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Losing Control of the Contract
Where are we as HR professionals when our service contract is assigned or the provider is bought? Assignment of services happens in two ways in most HR outsourcing contracts. In a not-uncommon scenario, the outsourcer decides to sell off one of its business lines and seeks to assign the service contract to another provider. This is a simple contract assignment, and most outsourcing contracts give the client company at least a right of consent to such an assignment. The second means of assignment is the so-called "change of control" -- or COC -- method, by which the entire company is sold to, or merged into, another company. In this situation, the contract is not assigned, but a new owner of the service provider takes over control. In the COC setting, the new owner is obliged to continue the service contract on the terms already existing. Many practitioners have asserted that COC transactions are much less risky for the client company than assignments, but we will see in a moment that the client has substantial risks in a change-of-control setting. What HR executives should focus on in both cases is that the marriage already made in the outsourcing service contract is at risk. In an assignment, the client company usually has a consent right, and the company can refuse that consent, but the result may be a "stranded-asset" contract, in which the company is the only client left being serviced by a disinterested and unhappy provider. Capital will dry up, the best people will leave the service team, technology will be allowed to age to the point of decrepitude and the client team will have to literally "pound the table" over service levels every month or every quarter. The COC setting is hardly better. The client company in this setting has to focus on an entirely new service team, new executive leadership, new margin expectations (someone has to pay for the acquisition), and a new service profile. In a COC, the buyer may have very different expectations about global services, onshore U.S. service centers, language support and technology. A client company may find itself suddenly being asked to use proprietary HRIT instead of enterprise HR technology. A host of other problems can arise that may not be apparent at the time of the COC. In both of these situations, our advice is to conduct the same type of due diligence about the new provider -- in an assignment or a COC -- as was conducted the first time. Send inspection teams to every relevant service and operating center, and be very careful about HRIT operations, business continuity and strategy. You may not be able to stop the assignment or the COC, but your bargaining power will never be better, and you don't have to keep dancing with just any partner who cuts in. Lowell Williams is executive director of HR Advisory Services for EquaTerra, a BPO consulting firm based in Houston. He can be reached at lowell.williams@equaterra.com. November 1, 2010 Copyright 2010© LRP Publications |
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© Copyright 2012 LRP Publications. All rights reserved.
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