IT FIRMS FACE RETENTION CLAUSE

Mini Joseph Tejaswi, Bangalore
The Times of India

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.