As the economy contracts organisations are looking at
areas of their business to cut costs and one such area isoutsourcing. There are key warning
signs that may indicate a customer is looking to end an outsourcing
contract. However, a provider can take steps to avoid termination
and/or to be placed in the best position to argue that termination
is unlawful.
Most outsourcing contracts will contain termination provisions
which allow the parties to end the contract in certain
circumstances. This is likely to enable each side to terminate in
the event of certain breaches by the other. However, anyone
considering terminating for breach must proceed with caution. If it
wrongfully terminates, it is likely to be subject to a substantial
claim for lost income by the innocent party. Consequently, a
company seeking to terminate is likely to first seek to build a
case within the
contractual framework.
Three key warning signs which may indicate that a customer is
looking to terminate the contract may include:
- Increased scrutiny of any service levels set out within the
contract - while a failure to meet service levels on one occasion
is unlikely to entitle a party to terminate, consistent failings
may, either on their own or in combination with other breaches,
allow a valid termination. It is important that a provider itself
regularly reviews service levels to ensure that they are being met.
If failings are identified internally, steps can then be taken to
improve performance before any formal complaint is received.
- Greater levels of written correspondence - if a customer is
seeking to build a case for termination it is likely to set out its
position in writing. It may start to produce records of meetings
which have taken place. Contemporaneous records are powerful
evidence of what was discussed or agreed. If any correspondence
and/or notes are received, those documents should be carefully
reviewed. If the correspondence is inaccurate then a written
response should be prepared. If oral discussions do take place in
respect of any problems or issues, it is important that a written
record is made.
- Lack of co-operation when performing joint obligations - many
outsourcing arrangements will require assistance from a customer's
employees to properly meet targets or service levels. If
co-operation drops it may indicate an intention to seek to end the
contract by claiming that performance is unsatisfactory. If a
provider is being prevented from properly performing its service by
a lack of co-operation, it is important that any concerns are made
known to the partner and recorded in writing. This will ensure that
the provider is best able to subsequently evidence that its alleged
breach of contract was due to the failings of its
partner.
Following the above hints is likely to limit the risk of an
outsourcing contract being terminated. Even if the outsourcing
contract is terminated, taking the steps outlined above should
ensure that you are in the best position to succeed on a resultant
claim for its losses.