Contracts and liability: the legal side of outsourcing

If an entrepreneur chooses to outsource business activities, it is important to make clear agreements with the supplier about service levels, liability and the conditions under which a contract can be terminated. Berth Brouwer is a partner and corporate lawyer at act legal and he points out that entrepreneurs should consider a number of issues before they enter into a partnership with an outsourcing company.

Agreeing on a Service Level Agreement (SLA)

It is important that you set out your performance requirements to the party to whom you have outsourced your tasks: what exactly will that party do? At what time? And within what response times must they do so? You agree a service level and the consequences if that level is not met. To avoid discussions, it is important to specify the service level and the consequences of violating it as much as possible. This can be included in the contract in as much detail as you like. This way, a business can always fall back on something: if the service levels are not met a number of times, a certain percentage of the amount to be paid to the supplier can be withheld, for example.

Termination Clauses

If the service levels have not been agreed upon in concrete terms, you are always in a weaker position. Clarity on this point also provides a good incentive for the outsourced party to ensure that they meet these service levels. A number of issues are of great importance when drawing up these contracts: first and foremost, a good termination clause. Suppose you are dissatisfied with such a party, then you should be able to get rid of them in a fairly simple way. Therefore, always include the option of neutral termination with a short notice period, for example one or two months. You can then always get rid of a party without giving reasons and without being liable for damages. That way you at least have a safety valve for yourself.

General Terms and Conditions

Secondly, you have to be careful with the general terms and conditions. Such a provider is naturally inclined to push through its own conditions, which often include far-reaching limitations of liability. You have to be sure you want that. Sometimes these conditions are not even sent along and only referred to. Remember that they then apply anyway.

Including Indemnities

Finally, you must include certain indemnities and the right to settle fines or other damages suffered. An example from the hotel industry is that suppliers allowed housekeepers or other staff to work in hotels without residence permits. Therefore, you must ask for a guarantee that the staff deployed have all the necessary papers and are entitled to work here, and it is necessary to demand indemnity.

Settlements

This indemnification is in case the papers are not in order after all. If you are approached by the tax authorities or receive a fine, you can recover it from the other party. You should therefore have it recorded that these kinds of things can always be settled. Many suppliers stipulate that invoices must be paid as usual and that offsetting or suspension is not allowed. You must then pay first and try to get that amount back later. In fact, the advice is not to say anything about this when drawing up the contract. According to the law, you can almost always offset. If a fine is received, that amount can simply be withheld from the monthly invoice.