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Perils of Provider Agreements David R. Carothers, CIC, CRM
Perils of Provider AgreementsDavid R. Carothers, CIC, CRM
Setting the Table
We have the benefit of seeing a variety of businesses across a number of industries. Itis interesting to see the differences when we are assessing their risk managementprograms. One area that always seems to vary from company to company is the use ofservice provider agreements. Some companies use them, some companies don't, andsome companies use a substandard template. Because of this, I decided to spend sometime talking about the essential elements that should be in every service provideragreement.
Essential Elements of an Agreement
Introduction
The Introduction is the stage setter forthe rest of the agreement. It shoulddefine the parties and include anyspecial definitions of words that needto be addressed to avoid confusionprior to getting into the meat of thecontract.
Essential Elements of an Agreement
Objective of Work
You should clearly outline the Objective ofWork. You obviously have goals or areason for hiring the service provider, somake sure to outline what the objective isso that both parties are on the same pageas to what the overall objective is.
Essential Elements of an Agreement
Scope of Work
One of the biggest disputes that we see when our clients attempt to enforce contractsrevolves around the Scope of Work. Use this section to remove all doubt as to howdeep you want your service provider to go. This is where you will hold their feet to thefire later if they fail to perform, so be sure to spend time clearly defining the scope ofwork in the greatest detail possible.
Essential Elements of an Agreement
Methods
What Methods are going to be used? For example, when we engage with a client, wedo interviews, on-site visits, data analysis, benchmarking and a whole host of otherthings. It is important that the client specify what methods they would like the serviceprovider to use. It is also important for the service provider to disclose any methodsthat they prefer to use so that the two parties can agree on the front end. The serviceprovider should be the expert in their area, so it would make sense that they may knowmethods that you don't.
Essential Elements of an Agreement
Time Frame
What is the Time Frame? If is veryimportant to outline the beginning andend of the contract so that the service provider can plan the project accordingly. Italso gives you the ability to hold themaccountable for meeting deadlines.
Essential Elements of an Agreement
Expectations
What are your Expectations? What is the finalproduct? What type of output do you expect? Byaddressing these things on the front end, you willavoid heartburn later. Your expectations may notbe in line with your service provider's, so be surethat you agree on them in writing on the frontend.
Essential Elements of an Agreement
Fees
What are the Fees? How will they be paid? What type of deposit is going to bepaid? Will there be milestones? If you want to get into a dispute with a serviceprovider, all you have to do is mess around with their money. Go ahead and outline thepayment structure on the front end so that you can refer back to the contract. It is notuncommon for a service provider to receive a deposit for their services. Many times,we will require a 50% deposit on the front end with the balance coming at the end ofthe engagement. How you choose to pay a provider is between you and them, butmake sure that you include them in the decision as they know what they need to getthe job done to your specifications.
Essential Elements of an Agreement
Time and Expense Reconciliation
Time and Expense reconciliation varies fromcontract to contract. Some serviceproviders will include this in their initial bid, otherswill pass through their expenses at their cost. While this should be addressed prior tothe bidding process, make sure that it is locked upin the agreement that both parties execute.
Essential Elements of an Agreement
Disclaimers/Hold Harmless
Disclaimers with Hold Harmless and Indemnification language are an absolute must. It is important for you to reciprocate and give what you ask for. If you ask for the service provider to indemnify you and hold you harmless, you need to do the same for them. You do not want to be in the blame game halfway through the engagement.
Essential Elements of an Agreement
Reporting and Status Reports
Reporting and Status Reports are a good way to build stewardship into a formalagreement. You have already outlined the total time frame of the contract and possiblyaddressed milestones in the compensation section. This is a good place to talk aboutspecific stewardship type reports you expect to see and the time frame you would liketo see them in.
Essential Elements of an Agreement
Confidentiality and Non-Disclosure
Confidentiality and Non-Disclosure agreements arekey to protecting your processesand procedures. When you hire a service provider,chances are they are also workingfor your competition. You certainly don't want to bein a position where your trade secrets andproprietary processes are being shared across thisprovider's client base.
Essential Elements of an Agreement
Termination and Renewal Provisions
Termination and Renewal provisions allow you todetermine when you can terminate a contract and forwhat cause. Also, because there may be unforeseencircumstances or projects that perpetuate, it isimportant to define the renewal terms of theagreement.
Questions
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