One of the most frustrating and stressful triggers within the world of complex outsourcing and solution integration projects is the challenge of in-flight contract changes. Here, the focus is not just on the mechanics of change, but on the degree to which the provider places its client at the epicentre of these changes, to ensure that they are informed, assured, and fully understand the need for this amendment to their agreed plan. It’s a journey where careful planning, commercial and legal awareness, and strategic thinking are all needed, to ensure that these changes are both legitimate and will lead to enhancements, not uncomfortable and costly disruption.
Distinguishing Between Genuine Change and In-Flight Contract Clarification
The intricate process of building and maintaining Commercial Trust between complex outsourcing or solution integration providers and their clients can be severely strained by the implications of ‘scope change’. A request for change just a few months into the service or project delivery, often accompanied by the provider’s assertion that additional charges will result, will rarely be welcomed. But before you can determine how to react to this news, it’s important to gain a deeper understanding of what’s going on and why.
At the heart of this issue lies the distinction between a genuine change in client requirements and a late realisation or clarification of the original client expectations by the provider.
When Providers Mistake ‘Clarity’ for ‘Change’
- Clarification vs. Change: Evidence from many outsourcing and solution integration projects identifies that often what is perceived as a change in requirements by the provider is actually a crystallisation of the initial needs of the client. In the early phases of scoping and procurement, it’s paramount for providers to deploy their specialist domain expertise to thoroughly understand and validate client needs and requirements. When a provider represents itself during the procurement process as a ‘specialist’ in its field, a failure of them to ‘ask the right questions’ of the client or make accurate assessments of its requirements can lead to the provider’s misconceptions about the project’s scope. When these misconceptions are corrected in the delivery phase, they should not be misconstrued by the provider as ‘changes’ instigated by the client. Indeed, there is case law that supports this view.
- The Onus of Expertise: It is incumbent upon providers that represent themselves as experts or specialists in the outsourced, managed services or complex project you wish to procure from them to identify potential areas of ambiguity and then seek to clarify them with their clients. When ‘scope change’ results from a ‘specialist’ provider’s oversight, previous case law determines that the responsibility for bearing the cost of the ensuing adjustment falls to the provider, not the client. Under these circumstances, the provider cannot simply imply that the client’s requirements were not clear enough at the beginning and therefore the change is legitimately chargeable. Current case law determines that it is for the ‘specialist’ provider to ‘ask the right questions’ to validate the client’s requirements. This distinction is crucial for maintaining transparency and fairness in the contractual relationship.
Understanding Chargeable vs. Non-Chargeable Scope Changes
The need for change is often uncomfortable enough, but the party responsible for the cost of that change is often a point of contention, so it’s important to understand the legitimacy of a provider’s request for additional charges within this process.
- Chargeable Scope Changes: A chargeable change is considered justified when the client’s needs legitimately evolve or expand beyond the original business outcomes they anticipated. Such changes may arise due to external factors, regulatory shifts or strategic redirection by the client.
- Non-Chargeable Adjustments: These are when changes are necessitated due to a provider’s lack of diligence, in relation to its specialist expertise of the service being delivered, during the initial scoping process. This category includes all clarifications or refinements of the original requirements that were either misinterpreted or overlooked by the provider because it did not ‘ask the right questions’ of the client during the procurement process or due diligence phase.
The Importance of Robust Scoping and Due Diligence
To fully appreciate the parameters of the project or service requirement, it is imperative that a provider makes full use of its expertise in the field to not only ask the right questions, but to use this knowledge to fill in the gaps that their client doesn’t even know exist.
- Effective Initial Scoping: The key to preventing disputes over in-project changes lies in robust initial scoping/due diligence by the provider. This process, in brief, involves a detailed analysis of the client’s requirements, an exploration of potential variables and a comprehensive risk assessment.
- Due Diligence and Expert Inquiry: Providers must undertake meticulous due diligence, tapping into their expertise to question, challenge and validate client requirements. This stage is crucial for setting a clear, unambiguous foundation for the project.
Navigating In-Flight Changes
There are two straightforward strategies clients and providers can consider to minimise the chances of disputes arising from the need for scope change.
- Documentation and Communication: Both parties should ensure that all aspects of the project scope are fully analysed, well-documented and communicated. It is also the provider’s responsibility to ensure that the business consequences of any compromises in that scope are clearly discussed with the client in layman’s terms in order to mitigate the risk of misunderstandings and unjustified charges.
- Joint Review Mechanisms: Implementing regular joint reviews of the project can help in identifying and addressing scope-related issues promptly. These reviews provide a platform for open dialogue and collaborative problem-solving. This joint review process is not an excuse for providers to push responsibility back onto the client, getting them to agree to changes that they do not have the internal technical expertise to understand the mechanics or impact of. In the event of a formal dispute over any such ‘acceptance certificates’ signed by clients under these circumstances, the High Courts are likely to look very dimly upon this.
The Outsourcing or Complex Project Provider as a Custodian of Change
Where the provider has represented itself as a specialist in its field of operation, they are not just executors of predefined tasks, they are custodians of change. Therefore, when circumstances evolve – whether due to technological advancements, regulatory shifts or the client’s evolving needs – it’s the provider’s responsibility to navigate and communicate these changes effectively to the client.
This role encompasses more than mere compliance with requests, it requires a proactive approach. Specialist providers are expected to foresee potential impacts of change, understand the nuances of the client’s operations and offer solutions that align with the client’s strategic direction. This foresight is critical, particularly when it’s about ensuring that services do not just respond to change but anticipate and lead it.
The Duty to Warn: A Legal and Ethical Imperative
The concept of ‘duty to warn’ holds a special place in complex outsourced/project services. As specialists, providers possess knowledge and expertise that their clients may not. This imbalance creates both a moral and a legal obligation for providers to inform, advise and, where appropriate, caution (warn) the client about potential risks or adverse impacts associated with certain decisions or changes.
A failure to warn can lead to significant operational disruptions, financial losses or safety hazards, all of which can be detrimental to the client’s business. The duty to warn, therefore, is not just a legal formality, it is an ethical commitment to partnership and trust.
Undertaking a Mini-Scope: The Foundation of Effective Change
Change is constant and its management in complex projects needs to be coordinated on an informed basis. This is where the ‘mini-scope’ exercise comes into play for in-flight contract and service changes. A mini-scope is essentially a focused assessment conducted by the provider prior to designing or implementing any material change, to understand the specific requirements and implications of that proposed change.
This exercise is pivotal in ensuring that any modifications to the outsourced or project services are not only feasible but beneficial. The mini-scope helps to identify whether a ‘change’ is in fact a ‘clarification’ of the original requirements and should therefore not be chargeable. It should also highlight potential challenges and cost implications where the change is legitimately outside of the original requirements, and whether additional resources (on either the provider or client side) or adjustments in service levels may be needed. The mini-scope is not merely a procedural step. It is the foundation upon which successful in-flight contract and service changes are built from a trusted provider.
Cost Validation (or ‘Soft’ Benchmarking): A Glimpse into the Market and Opportunities
In the quest to maintain competitiveness and efficiency, ‘soft’ cost and service level external market assessments play a crucial role. This involves comparing the services, costs and performance metrics of the outsourced/project services with those offered by non-contracted providers in the overall market.
Soft benchmarking is not about creating competition but about gaining insights. It provides a reality check on market trends, pricing standards and service innovations. For the client, this exercise offers a panoramic view of where they stand in the market and what opportunities they can leverage for further improvement.
Contracting for Advice: A Strategic Approach
One of the most strategic moves in managing outsourced services and complex projects is to contract separately for the provider’s advice, distinct from the actual service delivery.
This approach ensures that the advice given by the provider is objective, focused, geared towards the client’s best interests and gives the provider detailed insights that, without undertaking detailed scoping, it would not have otherwise had. In this respect, it allows the provider to give the client informed and clear advice on the change to the services to be undertaken.
When advice is tied solely to service delivery, there can be a tendency to maintain the status quo to avoid additional work or complexities. By separating these two elements, the client usually receives candid, unfiltered advice that is more about adding provider value and less about provider convenience.
Conclusion
Managing in-flight contract changes in the more complex outsourced/project services is a balancing act between adaptability and diligence. The more commercially informed you are, the better chance of your ‘critical friend’ (emphasis on the friend) constructive challenge to the provider leading to the changes being made in a fair and equitable manner.
It’s about creating a collaborative environment where the provider is not just a vendor but also a strategic ally, where their duty to warn is not a burden to the provider, but a commitment to excellence and where change is not a disruption, but an opportunity for improvement and growth.
