A practical guide to outsourcing: contracts, procurement and performance
Insight
Before embarking on the outsourcing of services essential to your organisation (be that – cleaning, catering, security services etc) confirm that outsourcing is the right solution for your organisation. A short business case should identify the drivers (commercial, financial or perhaps risk based), the expected benefits and the risks you will need to manage. This avoids the common pitfall of moving ahead without clarity of purpose.
If it is the right approach, the considerations below are designed to be a practical guide to navigate this process, secure a user-friendly agreement with your provider, avoid drawn-out negotiations and preserve your flexibility if the relationship does not work out.
Initial considerations
For organisations with trading subsidiaries or group companies, you will need to make sure that you know exactly which legal entity will receive the services being outsourced. This will have tax, regulatory and risk implications.
If you are a public body or you provide quasi-public services, you may need to comply with procurement laws (particularly the Procurement Act 2023). Whether or not these rules apply to you is one of the first questions you should seek to answer so that you are clear from the start of the process you will need to follow (and the resulting timelines).
Know your existing contract
If you already work with a provider, get to grips with the terms governing your current contractual relationship, especially termination rights and any consequences triggered by ending the contract.
Typically your notice period (under your existing contract) will shape the timeline for the new agreement. Being 'out of contract' is likely to weaken your leverage with a replacement provider, so consider a short extension to stay protected until the new arrangement takes effect (ideally your contract allows you to request this as part of the handover cooperation arrangements). If a tender process applies, your incumbent will likely be especially open to this approach if they are still involved and have a prospect of retaining the contract. Watch out for onerous consequences of termination too. For example, any undepreciated capital expenditure which may be repayable. These points will inform your understanding of how and when you can terminate the relationship with your existing provider, as well as the cost to you of doing so (if any).
Your current contract will also help you to understand what you can offer in the new one. For example, check whether you have 'TUPE on-exit' indemnities from the incumbent provider under your existing contract; if you do then you may be more relaxed about offering an equivalent indemnity 'on-entry' to the incoming provider (who will, typically, ask for this). Talk to your legal advisor if you are unsure. This clarity is likely to save you time and therefore reduce cost.
Plan your timeline
Set your timeline by working backwards from the date you ideally want the new provider to start providing the services (or, if earlier, the time for mobilisation) – identifying each milestone needed to get there. If you are forced to let a new provider start work before you finalise the new contract, you hand them control and reduce your negotiating power. The resulting terms will most likely end up reflecting whatever operational reality they have already established.
If you are running a tender, identify milestones for tendering, evaluation, negotiation and mobilisation. The ideal approach is to issue the draft contract with the invitation to tender (ITT), or equivalent. This sets a clear benchmark for how you are expecting the services to be delivered, monitored, and paid for, and significantly cuts negotiation time, especially if pushback on the terms is restricted by the ITT process.
Build the right team
The more information you gather at the start, the smoother the process will be. Investing upfront will provide certainty and confidence throughout the project.
Commercial consultants can add significant value by converting operational needs into clear service specifications (and, ultimately, the detail for some of the contract schedules). Engage them early so they can understand your objectives and your organisation.
Involve internal stakeholders but streamline communication so that external advisers receive a single and consistent set of instructions.
Bring in legal advisers early as well to help you identify any legal issues before they arise, particularly when reviewing existing agreements.
Start from your own terms wherever possible
Ideally lead with your own bespoke terms. Provider-drafted terms will naturally favour the provider and may not address important institutional requirements, including public sector obligations such as Freedom of Information or the financial and other requirements that come from Managing public money[1]. You know your institution best, so use that knowledge to align providers and their provision of the service to your needs.
For facilities and services, you may wish to avoid complex construction‑style forms such as NEC contracts unless they are necessary or appropriate for your organisation. These are designed for large construction projects and typically require dedicated specialists to manage the complex processes imposed.
Don't forget clear service specifications, quality and consequences of these not being met
Robust legal terms and conditions are essential – including covering liability, insurance, termination, etc – but don't forget the terms which relate to how and what services will be provided, including:
A detailed specification
Breaking down, on a day-to-day basis, what you are expecting the provider to provide; remember, you can outsource the services but you cannot outsource the responsibility for them – at least reputationally. The ability to point to an exact obligation will protect you if/when a provider does not deliver as expected. Your consultant should be able to help you with prescriptive and directive language to make these obligations clear and in line with your expectations
KPIs and service levels
To clarify the standard the services must be provided to, indicating how these will be monitored, who will do so and on what frequency (weekly, monthly, quarterly, annually). That said, avoid overprescribing. If the KPI measuring and reporting process becomes unwieldy, it risks taking over your time (and you do not want the provider charging for their time involved either). Be focussed – consider what metrics are key to positive service delivery, and measure only what needs to be measured
Remedies
To give you rights to take action where expected performance levels are not met. Termination for breach of contract will be hard to argue for without a paper-trail of evidence – and it will not be appropriate to terminate in all cases. Including a remediation plan to set out how to improve poor performance short of termination can also be valuable, as can service credits
Charges
Clarity on the charging structure, and any year-on-year increases is key. If possible, aim for a fixed annual payment for set services, and then an agreed rate card for the cost of additional services provided if requested by you on an ad hoc basis
After signature, manage the relationship actively
Once signed, store the contract in an accessible place and consider adding a short contract summary of essential terms and obligations to guide day-to-day users. Document and save all variations alongside the original. Diarise key dates so responsibilities and milestones never slip.
Audit KPIs and address any issues with the provider early. The strongest outsourcing arrangements are built on open communication, regular meetings, and strong working relationships. These allow you to spot and resolve problems long before they take hold and become a real issue.
Key takeaways
Start with strategy and structure
Before launching any outsourcing project, confirm it is the right solution and identify the correct legal entity from the outset.
Review your existing contracts, especially termination provisions, so you never drift into being 'out of contract'. A clear understanding of your current terms helps shape the new agreement and keeps negotiations focused and efficient.
Plan backwards and prepare thoroughly
Work backwards from your target go-live date. Issue draft contracts early (during the tender, if applicable) to set expectations early and accelerate negotiation. Bring in consultants to help draft bespoke and tailored service specifications and set realistic KPIs which will give you clarity and control during the course of the agreement.
Manage the relationship, not just the contract
Once the agreement is signed, store the contract somewhere accessible, track key dates, and build regular communication with your provider. Strong relationships and proactive conversations prevent small issues from escalating. Routine reviews, clear documentation, and shared understanding of responsibilities will set you up for long-term success.
Farrer & Co is well versed in all aspects of outsourcing arrangements – be it the procurement aspects, employment considerations (and the application of TUPE), and the contractual arrangements (drafting, negotiating and advising). If you have any questions, please contact Antonia Lyne or your usual contact at the firm.
Many thanks to Perihan Tur for her help in writing this article.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2026
