Employment relationships are governed by the common law and various statutes so it is possible to determine the nature and scope of the relationship. Provision is also made for disputes to be resolves by conciliation. Only if that fails do arbiters or judges become involved. Many enterprises engage the services of others to provide persons to do work for them outside of any employment relationship. A contractual relationship is created in an uncertain legal environment with very few legal precedents. It is critical that managers know what the risks are and cater for them in the contracts.
A very important and interesting article has just been posted on SA Labour Guide written by Judith Griessel of Griessel Consulting. Many of the pitfalls and hazards of failing to appreciate the complexity of such contractual arrangements are discussed. Read Outsourcing Services – What do you sign up for? to gain more insight into the various issues.
How carefully does a business owner, MD, CFO or HR Manager scrutinise the contracts that they sign with their cleaning services, caterers, recruitment agencies, IT administrators, security services and the like? It is about more than just reaching agreement on service specifications and payment arrangements – simply signing the ‘standard contract’ provided by a service provider could leave the client open to many risks.
Outsourcing of services or contracting with a service provider usually means that the client company relies on someone outside of the company to run certain functions / activities on its behalf. When a business outsources some of its functions/activities, the third party then runs with that portion of the outsourced function – however, the responsibility and accountability cannot be outsourced and the risk remains with the client. The client should therefore contractually provide for the necessary warranties and indemnities relating to the service provider’s functions.
It stands to reason that the author of the service agreement would tend to be somewhat one-sided in terms of protecting their own interests. Or, as we have seen many times, the contract is sub-standard / outdated and not in line with legal provisions and best practice. This would mean that the client (or the service provider) may not be sufficiently covered nor have legal recourse when things go wrong. Signing a legal contract without having it professionally vetted, is pure folly.