Contributed By Luther Rechtsanwaltsgesellschaft mbH (Cologne)
In a standard supplier customer model of outsourcing, a framework agreement is often agreed which is kept very general and regulates the basic rights and obligations of the parties, such as general principles for the provision of services and the obligation to co-operate in general, warranty, liability, contract and conflict management, and duration. In statements of work or service descriptions, the individual services and the phases/milestones of the outsourcings are specified in detail. Service level agreements with detailed key performance indicators are used to measure the quality of the service, and to ensure the quality, reliability and availability of the contractually agreed services.
The classic model of a service agreement with a remuneration based on unit prices (sometimes with some fixed components or minimum units to be paid by the customer in any case) still seems to be the standard model. However, the latest developments show an increasing use of the joint-venture model, in order to ensure the customer’s control and influence as well as transparency. As stated above, one major trend is the use of innovative remuneration models combining demand for increased productivity and continuous improvement on the one hand with a requirement for costs coverage and margin on the other.
In some sectors, such as logistics/supply chain, '4PL models' have been used in some projects. In the course of these, the provider does not necessarily perform the services on its own or by means of sub-contractors, but rather organises, manages and improves the structure a number of third-party providers. Joint-venture structures also continue to be used for complex outsourcing projects.
In regard to remuneration, there are still models in place according to which the provider receives a percentage share of the net sales of the customer. However, such share is strictly bound to certain assumptions and in the end may produce more uncertainty than intended.
In most cases, indirect areas or service departments that provide internal services are bundled in a shared service centre. This is still the case, for example, in the areas of personnel administration (payroll, travel expenses, sourcing), accounting or IT services. However, it can be observed that in recent years the wish to save costs has seen a downward trend in the use of captives and offshore shared service centres, due to the fact that costs can also be saved onshore through the use of IT and digitisation. Overall, we expect that customers will be more reluctant with captives, and will instead increasingly choose to bundle services in onshore shared service centres.