Underpayment scandal sheds light on the risks of IT outsourcing
A recent Sydney Morning Herald article on the employee underpayment scandals that have been troubling Australian businesses, highlights the care that needs to be taken when outsourcing key business functions. The article quotes Rob Scott (who heads up Wesfarmers) and Anthony Heraghty (the managing director of Super Retail Group), as pinpointing software bought from offshore vendors being a key factor in staff being underpaid.
The article indicates that, in purchasing software from offshore vendors, customers run the risk of such software not being properly configured for Australia’s relatively complex labour environment. Both Wesfarmers and the Super Retail Group have been subject to scrutiny for the publicised underpayment of thousands of workers.
The recent headlines and comments from business leaders are an important reminder of the risks inherent in outsourcing key business functions to service providers, whether located overseas or within Australia. In order to mitigate the risks involved in outsourcing payroll management and other key business systems, organisations need to take a robust and considered approach to the full lifecycle of software procurement.
We set out below a number of key points for your organisation to consider when procuring payroll management systems and technology solutions.
Prior to signing the contract
- Due diligence: Customers should undertake sufficient due diligence on the software solutions available, and the options for how these solutions can be configured and implemented to meet the customer’s requirements.
- Key business requirements: Prior to going-to-market to procure a software solution, customers should engage the relevant internal (and, if necessary, external) stakeholders to ensure that the customer’s business requirements are clearly understood and documented.
- Functionality check: The functionality of the proposed solution should be measured against the key business requirements in order to determine what (if any) configuration will be necessary or whether any changes to the customer’s existing systems will be required to ensure a seamless integration.
- Commercial / technical documents: Significant focus should be placed on ensuring that the ‘back-end’ commercial and technical documents (for example, the statement of work, service levels and pricing) sufficiently and unambiguously describe the ‘what’, the ‘how’ and the ‘when’ for timely and effective implementation of the solution. The ‘who’ can also be critical, and key personnel provisions are useful to ensure the right team is assigned post-signing. These aspects are often more critical in practice than the ‘front-end’ legal terms and conditions.
- Don’t set and forget: Customers should implement robust contract management practices, keeping a keen eye on, and maintaining, clear contemporaneous documents recording scope creep, timeline slippage and performance or quality issues. Without a disciplined focus on documentation and communications, it can be easy for customers to unintentionally waive their rights or make other concessions.
- Knowledge transfer: All organisations are susceptible to staff turnover. Equally, there is a risk of the customer losing relevant expertise. To reduce the risk of knowledge gaps and leakage, it is important to have strong governance systems in place and to retain a sufficient level of understanding internally.
- Managing disputes: When disputes do arise, organisations should ensure that they are strictly managed in accordance with the requirements of the contract (including dispute resolution provisions) and that any required amendments are made to the contract following resolution of the dispute. Organisations should also consider involving either internal or external counsel early to ensure that advice is taken on the dispute and to provide additional protections for internal communications due to legal professional privilege.
At Maddocks, we frequently advise customers and suppliers on all aspects of technology procurement. Where disputes arise or projects start to go awry, our Intellectual Technology and Dispute Resolution & Litigation teams work closely together to ensure our clients are best placed to navigate the situation and achieve the best outcome.
You can also request a copy of The Technology Procurement Handbook, which is intended for any customer proposing to engage a vendor to provide technology related products and/or services.
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