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What Is a BPO Agreement?

By Theresa Miles
Updated May 16, 2024
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A business process outsourcing (BPO) agreement is a contract between a client company and a third-party service provider to take over a non-core part of the client's business operations. The agreement is structured as a performance contract. It governs a long-term arrangement where the third-party firm often acts as an agent of the client company or provides an important link in the operational chain.

An outsourcing relationship has many complex components. The client company is concerned with quality substitution and efficient transfer of business functions that were once handled in-house and are now going to be handled by an outside company on its behalf. Service providers are concerned with scope of service, performance measures, and benchmarks to ensure there is an objective standard in place to assess work quality. As a result, the BPO agreement is a unique document that resembles a performance contract much more than it does an ordinary sales or service contract.

The typical BPO agreement addresses core elements of the outsourcing arrangement. It defines the service to be provided, and the cost and the length of the contract. The agreement also addresses any specific operational requirements, such as who will provide the service, their qualifications, and the location of operations. BPO projects can consist of almost any non-core front or back office business operation, from customer call center management to data processing, so the basic information included in the agreement will reflect all the details needed to effect a transfer of operations of a specific type of project.

Outsourcing is often meant to be a long-term relationship. Beyond the basic details, the BPO agreement creates a framework of common goals and shared principals so that ordinary issues can be resolved without having to negotiate a new contract. The agreement is typically designed to be a flexible document that can accommodate changes in management or business operations on either side of the relationship without disrupting the project.

A BPO agreement typically addresses specific performance and recourse. The contract sets a scope of work and minimum performance standards. Performance measures are identified and benchmarks are established according to a timeframe. Reporting procedures, decision-making, and escalation of problems are outlined. These provisions all establish a basis for the two companies to manage the BPO project together, with the criteria for performance satisfaction on both sides established upfront in writing.

The recourse provisions of the BPO agreement are ordinarily the final major component. These provisions establish ownership of the work product and process. Legal provisions guaranteeing basic protections that enable the relationship to work, such as confidentiality and non-competition, are outlined. Events that will enable the cancellation of the agreement are typically addressed in the sections, along with a procedure for mediating conflicts and awarding damages if certain provisions are breached.

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