Protections for service providers

March 12, 2015

The case referred to in “A Tricky Assignment” in this edition highlights one of the problems that a service provider can face during the lifetime of an outsourcing contract. Business does not stand still, and very often the activities undertaken by a provider during the contract period will change. In the case in point, the other business activities of the company fell away leaving the provider with only one customer. In other circumstances, the requirements of the client during the contract may result in a change in the way in which the services are provided. And that is all before the client re-tenders at the end of the contract on a different basis, requiring the activities to be carried out in a very different way under new contractual arrangements such that TUPE does not apply at the end of the contract - the provider is then left with the redundancy costs, unless employees can be redeployed (which is very often impractical for many SMEs) or a new contract won to replace the one lost.

What can a service provider do to protect itself? 

Negotiating appropriate protections in the outsourcing contract is a first consideration. It is a remote prospect that a client can be persuaded to fetter its freedom of action by agreeing to re-tender the services in exactly the same form as at the start of the contract, so that TUPE will apply and the provider will not be left with employees but no contract. Absent that, what is the position of employees who do not transfer to a new provider at the end of the contract? Who pays the bill? If this is factored into the price at the outset, the provider may be at a competitive disadvantage and not win the contract in the first place. If it is not, the provider will be left with the prospect of redeployment or the costs of a redundancy exercise. Can these be passed on to the client in some form? Can the client be persuaded to assist in finding new roles for staff who may be redundant in such circumstances?

Many outsourcing contracts allow the scope of the services to be changed during the life of the contract, usually, but not always, with the provider’s prior agreement. The requirement for the provider’s agreement should allow it to take stock of the position before agreeing to the client’s request. Financial considerations can then come into play. Who is to pay the cost of any resulting redundancies if the services are being reduced in scope is a straightforward question that will be at the forefront of any provider’s mind. Negotiation with the client may then ensue. Consideration of the impact agreement may have when the contract comes to an end is less straightforward. Will agreement to a change to the services make it less likely that TUPE will apply? Is the change part of a slow drip-drip of client-initiated changes that indicate a direction of travel that is inimical to TUPE biting? The time for a provider to negotiate financial compensation for giving its agreement is during the life of the contract, not at its end when the client may be less willing to be helpful. Being aware of the potential implications of changes to the scope of the services, and ensuring that any agreement is given only after full consideration of the impact, not simply on the day-to-day performance of the contract but more importantly at the end of the contract, is all part of a provider’s protection.

Keeping an eye on the development of the provider’s wider business and addressing any changes to avoid what happened to the family members in the Gormanley case should also be considered. Can the provider’s internal contractual and organisational arrangements be changed to make it more likely that TUPE will apply at the end of the contract notwithstanding changes during the life of the contract? Could the Gormanleys have changed their employment contracts so that they were more likely to be considered as assigned to the provision of services to the council? Organisationally, can arrangements be put in place so that staff form part of an organised grouping of employees rather than work for clients by mere happenstance? 

Giving due consideration to these elements at the start and during the life of the contract may help avoid an unpleasant surprise when the contract ends.


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