The service provider’s pre-contract risks and concerns

Service providers must also consider the risks involved. Rightly or wrongly they all believe that they take on most of the risk once the functions under consideration become their responsibility. But they are all very much aware that their risk can start very soon after the very first contact with the potential client because they are obliged to put considerable effort into various presentations to the client for which they are unlikely to be paid. They do this preliminary work in the full knowledge that the client is not certain to outsource, and even if it does, the work may go to another provider.

The commercial risks involved in acting as an outsourcing service provider are many and various. The actual risks and their relative degree of importance will vary enormously for each outsourcing arrangement, depending on factors such as the size and complexity of the work involved, the price quoted and how ’tight’ the contract is. For these reasons, an organization contemplating acting as an outsourcing service provider for the first time should ideally have extensive experience in contracting to provide specialist services.

However, when the provider first begins a dialogue with a potential client, it is the pre-contract risks that are uppermost in the thoughts of the executives concerned.

As previously stated, the service provider starts to take on risk as soon as a dialogue starts with the client. The provider’s pre-contract risks and concerns can be summarized as follows:

• being caught up in a lengthy pre-contract period during which time the provider will need to put in a great deal of effort for which it does not get paid; and

• the client chooses a provider and pursues the outsourcing option but cannot find the will or the effort required to make the change.