Friday, July 2, 2010

Key Customer Personnel Provisions: More than Service Provider Petulance

Recently, the newly-appointed contract manager on a customer account explained to me the history of a provision in an outsourcing contract including why the clause had been included in the contract and the evil that it was intended to remedy. I appreciated the information and the education. Unfortunately, it was all wrong. I knew this because, unlike the contract manager, I had been involved in drafting the contract. However this incident did get me thinking about the turnover of key personnel in outsourcing relationships, the subject of today’s post.

“Key Supplier Personnel” clauses, a little bit like marriage vows, are all about establishing the foundation for a successful outsourcing relationship. Typically, these provisions:

• require the service provider to identify in a schedule to the outsourcing contract the key management, technical and perhaps business personnel who will be involved in performing the outsourced services for the customer;

• include confirmation from the service provider that such individuals have the qualifications, experience and skill to perform their respective responsibilities;

• restrict the service provider’s ability to replace the key personnel; and

• provide the customer with a right to interview and approve any replacement individuals.

The focus of Key Supplier Personnel clauses is not on service levels or the quality or reliability of the services being performed by the service provider. Instead, the focus is on the service provider personnel responsible for the outsourcing relationship. By naming in the contract the specific individuals who will fill the critical leadership roles on the service provider’s delivery team and by restricting its ability to replace these individuals, the service provider is making significant commitments to the quality of the outsourcing relationship. The customer is able to take comfort that the individuals who were involved with it during the sales process, and who from the many long days and nights working on the transaction built up detailed knowledge and understanding of the customer’s business and operations, continue to be involved. The customer should also be satisfied, from its experiences during the sales process, that these individuals have the qualifications to deliver the services and that the customer will be able to work with these individuals in the years to come. (Otherwise, the customer should have insisted during contract negotiations that the individuals be replaced with others who do have the qualifications or with whom it can work.)

Key Supplier Personnel clauses support the stable, healthy and long term customer/service provider relationship that is at the root of successful outsourcings. It is odd then that, in this respect, only the service provider seems to be taking its vows and to be committed to the marriage. While Key Supplier Personnel provisions may be a standard part of most outsourcing agreements today, “Key Customer Personnel” provisions are not. Customers do not normally include clauses in an outsourcing contract that identify their key personnel (other than their account manager), restrict their ability to replace the unnamed persons or allow the service provider any input on influence on the selection of replacements. In short, there is no corresponding contractual commitment by the customer to the outsourcing relationship.

This is more than just service provider petulance or a blind insistence on unthinking mutuality. There are clear benefits to the health of any outsourcing relationship in having people, with the knowledge and history of the relationship and the ability to work together, on both sides of the table. If the representatives of the two parties - the customer and the service provider - have the same background and context, then management of the day-to-day relationship will be easier and disputes, when they arise, will require less effort to resolve. If these representatives are both committed to the relationship, have similar tenures and have an investment in its future success, then they are more likely to be able to make the give-and-take decisions that are in the long term interests of the arrangement rather than being insistent on resolving the immediate issues in their favour.

For many of the same reasons that customers are concerned about rapid turnover in service provider personnel or having the service provider’s “B team” delivering its services, the service provider should be concerned with the quality and longevity of the customer’s account team. Service providers should be trying to negotiate a form of “Key Customer Personnel” provisions into their outsourcing agreements. It is not necessary that these clauses give service providers the right to approve any decision by the customer to replace members of its leadership team. There are softer commitments that will go a long way to nurturing the sort of relationship that benefits both parties including:

• an express recognition of the benefits to both parties of reducing employee turnover and maintaining continuity in key positions (or at least a statement in the contract that this is one of the parties' outsourcing objectives), together with a commitment to use reasonable efforts to achieve this objective;

• a commitment to keep key positions filled so as to ensure the continuous and uninterrupted provision of the services;

• confirmation that the individuals appointed as key customer personnel have the qualifications, experience and skill required to perform their duties and responsibilities;

• an obligation to provide the service provider, if possible, with advance notice of any change in key customer personnel together with a commitment to consult with the service provider with respect to any replacement; and

• an appropriate transition plan and period.

These provisions may be similar to the substance of many Key Supplier Personnel clauses. This isn’t about mutuality however. It is about recognizing that a successful outsourcing relationship requires commitments from both the parties.