Types of Outsourcing Arrangements - Case Study Example

FACILITIES MANAGEMENT (Student Name) (Course No.) (Lecturer) (University) (Date) Table of Contents Introduction 2 Types of Outsourcing Arrangements 4 Legislation and the Impact on Contractual Arrangements 5 Risks Associated 6 Mitigation Measures 8 Performance Management 9 Recommendation 11 References 12 Introduction Among the critical areas of consideration in many companies today is the provision of services such as security, cleaning and catering. Over the years, many businesses as well as government institutions have used in-house sourcing of such services. However, the trend is changing significantly and many organizations today are considering moving from the in-house based provision of such services to external sourcing. The main reason for this shift is the cost effectiveness of the external services, making the contracting company reduce expenditure (Brown and Wilson, 2005, p. 5-25). Over the years, in-house service provision has been used by the employers for several reasons. One of the reasons is for security purposes where the management of an organization aims to ensure that the employees of the organization have access to the facilities therein, hence reducing the security risks such as theft, robbery and violence. Although the in-house service provision portrays many advantages for the employing companies, the cost of managing the in-house staff has increased with time, making most companies to outsource such services. On the contrary, outsourcing refers to the process by which a company or an organization employs a third party to get its services such as cleaning and catering provided (Kirk, 2010, p.10-15). Today, many companies outsource such services because of their efficiency and cost effectiveness. For instance, outsourcing services do not require the company to buy the equipment to be used and to compensate the workers hence pocket-friendly, the sense that other companies are expensive compared to in-house. Although outsourcing is employees is currently adopted by several companies, organizations and government institutions. Selecting the best contractor or employee takes time and making sure that the contract requirements are met by both parties. Hence time-consuming and may reduce personal skills. Entering into a contract with another company results in the transfer of undertakings, hence making the company providing the outsourced services to be dependent on the contractor (Mcivor, 2009, p. 15) One such institution that requires the provision of contractual cleaning and catering services is the Ministry of Defence, Main Building in Whitehall, London. As the in-house facilities manager in this critical institution, there is the need to enter into an agreement with an external service provider to increase the quality of the services provided. This comes as a result of the complaints arising that the quality of services provided by the in-house staff is poor. Discussion Types of Outsourcing Arrangements The central point in an outsourcing arrangement is that the provision of the required services are transferred to the service providers. After the transfer, the service providers then manage and control these processes, including the resources required for service provision. One of the outsourcing arrangements available for the Ministry of Defence is contracting out (Parlour, 2014, p.13). This requires the MoD to effectively plan for the contract by carrying out intensive research and looking up the contractor databases for more information. Secondly, the MoD needs to announce bids placed by the potential service providers. The announcement includes the information needed by the potential service providers. The potential contractors are then allowed to submit their bids to the MoD based on their understanding of the announcement for the invitation of bids. Since it is a government institution, the bids submitted are expected to follow the requirements of government such as past government experiences and stability. Based on the stability of the contracting company, the bidders are called upon to give more information as to why they should be given the contract. A contract will then be awarded after scrutinising the bids. Contracts are awarded based on the best price or best value, and the contractor performance in service provision. Another outsourcing option that is available to the MoD is the professional outsourcing (Oshri et al., 2015, p. 19-22) Apart from the legal, information technology and accounting services, other services such as catering and cleaning may also require the help of external service providers. In such an arrangement, the Ministry of Defence can work together with a private company that provides professional catering or cleaning services and have it provide these services. Apart from contacting, the outsourcing advisory boards can also be used by the Ministry of Defence to gain insight on how to outsource the intended services (Global Sourcing Workshop, 2015, p.23). Outsourcing boards are the commissions formed by the government with the aim of overseeing, planning and coordinating the outsourcing processes carried out by government institutions. The boards can be used to provide advice on the outsourcing activities required by the government agencies and can be a perfect option for coordinating such outsourcing activities. Legislation and the Impact on Contractual Arrangements In the United Kingdom, the employment rights of workers whose jobs are transferred through contracts is secured by the Transference of Undertakings Protection of Employment (TUPE). According to the legislation, the workers whose jobs are transferred from one employer to another on the basis of change of business ownership are protected by the law, inclusive of subcontracted services. The TUPE regulations stem from the 1977 European Transfer of Undertakings and were implemented in the United Kingdom in 1981. However, there have been different interpretations in different states leading to conflicting ideas about the rights of the workers as well as the working conditions (Mecrate-Butcher, 2008, p. 78) The regulation provides the consultation rights of the workers as well as the protection of pre-transfer conditions of employment such as salaries, holidays and sick offs. As a result, the subcontractor takes over the employment contract that are employed to deliver services immediately before the transfer. The law grants the workers with the rights of refusal to transfer (Derbyshire and Hardy, 2014, p. 51). This means that the contracting firm should have good working conditions to be able to convince the workers from the service providing company to be able to work for them. This is because this transfer of services also affects the worker’s time management and flexibility. Thus, MoD and the external service providers must be able to exercise best practise before transferring the workers on a contract basis. In the event where the outsourcing of these services by MoD results in redundancies. The legislation protects the workers against unfair dismissal and provides collective consultation requirements (Great Britain, 2005, p.95). The law provides that the employee has the rights not to be unfairly dismissed, and dismissal can only be fair if the employer can provide a valid reason for the dismissal after individual consultation is done. The United Kingdom also provides laws for contracting within the public sector, where MoD falls. Depending on the nature of the contract and its value, a public-sector outsourcing is subject to the UK regulations that implement the EU directives. Therefore, the contracting authority may be required to advertise the contract on the EU journal and follow the required procedures and treat the bidders equally (Mallon and Waisman, 2011, p. 45). Risks Associated Although outsourcing of services can be considered as the best alternative for the Ministry of Defence based on the complaint arising from in-house service delivery, there are also some risks that are associated with it. One of the problems associated with outsourcing is the loss of control. Transferring responsibility and blame to an external service provider results in the loss of control by the contracting company. It is, however, arguable whether handing over responsibility to a third party can help in avoidance of responsibility by the customers. Many companies view giving up control over such services as a sense of relief. This is mainly because the internal and external staffs have different perceptions of profits, service and survival. As a result, the outsourcing authority has limited control over the outsourced services. Although the external service provider may do a perfect job, it may mean that no one within the organization understands the market rates of the services provided and the high level of reliance that the contractor may have. Moreover, the contractor may transact other businesses in the name of the contracting company hence spoiling its reputation (Kehal and Singh, 2006, p. 427). Another risk associated with the outsourcing of services from external service providers is the viability of the service providers. One of the risks associated with the provision of services by external service providers is the access to some of the critical services and systems of the customer. This is a major threat to the security of the clients and can affect business operations in an organization. It is easier to manage in-house operations since the management has the authority to do so. In contracting external service providers whose primary aim is to maximize profits through high price to cost ratio, proposing changes in pricing rules to allow generation of more revenue, large volume of standard services and high customer retention, the contracting company must be prepared to cater for all these costs. To reduce such risks, it is important for the ministry to follow a clear, structured approach while contracting. Another problem associated with outsourcing is time wastage. Before sourcing the cleaning and catering services from any company, there is the need for the Ministry of Defence to carefully carry out research and plan on how the contracting process will be carried out. This is later followed by announcing of the contract and invitation of bids by the potential contractors. The bids are submitted, and the winner selected based on the best price or the best value. All these activities consume the management time. The management time that is used in selecting the winners of the contract and ensuring that the contract requirements are adhered to strictly can be used in engaging in other income-generating activities for the ministry. External sourcing can also result in legal liabilities for the company seeking external services. In many instances, the service providers enter into other transactions with other companies with the name of the contracting company. As a result, the outsourcing authority is held liable by the law for the actions of the contractor held in the name of the organization. Such practises can spoil the reputation of the reputation of a company. Another risk associated with the process of outsourcing services is the issue of trust. It is important that the third party individuals with access to the personal information of their clients keep it confidential. Such information should be protected from disclosure and use by other individuals for fraudulent purposes. Mitigation Measures To avoid the risks that may occur during the process of outsourcing, it is important that the Ministry of Defence forms an outsourcing team. The management should select an outsourcing team with the mandate of ensuring that the outsourcing process is effectively done. The outsourcing team should have varied skills and opinions and should be able to challenge themselves and others. Moreover, the team should include individuals from different departments within the ministry to be able to bring their ideas together and choose the best cleaning and catering services for the ministry. The team should also be self- directed and should not accept status quo. Another way of ensuring that the risks associated with outsourcing processes are averted is through the assessment and management of the outsourcing project risks (Carter-Steel, 2009, p.120). The Ministry of Defence should develop models to aid in assessing and handling the risks that may be associated with the outsourcing of both the cleaning and the catering services. By using such models, the outsourcing tam is able to identify the barriers that may cause the ministry to fail in the outsourcing process as well as providing the team with the areas that require to be improved before the sourcing is done. Through such assessments, the ministry is in a position to know the market rates for the services required. Also, there is the need for the development of an outsourcing contracting and negotiation plan (Salwan, 2007, p. 196). The contracting and negotiation plan is important and can enable the ministry to plan and prepare effectively for the negotiation process. This planning process is significant as it helps in the identification and documentation of the key objectives of the outsourcing process. These include; discussion and confirmation of the terms and conditions to be negotiated by the ministry to govern performance, definition and documentation of the expectations of the external service provider and documentation of all the necessary information to ensure that the external service provider has a proper understanding and is ready to effectively carry out the contract requirements. Performance Management After the contract has been awarded to the winner based on best value or best cost, the Ministry of Defence is entitled to evaluate the performance standards of the new employees to see the improvements that may occur as a result of outsourcing the catering and cleaning services. Conducting performance management is important because all the employees should have a clear understanding of their job expectations. There is the need for the staff to understand their contributions to the institution success. Performance management is also important because it is a developmental planning tool. Through the performance analysis, the employees are able to know the areas that need improvement. One way through which the Ministry of Defence can conduct performance management is through the critical incident method (Information Resources Management Association, 2012, p. 63). This approach involves keeping records of both the positive and negative actions that the employees engage in the workplace for instance in the case of the MoD, the manager can record the actions of both the cleaning and catering staffs that highly affect the ministry and use them as the criteria for evaluating the performance of the staff. Another method that the Ministry of Defence can use in evaluating the newly hired catering and cleaning services providers is the work standards method. In this type of performance management, the management sets standards that are used as a basis of assessing the performance of the employees. These standards echo the performance of an average worker under normal working conditions thus can be applied in the management of any kind of job. Hence, the MoD can set standards for the new employees to gauge their performance, failure to meet the contract requirements may lead to termination of the contract period. Result- based system can also be used in managing the performance of the new employees. The performance management approach requires the manager and the subordinate agree on the objectives for the performance assessment process (Mark, 2012, p. 67). For instance, one of the objectives that the Ministry of Defence and the catering survive providers can agree on is to minimise the wastage of food. After a month, the management can evaluate how the employees have achieved this objective, probably by reducing the quantity of food supplied. Conclusion From the above discussion, it is evident that contracting out is the best strategy that should be employed by the Ministry of Defence in outsourcing for both the cleaning and the catering services. However, the process of outsourcing requires persistence and strict in selecting the best bidder for the contract, it is important for the MoD to be keen on listening to the ideas of the potential contractors since apart from just providing the required services, they may go a notch higher in improving the reputation of the ministry. Recommendation The success and preference for any service providing company depend on the company competence in terms of quality and price. For the company to retain the contract, the quality of the service being provided must meet the expectation of the organization that is being served. Since outsourcing take a lot of time, company, upon receiving the contract should set high standards in service delivery and maintain good relationship with other service providers to ensure improvement. References Brown, D., & Wilson, S. (2005). The black book of outsourcing how to manage the changes, challenges, and opportunities. Hoboken, N, J., John Wiley & Sons, p. 5-25. Cater-Steel, A. (2009). Information technology governance and service management: frameworks and adaptations. Hershey, Information Science Reference, p.120. Derbyshire, W., & Hardy, S. (2014). TUPE: law and practice: a guide to the TUPE Regulations. London, Spiramus Press, p. 51. Global Sourcing Workshop, Oshri, I., Kotlarksy, J., & Willcocks, L. (2015). Achieving success and innovation in global sourcing: perspectives and practices: 9th Global Sourcing Workshop 2015, La Thuile, Italy, February 18-21, 2015, Revised selected papers, p. 23. Great Britain. (2005). UK employment regulation. 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