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Outsourcing…it is not without its risks

Anna Horrell

“It can be part of a business growth plan, but ensure that the reputation of your business remains intact,” says commercial solicitor Anna Horrell.

Instead of taking on more staff as your business grows, you may decide to outsource services. There is almost no limit to the type of services that can be outsourced, from manufacturing and drop shipping to IT, finance and sales support.

“While outsourcing key services can offer efficient ways for businesses to grow, it is not without risks to your business and its hard-earned reputation,” explains Anna Horrell, a commercial solicitor with Borneo Martell Turner Coulston in Northampton.

When requesting outsourcing proposals a business needs to cover all its requirements so potential providers are clear as to what the business is expecting, she adds.

Take care also to obtain information to assess any potential provider’s suitability as a long-term business partner.

Some of the key issues to check include:

Jurisdiction: Where the provider is based and whether the agreement will be subject to English law.

Company structure, financial stability: It is prudent to undertake some due diligence on a potential provider.

Insurance: You will need recourse in case of failure on their part and confirmation of insurance.

Compliance: Modern Slavery Act, Bribery Act etc. You may need to see their policies on these matters which affect the supply chain.

Data protection: If they are assisting with data management, due diligence on data protection protocols will be critical.

“It is worth asking our solicitors for input even at this early stage, says Anna. “Once you have selected a provider, our solicitors will help negotiate the commercial arrangement.”

Key issues to consider include:

Right to subcontract: Your provider may want the right to subcontract but it is preferable to prevent this so the buck stops with them and you have a tight line of control.

Key Performance Indicators (KPIs): Agreeing KPIs will be important. These are dependent on the service and how time-critical or performance-critical they are to your business.

Often once contracts are signed, they are forgotten and business takes over. It is good practice to audit contracts frequently to ensure no contravention of the terms, that there are no changes in relationship and – most importantly – that any variations outside of the contract are in writing, preferably always with reference back to the contract.

One of the risks of outsourcing, is that it is not easy or quick to bring it back in-house if something goes wrong. Much as you hope this will not happen, it is important to be prepared and agree remedies in the contractual documentation.

Our commercial team has extensive experience in navigating outsourcing. Whether it is to help negotiate terms or conduct due diligence on your provider, we can take care of your best interests. For an informal discussion, contact Anna Horrell in the commercial team at Borneo Martell Turner Coulston. Telephone: 01604 622101 or email .