Outsourcing Contracts:  Top Tips to Avoid Unexpected Increases and 5 Questions to Ask Up Front

Outsourcing Contracts:  Top Tips to Avoid Unexpected Increases and 5 Questions to Ask Up Front 2022-04-28T21:50:13+00:00

At Mattern, part of the services we offer our clients is to manage their outsourcing contracts once they are implemented.  We act as the direct liaison between the firm and the provider, including reviewing addendums and monthly invoices and assisting with the resolution of service issues. Additionally, Mattern provides ongoing analysis and recommendations, including annual headcount and workflow analysis.

Many of our clients say it is the best money they don’t spend since the outsourcing service provider reimburses the firm for all our costs.

Over the last year, several service providers have asked Mattern clients to agree to an increase in their monthly invoice so they can offer salary increases to their onsite employees to improve employee retention or offer more competitive salaries to potential candidates. This monthly invoice increase is in addition to the agreed upon annual escalator.

There is no doubt that compensation is an important factor in hiring and retaining employees, but it is not the only factor nor is it the most important one.

Here are some things to do before you enter an outsourcing contract to make sure you avoid these unexpected increases.

  • Make sure the salaries your outsourcing service provider is offering to candidates is competitive with the current market and considers all related aspects such as required skillsets and any specific geographic market differences.
  • As part of any outsourcing Request for Proposal (RFP) or negotiation, make sure you get a list of the salaries service providers are offering for a position. This should be updated each time a position is added or reduced.  Ensure you have a benchmark to validate these salaries are competitive for each position in your contract.
  • As part of the same process, make sure the increases that your outsourcing service provider are allowed in their contracts are being applied to employee compensation.

The reasons employees leave other than compensation

  • Flexible Work Enviorment
  • Connection
  • Healthcare
  • Wellness/Safety
  • Empowerment
  • Creativity and Innovation
  • Learning
  • Quality of life
  • Trustworthy leadership team

Depending upon the article you read, compensation is always listed in the top five (5) reasons for an employee leaving a position.  Nevertheless, if not coupled with other, non-monetary motivators, the motivating effects can be short-lived. Further, monetary incentives can prove counterproductive if not made available to all members of the organization.

To take this analysis a step further, when analyzing one of the accounts we manage, they experienced on average 36% turnover (which is average for the outsourcing industry) but only one of those positions turned over for compensation reasons.

You never say never, and every situation is different but before agreeing to absorb any type of increase, make sure your service provider is doing their job in managing their employees.  Chances are if they are, you won’t be getting these requests.

Top 5 Questions Before You Outsource

Over 70% of firms outsource some portion of standard on-site services such as reprographics and mail, document processing, reception, and records, but only 26% of these firms will report significant improvement to their operations.

To be successful, here are five questions your firm should ask before you commit to the outsourcing process:

  1. If you are looking for the outsourcing provider to retain your in-house employees, are you comfortable with no longer having a say in their compensation, benefits, and job location?
  2. What will you do if an in-house employee fails the outsourcing provider’s criteria for employment?
  3. For many long-term, in-house employees, their compensation far exceeds the market rate for the position: will you have the outsourcing provider continue to pay them their current rate–if the provider will? Or do you take the employee back to the current market rate—in which case, they will likely leave?
  4. Which outsourcing suppliers are better at incorporating assumed in-house employees into their operation, providing the necessary training and career track for them?
  5. What if the best option for your firm is to outsource the in-house operation to another region of the country or, if possible, another country altogether? What happens to your current employees?   Is there a hybrid solution that makes better sense?