Today we have a guest article written for us by Jill Mytton. Jill is a highly experienced Commercial Risk and Compliance Expert for the recruitment industry.
I have lost count of the number of client, master vendor/ neutral vendor and managed service provider contracts I have reviewed on behalf of recruitment agencies for commercial risk over the last 11 years but the number must be in the hundreds by now. Having reviewed a substantial number of supplier contracts does enable me to spot the latest third party trends for managing commercial risk. Corporates want consistency of service and low risk so agencies that meet Key Performance Indicators on a consistent basis and are prepared to shoulder a substantial level of risk will be at the top of their preferred list. What continually amazes me is the large number of recruitment agency directors that have no robust system for measuring risk to their business. By nature recruiters have an appetite for risk, they are entrepreneurial, and sales orientated and have a “can do” attitude. This “go for it” attitude has to be tempered by a balanced business view of risk and reward otherwise the agency can be left strangled by contractual terms and unworkable penalties which can mean the end for the business.
I have a simple approach to measuring risk using a very common risk system we all know well i.e. traffic lights. I measure commercial risk in contracts as follows:-
“Red” for danger means a contract where the rewards have to be highly significant to the agency to make the heavy burden of risk and the attached costs of that risk worth carrying. These contracts would have a Commercial Risk Health Warning attached to them and the directors need to be fully aware of the issues they need to manage if they are to enter into these agreements.
“Amber” means caution where managing risk becomes paramount and potential re-negotiation of particularly onerous clauses needs to take place before signing on the dotted line
“Green” means good to go and these are agency friendly contracts that mirror industry recognised terms and conditions and are often for low volume supply where a number of agencies are being used to introduce and supply staff.
When I am assessing which category to put the contract in I look at required insurance cover, limits of liability for claims and losses under the contract, indemnities(financial penalties) imposed on the agency for breaching conditions of the contract, payment terms, and compliance criteria imposed by the client on the recruitment agency which is now including Agency Worker Regulations obligations.
If you never measure your commercial risk how can you manage the implications of such risk successfully? Remember not all business is “good” business and when that contract lands on the director’s desk it needs to be reviewed unemotionally and ultimately agency directors must have the courage to walk away from unworkable contracts to ensure the survival of the business.
Jill Mytton is a Recruitment Commercial Risk and Compliance Expert at her own business Parters 4 Success. She is Lead Consultant at REC Advice Plus.
