16 July 2012

Hold Harmless: A ticking time bomb for the ignorant

Contracting or temp recruitment has traditionally been viewed as a more profitable service line for recruitment agencies, compared to permanent recruitment.

If you talk to any reputable person in the recruitment agency broking market, they will confirm that a strong ‘temp/contract book' is viewed very favourably by potential acquiring companies due to the temp business being unable to ‘walk out the door' in the same way that permanent recruitment business potentially can.

Maybe this is why some recruitment companies appear to be willing to take what I would regard as unreasonable risks in agreeing to onerous ‘hold harmless' and indemnity clauses when negotiating client tenders and PSAs.

Industry news service, ShortList reported to this trend a couple of weeks ago, quoting Bayside Group co-founder, Robert Blanche;

"The recruitment industry is not necessarily giving a lot of weight to the risk [of hold harmless and indemnity clauses], or it's not understanding the risk," he said.

Particularly when contracts went out to tender, bidders often chose to overlook the implications of the clauses, in favour of securing the work.

"They've got their heads in the sand when it comes to risk," he said.

Blanche said recruitment company owners and managers needed to educate their consultants, both on identifying and understanding the clauses, as well as understanding the potential consequences.

The Shortlist article carried supporting comments from three senior recruitment industry executives/owners in Ambition Technology's Andrew Cross, Rusher Rogers's Susie Rogers and Daryl Stewart from Real Time Australia.

I was also contacted by a NSW agency CEO who relayed his company's attempt to negotiate a more reasonable hold harmless clause with a client for a significant tender, when they were the client's preferred supplier. The end result was that the client wouldn't give ground as ‘there are plenty of your competitors that are prepared to agree to the clause'. The CEO walked away from the business rather than agree to an unfair and onerous contract.

As he said in his email to me, ‘Had they (competitors) not read it or did they really think that this clause was not such a big deal?'

Just over a year ago, I wrote about recruiters having to balance up optimism and scepticism if they are to become successful.

In the case of negotiating large contracts and tenders that contain such potential profit killers as ‘hold harmless' clauses, rebates, free temp-to-perm fees and penalty payments due by recruiters when a temp drops out or is unsatisfactory there needs to be far more scepticism and a lot less optimism with respect to the upside in terms of the potential volume business to be gained versus the downside in terms of risk and liability being transferred by the client to the recruitment agency.

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