Contract Corner
In any service relationship, continuity of service provider personnel often impacts service quality. Excessive personnel turnover on an account can negatively impact day-to-day operations and the ability to respond to issues. Assignment and management of personnel are primarily business issues that are the responsibility of the service provider. However, there are important provisions that can be included in service agreements that can help address these issues.
Turnover
- Especially for large-scale engagements, service providers should provide regular reports (e.g., monthly or quarterly) on turnover rates for the engagement, including rates for identified categories of personnel or services.
- Turnover should be regularly discussed during meetings between managers and governance committees, including a review of programs implemented by the service provider to retain personnel on the customer’s account.
- Service levels related to personnel turnover can be established. For example, the service level can be structured with a “not to exceed” annual turnover percentage and is commonly based on market and service provider experience (this can be an important part of the RFP and due diligence process prior to contract execution). A process for adjusting the service levels can also be included to account for service and market changes and the service provider’s experience with the account.
- If the service provider’s turnover rate exceeds the service level, the agreement should provide for remedies, including requiring the service provider to report on the reasons for the excessive turnover, provide a plan to reduce the turnover rate to meet the service level, establish time periods during which such reduction will be accomplished, and/or grant service level credits for the excessive turnover.
Training
- Training of service provider personnel on both services and customer requirements is essential and can reduce the impact of personnel turnover. The service provider and customer should agree on the required training and which portions of the training are the responsibility of the customer or the service provider (descriptions of and responsibilities for training should be specified in the agreement).
- Training should also be regularly discussed during meetings between managers and governance committees, including any adjustments required for service improvements or other changes. The service provider should keep records of all trainings and certifications and the customer should have the right to audit such records.
- For service provider personnel training that is provided by the customer, in the event turnover rates exceed service levels, the service provider could be required to reimburse the customer for the costs of such additional required training.
Key Personnel
- Turnover rates are not the only factor that can impact services. The quality of the services is frequently dependent on a subset of service provider personnel (Key Personnel) that are important to the customer’s account based on management of the services, institutional knowledge, or strong relationships between such personnel and the customer.
- The contract should identify such Key Personnel. Although the service provider will understandably want to ultimately control the assignment, management, and replacement of Key Personnel, the contract can provide certain processes to limit the impact of turnover:
- For example, the contract can provide the customer the right to be involved in the vetting process before Key Personnel are assigned to the customer account, such as resume review and interviews.
- The contract can also provide for advance notice of any change in Key Personnel, and in certain instances (especially during transition periods), provide that certain Key Personnel remain on the customer account for a minimum time period unless they are no longer employed by the service provider or no longer able to perform their duties due to health or similar reasons.
Although the customer itself cannot prevent excessive turnover, these provisions can be added to a service agreement to help address issues if and when they arise.