Firms ignorant of outsourcing risks

4 January 2010

4 January 2010 | Paul Snell



Outsourcing during the recession has exposed businesses to increased risk of contractual litigation as the economic recovery begins.

According to a study of 201 firms carried out by accounting firm BDO, three-quarters of companies admitted to not making the connection between outsourcing services and the greater threat of legal disputes.


The BDO study revealed half of businesses hoped to cut costs through greater outsourcing, sub-contracting and use of freelances, particularly for support services or offshore production.

BDO has highlighted the potential legal problems, including supplier underperformance and claims that deals are unfair or burdensome.


“Measures such as redundancies, outsourcing support services, relocating production facilities offshore or joint venture arrangements have the potential to deliver significant cost savings but measures that focus purely on the cheapest solution can sometime have unwelcome side effects on service delivery and profits,” said Gervase McGregor, national head of advisory at BDO.


“It can be extremely difficult for businesses to extricate themselves from such arrangements and the claims and counter-claims require careful quantification.”
 


BDO said it had not seen the predicted rise in legal arguments during the recession, because of the cost and operational disruption they could cause. But it warned more disputes were likely to arise as the economic recovery begins, with contractual non-performance under “intense and critical scrutiny”.

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