What is a Staff Augmentation Agreement?
A staff augmentation agreement is a staffing strategy in which a business contracts with an external services firm to provide temporary staff on a short or longer term basis to fill its manpower needs. For example, an information technology ("IT") firm may provide a staff augmentation service to a business looking for a temporary network administrator to assist with a new software implementation, or an IT firm may provide several software developers on an as-needed basis for a specific work project. Staff augmentation can often be a desirable option for businesses looking to supplement its existing employees and/or contractors, as the external firm can often recruit, hire and provide a qualified person in a relatively short period of time .
Unlike outsourcing, which involves a business contracting with an external services firm for the entire function, such as payroll processing, technical support or IT services, staff augmentation is one service under the broader umbrella of managed services. Relatedly, while both staff augmentation and consulting involve the use of external service providers, staff augmentation is distinct from consulting arrangements that are typically high-level and can include the provision of advice only. Rather, staff augmentation involves the use of contract employees who take direction from and work under the direct supervision of the employer, and the services are provided for a specific period of time and generally end when the worker has accomplished the task for which he or she was hired.
Key Features of a Staff Augmentation Agreement
An essential component of any commercial relationship is a well-defined scope of work between the parties. Specifically, this is how the vendor is to perform the services under consideration. In the context of staff augmentation, the scope of work should be clear as to when the staff will be on site, what the deliverables are, and the overall purpose of the staff. For example, if staff is to be used to assist in a software environment integration before the in-house team can take over, that should be stated up front. It may also be beneficial to describe what responsibilities the staff will have while on site and how they will interact with in-house employees.
Just as important as the scope of work is making clear how long it is to be in effect. For example, if a contract is established to bring on a helpdesk agent for only three months to cover a busy season on the helpdesk, than a clear end date is absolutely essential. Additionally, if the contractor will be allowed to stay on for an extended period of time (perhaps because he or she is a specialist in a specific area) then a way of justifying that with the FTC as an exception to the permanent placement ban should be outlined as well.
Having well defined roles and responsibilities is obviously a critical component to a staff augmentation agreement. It can be incredibly disruptive—and potentially cause claims of misclassification—if a contractor is showing up to perform software development but is actually being asked to conduct performance reviews or other HR-based activities.
Confidentiality clauses are important in being able to pass along sensitive or proprietary information through the process of bringing in temporary staff. For example, an ERISA governed entity may want to bring in temporary staff to perform implementation work on their new 401(k) plan. While the partner will clearly sign agreements with respect to the plan itself, other information may be shared that would require a confidentiality clause in the staff augmentation agreement.
Finally, termination conditions—both for the employee and for the agreement itself—are critical to have in place. If the volume of work is significantly reduced after a seasonal peak, staff may need to be let go on short notice. Contractually permitting that will avoid issues down the road. Similarly, if a project is completed sooner than anticipated, having a contract provision allowing early termination of the agreement will save the cost of an employee who has nowhere else to go. This is also a great place to outline any other costs that can be associated with the termination of the employee or termination of the contract itself.
Advantages of Staff Augmentation Agreements
Staff augmentation agreements provide a wealth of advantages to companies and municipalities alike. Flexible staffing solutions are vital to the growth and productivity of any organization, and staff augmentation agreements allow for that added layer of flexibility. With such agreements, you are not adding persons directly to payroll or creating a position for those persons. Instead, you simply have a flexible agreement with a staffing company whereby you may place a temporary employee where needed, when needed. Below are some other important benefits to staff augmentation:
- Flexibility – You have the flexibility to place full time staff, part time staff, switch staff, or fill vacancies.
- Cost-Efficiency – You only pay for those resources you need when you need them. You don’t have to worry about paying for full time staff or incurring the overhead of full time staff.
- Specialized Skills – You have access to a broad base of specialized skills. You only pay for these persons when you need their skills.
- Scalability – You can utilize a staff augmentation strategy to scale up or scale down quickly in response to changing business needs or demands.
Possible Challenges—and How to Resolve Them
Like many other types of commercial relationships, staff augmentation can result in a number of common challenges. These can include, but are not limited to, end-user concerns about quality and fit, staffing supplier capacity constraints, or concerns over the long-term sustainability of the business model that underlie the customer-vendor relationship. As a result, it is important to be aware of these challenges and to know how to handle them. Some of these challenges can include:
Integration issues: Like any outsourcing agreement, determining how staff (and the functions they perform) fit in to the end-user company is the responsibility of the customer. This assessment process should be performed before deciding on a staff augmentation agreement. Most importantly, it is crucial to consider how the work done and the incumbent staff will be integrated into the company culture .
Cultural mismatches: Before signing a staff augmentation agreement, it is advisable to consider the cultural implications not only of the service(s) being provided, but also the capacity of the service provider to perform these roles. A great way to determine this is to visit their facilities whenever possible, or at least perform a number of reference checks.
Dependency risks: If not well-designed, a staff augmentation agreement can run the risk of creating a long-term dependency between the service provider and the end-user company. To mitigate this effect, the staff augmentation agreement should contain clear and effective performance milestones and reaction protocols, such that a feedback and action mechanism, which complements the needs of the customer, is created.
Best Practices for Preparing and Executing Agreements
As with any type of contract, clarity and specificity are key components to a successful staff augmentation agreement. First and foremost, the agreement should explicitly identify exactly who is providing the services (whether a single individual, or a team from an outside firm) and what function those individuals will be providing. The agreement should also carefully outline the specific type of services being performed (ranging from legal research to drafting pleadings to client meetings), the timeline for performance, and the compensation for services. It should also ensure full compliance with relevant ethical rules from the applicable jurisdiction, particularly around supervision by a local attorney, if required, and oversight of billable hours and expenses. Finally, just as in any other contract, it is critical to specify the duration of the agreement and the termination rights of each party. In addition, staff augmentation agreements should also clearly address who will hold the attorney-client privilege on documents created in connection with the representation, which will typically depend on which party is paying the augmenters and which individual lawyers are responsible for the work. Once the agreement has been drafted, it is essential that the ultimate terms be clearly communicated to relevant parties so that everyone understands the scope, role and responsibilities of each employee and the expectations of the client. Staff augmenters should receive copies of the agreement and confirmation of the time frames in which their work should be completed; work should be assigned with clear direction on billable hours and expenses; and all involved attorneys should maintain open lines of communication with both the client and the augmenters to keep the work on track and on budget. Staff investigators should be subject to similar clear terms, protocols and communications. Individuals should be aware of the procedures for billing hours and be supervised to ensure all charges to the client are appropriate. Staff investigators have important responsibilities themselves that must be identified, such as maintaining confidentiality and ensuring the adequacy of their work product. Finally, regardless of the type of staff augmentation being performed—whether legal research and writing, fact gathering and analysis, or trial support—there should be a regular practice of reviewing the results of the work being performed to ensure that it meets the required objectives and that any necessary adjustments are made to meet client expectations. Since staff augmentation typically constitutes a very small piece of a larger case, issues that are identified and addressed early on can save significant time and resources down the line. Being vigilant in monitoring the work of staff augmenters to ensure it is of superior quality and is responsive to client needs is not only an essential part of the ethical commitment staff augmentation companies have to their clients, it is also a key element of their value proposition to those clients.
Legal Issues Related to Staff Augmentation
When engaging in staff augmentation, legal considerations should not be overlooked as you plan for the success of your project. Some key areas to focus on include labor and employment laws, intellectual property rights, and compliance with industry-specific requirements.
Applicable labor and employment law. Depending on how your project is structured, you may become responsible — legally — for a number of things, including: Employment agreements should contain representations and warranties for the vendor providing augmentation staff. Many vendors are not able to or choose not to make specific representations and warranties as to the skill and expertise of those provided. When a vendor is unable to make these representations, it is worth considering whether a master services agreement could help mitigate risk by more narrowly identifying specific resources for a project .
Intellectual property rights. The parties should agree on the IP ownership and title when providing or receiving staff augmentation services. This is particularly important when: Often, the client will be thinking about who owns the IP created by the augmented staff. This is standard, but it also means the client can allocate responsibility and some of the risk that might otherwise go to the vendor. Regardless, working together can ensure that additional resources or time aren’t spent redesigning software to accommodate IP ownership issues later.
Compliance requirements. Make sure the vendor understands all compliance requirements for the project. Keep in mind, the vendor could assume responsibility for offense and defense of any violation of the requirements, but the client may have some liability for violations from both sides.