The Move to Outsourcing

• law
• management
• risk assessment
• commerce
• communication

Risks to Your Organisation and Skills Required to Set Up and Manage Outsourcing Relationships.

Areas of Liability for Organisations

The interface between modern organisations and the law becomes more complex each day. Progress by organisations into complex, flexible long term contracts, information technology and new fields of intellectual property require an expertise that must be resident in the contracting officer. Constant reference to the in-house practitioner are never practical nor desirable. Changes in Legislation (State and Federal) and the common law (law that is made by Judges) are so numerous that legal practice is no longer a competency that can be competently handled by a 'general practitioner'. Organisations use specialist practitioners for advice where it is needed. Problems can be avoided in the early stages if they are recognised by contracting officers. The wider the skill base of a contracting officer, the more confident they become resulting in better decisions and a more proactive focus.

The Law of Contract

The law of contract regulates almost every commercial transaction be it verbal or written, intended or not. It therefore has a significant effect on the operation of outsourcing.

With any co-operative enterprise comes risk and the risk is not proportionate to the price of the contract. This risk can usually be predicted and allocated to the party who is best equipped to handle it at the outset. In any case, risk must be quantified and understood before the contract starts. A proactive focus allows us to look for synergy to decrease the risk by looking for an alternative supply or putting safer processes into practice.

If the parties to a contract are aware of the principles of contract and tort, they are able to ensure that the deal progresses smoothly by planning for possible problems.

Contract law can teach us volumes about risk allocation. We teach contract from a constructive and positive position using case law to illustrate how a good contract can facilitate a deal rather than concentrating on the use of law as a 'big stick' to ensure performance. Our focus is on getting the job done rather than picking up the pieces latter.

Contract law is mostly made by Judges and therefore is constantly changing. These changes need to be understood to avoid litigation and to learn from the mistakes of others.

Trade Practices Law (and State Consumer Law)

The Trade Practices Act has far reaching implications for every organisation in Australia. Provisions contained in Part IV of the Act 'Restrictive Trade Practices'' are easily breached by organisations who simply practice what they understand to be normal business custom. An action which is deemed to substantially lessen competition may result in fines up to $500,000 for individuals and $10,000,000 for corporations in addition to claims for damages.

Part IVa of the Act 'Unconscionable Conduct' is a provision that is also easily offended and as its definition is linked to the common law, it has a very fluid nature that changes from time to time resulting in contracts being unenforceable. Many factors need to be taken into account before a contract is fully enforceable under Section 51ab such as the relative strengths of the bargaining positions of the parties.

Part V of the Act 'Consumer Protection' has wide ranging effect on the operation of a business that interfaces with the public and also effects the procurement and purchasing functions of a corporation.

The application of The Trade Practices Act may change with variations in interpretation of Constitutional Law often catching organisations unaware.

Although this area of Law is complex and fraught with danger, problems can be avoided reasonably easily by simple changes in practice.

The Law of Tort (Civil Liability)

This area of law expands continually, defining liability for acts in broader terms almost daily. The operation of any corporation may result in potential liabilities from product manufacture to simple delivery or even a slightly wet floor. Awards of millions of dollars, enough to result in failure of even the most successful business, can result from a very simple act. The Law requires all of us to "look forward" and think about our actions to predict the consequences of them. We are held responsible for any damage resulting from negligent performance. Proactive processes for decreasing risk are no longer a luxury they are a legal requirement of every organisation. Our integrated risk assessment process is quite unique and helps an organisation meet its legal requirements in the Law of Tort.

Breaches of The Trade Practices Act and liabilities in Tort and Contract often go unnoticed at the periphery of the activities of a corporation. It is not until they turn into legal action that they come to the notice of management and this often results in bad publicity, losses in time, efficiency and money and perhaps most damaging, suffering and stress to many individuals both within and outside the organisation.

By increasing the skill base of employees, we are able to both decrease the risk to an organisation and increase productivity and innovation.

We know that productivity is not promoted through conflict and that smooth organisational efficiency is characterised by concord rather than conflict. The earlier a legal problem is discovered or prevented from occurring, the less damage it does. This leads us to an analysis of a new model that is founded on a 'concord' rather than a 'conflict' approach.

When an organisation skills its staff with the right skills, it decreases risk and facilitates more inventive approaches to outside relationships based on a secure knowledge.

Management of outsourcing is essential to provide the efficiencies that it can supply as the new relationships between corporations are not governed by the internal rule structure. A new skill base is required by those people in the organisation who set up and manage that relationship.

 

The old model worked reasonably well using "order takers" as the interface between the core organisation and its out side suppliers. However, when the tasks that are being "ordered" are vital peripheral tasks, the risk of a failed relationship increases along with the consequences.

Purchase and Supply departments can not operate as 'order takers' any more as they now take on the role of commercial relationship managers between the core organisation and its providers. Professionalising these employees is vital in order to survive in a competitive market. In the same way that personnel officers changed to Human Resource Managers, contracting officers need to become Commercial Relationship Managers.

We have listed a number of competencies that are required by a skilled Commercial Relationship Manager. Not all of those people involved in contracting at different levels will require every skill. We deliver courses that are

• individually written for your organisations needs

• designed to increase competence rather than just give information

• current best practice and stimulating

We do not provide "off the shelf" courses as we have found that they do not result in long term upskilling. Courses must integrate knowledge into existing work processes to be effective. Guidance must be given on how to carry this knowledge into practice over a period of time. Our preferred model of delivery is to run courses one day per week over a number of weeks. Our experience shows that this is the most effective model for long term change. Generic courses of two to three days have very little lasting effect. Our prices average $200 per day per student.

Training Commercial Relationship Managers produces many benefits to an organisation.

 

• as problems are recognised in the early stages by the people who are in first contact with them, they seldom escalate into major events

• work processes are developed that mitigate against problems in the first place E.g. better contracting or sales/marketing processes are instituted, production processes may be modified

• where conflict is unavoidable, more precise and relevant evidence is collected making litigation or alternative dispute resolution easier and more effective thus saving costs and increasing success in court.

• non conflictual systems for resolution of problems can be implemented in the early stages, saving time, money and work force stress.

• greater certainty in relationships results in greater trust and better utilisation of innovation.

 

• much of the day to day legal management can occur at the lower levels of management structure

• simple problems can be sorted out before they precipitate into complex problems

• high levels of advice can be sort more efficiently as the organisations representatives better understand

• what to ask the experts

• what evidence and materials are needed

• what facts are relevant

• what the advice actually means

Substantially outsourcing your expert legal advice gives your organisation access to competent levels of expertise that simply cannot be attained through in-house council. As legal advice at this level costs between $200 and $350 per hour, the better informed the informant is, the less time the legal advice takes.

 

Reduction in Overall Costs

Exposure to liability is reduced which will reduce

• insurance costs

• fines and damages claims

• loss through non performance or part performance of contracts

• public relations damage

• loss of time at all levels of the organisation

 

Conclusion

In the move to contracting out, organisations need to review the skill base of the staff and implement training appropriate to the new tasks. If this requirement is overlooked, the efficiencies gained by contracting out can easily be lost.