Corporate clients of staffing companies want consistency of service and low risk so agencies that meet KPI’s on a consistent basis and are prepared to shoulder a substantial level of risk will be at the top of their preferred list.

But this shouldn’t mean that recruitment agencies have no robust system for measuring commercial risks to the companies of doing business. By nature recruiters have an appetite for risk, they are entrepreneurial, and sales orientated and have a “can do” attitude. But 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.

Here is a simple approach to measuring risk using a ‘trafic lights’ system, a very common risk system we all know well.  

 “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.

Things that can mean this is a high risk contract are indemnity clauses (financial penalties) payable by the agency for all the acts and omissions of the temporary workers or contractors.

Another point to watch is the ‘liability’ clause, especially where the contract states that the liability is unlimited as there is no insurance cover for breach of contract claims. These must be managed by excellent management and best practice.

Increasingly indemnities around AWR are creeping in and although some are fair and reasonable the BIS guidelines have stated that if the Temporary Work Agency (TWA) has attempted to get all the requisite information from the client/hirer to comply with the qualifying rights after week 12 and failed, tribunals will look at all partners in the supply chain - for example the client.

Don’t take on more liability than you realistically be responsible for in these scenarios. Also ensure the description of the services you provide under the contract corresponds with the definition of your services stated on your insurance cover in respect of your professional indemnity insurance. For example, leaving ‘supplying temporary workers’ left unchanged in the ‘definitions’ section of a contract when in fact all you do supply is limited company contractors.

“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. Clauses that can crop up here are ones where there is some capping of liability but at a high level for the value of the contract.  You may need to negotiate or request some amendments if terminology is incorrect or insurance levels are higher than your existing cover.

“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.

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. Ultimately agency directors must have the courage to walk away from unworkable contracts to ensure the survival of the business.