Use of sub-contractors

In the early stages of their outsourcing experience, clients tend to assume that the chosen service provider will do all the work to be transferred. However, in practice, sub-contracting plays an important part in a significant number of contracts and has done so since the early days of IT outsourcing. Consequently the sub-contractor issue is very likely to play a part in most arrangements at some stage.

Often the service providers will introduce the subject in a way that suggests that the functions or services to be dealt with on a sub-contracting basis are all non-critical. It may be argued that this is a perfectly reasonable opening ’sales’ gambit even if they have every intention of eventually sub-contracting elements of work that most people would deem critical to the success of the overall service. After all, it is reasonable to assume that they would not consider the sub-contracting route if this were not in the best interest of maximizing the service. In addition, they might also argue that introducing this subject too early in the discussions is only going to cause unnecessary concern to the client when all past evidence would indicate that there is rarely any cause for concern if sub-contractors are handled correctly. Certainly the general industry view is that the use of sub-contractors has not in itself been the fundamental cause of failure on that many occasions.

Nevertheless, just suppose that the sub-contractor has been brought into the arrangement because the prime service provider does not have the basic skills necessary to perform certain key tasks. Given such circumstances, the identity and suitability of the sub-contractor is of vital importance to the client organization. The client organization must therefore be very aware from the early stages of the negotiations, as to exactly what role each and every sub-contractor will play. If there is any chance that poor or non-performance by an outsourcing sub-contractor will materially affect the service then the client must investigate the sub-contractor to the same depth that it is hopefully investigating the prime service provider.

The client must ensure that the service provider takes full responsibility for the work of the sub-contractor. The client should also ensure that it has the right to prevent any sub-contractor from providing goods or services to the organization if there is a perfectly reasonable cause for doing so. The client should also attempt to secure the right of replacing poorly performing sub-contractors.