IT firms face retention clause
SOURCE: Times of India
DATE: March 6th, 2008
Mohit Soapbox:
This is an interesting comment about clients worried about retention. I have seen that the clients have always been worried about retention and if you ask anyone about the horror stories they have heard with offshoring vendors, attrition always makes it to the top of the list. By putting a tab on attrition in contracts and making the vendor pay for higher attrition , I am not sure if will help reduce attrition. Clients still have to deal with it and though vendors are put on notice to retain some key employees , there is little they can really do to stop the employees. Retention clause has been in contracts for some time now and how effective it is to slow down attrition is yet to be seen.
Attrition is not an internal issue any more. It’s, in fact, inflicting insomnia among overseas clients who offshore critical operations to Indian vendors.
Clients are not willing to accept excuses about project delays on account of attrition. Nor are they willing to foot financial losses resulting from delayed delivery.
So clients are now introducing a ‘retention clause’ in contracts. This will make enterprises responsible for retaining people/teams working on the client’s projects. Failing that, they would attract a financial penalty. With this, the rampant practice of internal-poaching – shifting people from a dedicated project to unrelated projects – will also come under the scanner.
“Attrition can be costly. It can break down the entire delivery schedule. Clients today are unwilling to absorb any losses arising out of people exiting at the providers’ end. Hence, they are increasingly dictating terms with providers to include a retention clause in the contract. It’s fast becoming an industry norm,” said Avinash Vashishta, MD, Tholons, an offshore advisory.
Pari Natarajan, CEO, Xinnov, an offshore advisory firm, said global customers are increasingly concerned about the productivity of their offshoring partner and have realized that employee turnover is one of the key hindrances to productivity in India.
Clients make significant investments to put teams and processes in place at their providers’ premises. “Under the retention contract, providers are obligated to retain crucial, customer-facing staff including database administrators, project managers, programme managers or team leads,” said Sabyasachi Satpathy, senior director, neoIT, a corporate globalization advisory.
Normally, clients and providers agree on a minimum retention of 85% of those on a project for 18 to 24 months. Any break in this could attract a financial penalty amounting to 10% of the monthly invoice. Under this clause, the providers are also obligated to keep their clients posted on any possible exit of anyone in the team and what would be the alternative arrangements.
No relate
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