access to key people and resources during the handover period. Will the new provider have the legal right to recruit key personnel from the departing provider? (The employees’ contract of employment might affect this.) The agreement should require that ongoing services provided during the termination period will still be required to meet current Key Performance Indicators (KPIs) and other standards of service.

5. TUPE (Transfer of Undertakings Protection of Employment¹) issues An organization needs to ensure that if staff from the original contractor are to be transferred to the new provider -- that the required process has been properly and professionally conducted. You do not want to inherit a discontented and demotivated provider workforce. That is why it is very important that your human resources (HR) specialists are involved early in the decision to transition to a new provider.

6. Software The new provider should work with the organization’s software system and successfully interact with other applications. Determine the system integration and implementation costs and decide who will be responsible to cover them. If your organization is changing the provider of software, then the Information Technology (IT) department should confirm that the new software service provided by the contractor will not create security vulnerabilities to the system or compromise compliance with the General Data Protection Regulation (GDPR).²

7. Intellectual Property Arrange for the return of the current providers’ Intellectual Property in an Agreed Format.³ However, depending on the services provided, you may consider licensing critical software directly to mitigate any transition risks.

8. Knowledge Transfer The organization should have access all data that relates to its operations to transfer knowledge and training. All such data should be transferred in an Agreed Format to avoid unnecessary data entry or conversion costs.

9. Third-Party Contracts Any need to assign third-party contracts should be reviewed between the service provider and its subcontractors. The original agreement should require the current service provider to include appropriate provisions in its third-party agreements to ensure that the agreements will be assignable to the organization or to the new provider to ensure the service continues as agreed.

10. Data and Information The current agreement should provide for the return of appropriate data and relevant documentation. This is an important element given that the current provider might delay the transfer of critical data or information.  Such delay will affect operations, because any claim to recover costs should have been included in the original agreement.

If these ten tips are overlooked, then you might need to negotiate and amend the contract with the cooperation of the current provider. We all know agreements should be designed to allow all parties to evolve, reshape and work together to achieve the best outcomes, which means, as said, the contract is essential to all the above.

Reasons for including these ten considerations

Imagine experiencing one or more of the following:

• your organization decides to take service delivery in-house, because management anticipates getting better value for money with reduced risk, and they discover upgraded options available in the marketplace;
• your in-house delivery has deteriorated with the current service provider and all parties believe they lack mutual benefit from the contract;
• your current agreement will soon terminate, and the contractor does not wish to continue dealing with forthcoming competition;
• your organization’s leadership has changed, and the new management or methodology needs a radically different approach to delivery of services.

Each situation above will require a smooth transition whether you’re dealing with changing service providers or not.  Regardless of the reason for exit, you can still face potential disruptions to service delivery, contractual claims, and additional costs.  Most of this will depend upon the terms of the original contract, the provisions made during the transfer process, and the relationship that existed between the parties involved.

No doubt you have noticed that many risks associated with exit planning changes should be covered in the original agreement. The organization might need to persuade all involved parties that an orderly transfer or exit would benefit both.  This can avoid costs and keep reputations as professional operators solid in the marketplace.

A robust and well-planned process is essential.  If the process is not performed in precise and unequivocal terms, the organization may experience a very difficult and costly exit transition period. So, again, the first step should be to carefully review the current agreement.  Then respond to the ten considerations above.

END NOTES

1. Pinsent Masons article titled The purpose of TUPE is to protect employees if the business in which they are employed changes hands… “TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations and its purpose is to protect employees if the business in which they are employed changes hands. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer by operation of law.”

2. GDPR General Data Protection Regulation, definition (European Union).
3. Refer also to Law Insider commentary titled, Agreed Format definition

ABOUT THE AUTHOR

Second degree connection and second creator of 10C Model, Author of several titles related to procurement and contracting, including Practical Contract Management, Practical Procurement, Stores Management and Contracting Business Models, Dr. Carter has over 30 years’ experience in training and consultancy (both UK and Worldwide) specializing in Contract & Commercial Management, Procurement, Supply Chain & other related subjects. His company, DPSS Consultants, is accredited by CIPS, World Commerce & Contracting (formerly IACCM), APMG & ISO. Currently, he is working on the new Master Classes regarding his 10C Model and Contract & Commercial Management. During his working career has been fortunate to work with many companies and cultures which has helped him develop successful training courses.  See also video about the author. 

ABOUT DPSS

Developing People Serving the Supply Chain (DPSS) is an international training and development consultancy made up of 25 plus specialist consultants recognized for their expertise in contract management, procurement, sales and commercial management and supply chain management training and consulting.  DPSS has over 30 years’ experience in providing generic and bespoke, tailored, and customized solutions.  Their courses are certified by internationally recognized awarding bodies, including CIPS, WorldCC, BTEC and the British CPD Standards Office. Consultants are well known as  international Centre of Excellence World class presenters and published experts with many years of practical experience achieving outstanding results.