Contracting Out – 10 Reasons Your Company Should Contract Out Services

Strategy Plan One

April 20, 2012 

contracting outContracting Out

Businesses encounter pressured operational scenarios requiring resource decisions.  In some cases, businesses do not have the quality and quantity of people to accomplish an operational task or goal.


Decisions need to be made by leaders on how to resource a particular circumstance, by either building up and accomplishing the goal with internal sources, or to acquire outside assistance to get the job done.

Contracting out is one solution to alleviating many operational pressures.  External contracting solutions can assist both in the short-term and long-term, depending on the scope and duration of work required, and operational needs.

There are several benefits to contracting out services…here are some of those advantages:

  1. Contracting Out to Get the Work Done

As a leader managing projects, you can observe where things need to be accomplished according to your schedule.  The volume of work during a specified time frame may not be accomplished with existing staff levels.  Acquiring outside help in the form of contractors would help alleviate short term pressures until long term plans can be developed and implemented.

  1. contracting outContracting to Acquire Expertise

Acquiring contracted professionals would help where your existing staff compliment does not have the capacity to complete professional tasks.  An example would be to bring on a marketing contractor or IT professional or company where your business does not have this built-in capacity.  Many companies, corporations and Federal Government agencies have moved to contracting out specialized functional areas.may not have the required skill set or intelligence of an industry or function.  Bringing on external expertise would help build capacity in your organization. 

  1. Save Money with Contracting Out

Contracting can be a cost-effective way to defining costs and to not entertain the internal costs to hiring and developing staff for the short-term or long-term.  Staffing processes, developmental processes, salary and wages in some cases would cost substantially more than short-term defined contracts.  Staffing also requires obligations (legal and otherwise) to employees that extend beyond a defined period for a project.  It is more often difficult, with costly process to staff up a short-term professional position for a defined deliverable, than to acquire an external company ready to go on a project.   The element of risk is also higher with employed resources than contracted staff, as employees can leave for other opportunities, quit or disagree with deliverables midstream on a project.

  1. Focus on Core Business Activities

With contracted services for one element of operations, you as a manager or business owner can focus on other core business activities, such as business development, business planning or partnership building, or any other key function instead of managing an activity.  Also short-term contracts may give you the ability to “catch-up” in staffing for the long-term, strategic HR plan.

  1. Results Achieved with Contracting Out

The contracts should be set up to be results-based or performance-based.  The contractor has an obligation to meet a certain target, goal or result.  As part of the terms and conditions of a legal contract agreement, the contractor has been acquired to meet those terms and conditions.  The schedule of payments could be based on hitting the milestone objectives, with a hold-back payment until the full job has been completed in a satisfactory manner (i.e.: the contractor has met the goals, objectives or deliverables in an acceptable manner).

  1. Definition and Certainty

Everything in a contract can be defined, from scope of work, results, objectives, deliverables, time frame, contingencies and cost.  As an entrepreneur you can manage projects more efficiently with defined contracts.  You will know when you hit your objectives, and achieve them within a certain prescribed duration and budget.  Your financial budgeting exercises will become more defined and the estimates for the annual budgets for activities will become more precise with defined contracts.

  1. No In-House HR issues with Contracting Out

The responsibility, for HR issues related to contracted employees working on a contract project, lies with that outside company.  The external company must deal with appropriate staff levels and issues to ensure their company meets the terms and conditions of the contracting agreement.   Some contracts will require their employees to work in-house or collaboratively with your own staff, and so those employees look and feel like your own employees without the responsibility.  The outside company is fully responsible for their salary and wages, benefits, working conditions, working arrangement, their budgets and their conduct in any work environment.

  1. Request for Proposal (RFP) Processes applicable to other business functions

Setting up an RFP is a valuable process, and elements of this process can be replicated for other internal business functions.  For instance setting up objectives, goals, deliverables in a RFP could be replicated in the functions of setting up work plans for staff members.  The accountability measures in an RFP can be copies across and into the accountability accords of employees and managers.

  1.  Contracting Out – More Control

In setting up contracts you have more control over a project, in that you will be assured that the scope of work can be accomplished by a party that has a legal obligation that you approved.  Through a solid Request for Proposal (RFP) process you will have chosen the right company to get the job done.

  1.   Contracting Provides Business Partnerships

Contracting with companies that align with your objectives and mandate will open the door to building partnerships, not only with the external contracted company, but with other linkages this external company has.  The contractor may want to align your business with more subject expert companies or professionals.  Synergies and collaboration can occur between businesses in the same industry and lines of products and services.

As an entrepreneur in your planning stages, develop and weigh your resource options for meeting your goals, which may include staff resources, contracting out services, or a combination of both.  Always recognize the value of your internal staff, and where there is a need, contract external professionals and companies to get the job done.


Strategy Plan One

Business information, resources and tips for the entrepreneur

© 2012 Strategy Plan One


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