Best Practices (And Even Better Questions) to Apply to Your Back-Office Operations

Contract Terms: Flexibility and Reduced Financial Exposure Are the Keys

In examining more than 100 contracts every year for the past 15 years from law firms based all over the country, here are a portion of the key terms that we deem as best practices.

• Flexibility. Each and every contract you sign should have some component of flexibility to modify volumes, service levels and spend commitments. For equipment and outsourcing contracts, this should include the ability to add, delete or modify equipment configurations without lease buyouts, penalties or termination fees.
• Lack of financial exposure. In addition to the above flexibility, some type of language restricting your firm's exposure should also be included. Many firms execute agreements that include assumption of all obligations under a contract in the event of cancellation. However, if you are canceling for poor performance or breach, your firm should not be liable for these obligations.
• Cancellation penalties. Another big pushback should be in the area of cancellation penalties. Many contracts require a payment of X months if you cancel early. Why?
• Non-solicitation fees or severance. Chances are you have language in your outsourcing agreements that addresses the labor contained under their umbrella.

Non-solicitation fees are fees that clients pay to the outsourcing vendor in cases where they hire the vendors' employees or if a third party (i.e., another vendor) hires them. The argument is that the outsourcing company incurred “costs” to hire, train and manage these employees and should, therefore, be compensated if the employees are hired away from them. With the same logic and reasoning, some vendors are requesting severance pay (which in many cases is richer than what you give your own employees) for their employees if the client terminates its contract. Isn't this why law firms pay monthly management fees? Isn't this why firms outsource?