Seek expert advice when adding specialized services to your benefits offering that involve a new or amended contract. Your software service level agreement may not afford the right protection should the unexpected happen.

Not all employee benefits administrators offer the same service level agreements (SLAs) to support their software. A client recently asked our HR technology consulting team to help negotiate a dispute with their benefits administration technology vendor. The following case study offers many lessons for employers:

Manufacturer XYZ had a long-standing contract with an established benefits administration service provider. Unbeknownst to their Gallagher benefit advisor, XYZ amended the agreement, adding a tuition reimbursement benefit to the existing offerings supported by the vendor. Several months after launching the benefit, XYZ noticed an unusually high use level and, long story short, determined multiple instances of fraud by employees. XYZ immediately discontinued the program and took appropriate steps regarding the employees.

XYZ is seeking recovery of losses associated with the fraudulent claims approved by the vendor — arguing that the protections outlined in a prior version of the contract should cover the added benefit. The vendor contends that because the SLA specifically covered a different benefit (not tuition reimbursement), it has no contractual responsibility to reimburse the client for the losses. Further, the addendum adding tuition reimbursement included no SLA.

While we hope to assist the parties in a resolution, attorneys are in the best position to determine whether a contractual basis exists for XYZ's claim. At Gallagher, we routinely see organizations put themselves at risk by treating contract amendments and additions differently from a new contract — typically for one of three reasons:

  • Administrators don't understand how contacts work and don't carefully read what they are signing.
  • Organizations know the vendor and believe they will receive fair treatment.
  • Leaders opt to move forward quickly and hope for the best.

Regardless of the reason, failure to give due diligence to any contract change can result in painful and costly outcomes.

Use multiple touchpoints to avoid problems

Whether or not the provider is contractually liable, we believe the vendor has some moral obligation to engage in a resolution — more on that below. Our aim here is to point out the multiple touchpoints that could have averted the unfortunate outcome so as to help other organizations avoid a similar situation. Let's start with the actions XYZ should have taken along the way.

Adding a new benefit. We applaud XYZ for offering tuition reimbursement. In a tight labor market, this benefit can help retain workers. However, XYZ leaders didn't seek assistance from their benefits advisor or a consultant to inquire about a strategy for adding this specialized benefit. Nor did they involve legal counsel in amending the contract, who undoubtedly would have flagged the SLA issue.

Matching benefit to a vendor. XYZ didn't seek input from an HR technology advisor on whether their current vendor was a good fit for tuition reimbursement or about available point solutions that integrate well with their benefits administration platform. The vendor supported tuition reimbursement in this instance, but not as a core offering. The vendor outsourced client services, including claims adjudication, to an overseas operation.

Understanding external training. At Gallagher, we believe well-trained claim processors would easily have identified the fraudulent claims. XYZ relied entirely on the vendor to interpret the plan document and train the outsourced processing team. An after-the-fact inquiry uncovered that the vendor offered no formal training process. "Training" constituted passing on the plan document, assuming claim processors would read and understand the details.

Setting internal expectations for benefit usage. Likewise, if XYZ's benefits staff thoroughly understood organizational expectations associated with the benefit, they most likely would have caught the fraud sooner, avoiding the worst financial losses. Given the employee population profile, a spike in benefit use in the second month served as a red flag to warrant the HR team taking a closer look at the claims approved by the vendor.

The cost of losing trust

It's reasonable to expect the processing team to have detected the fraudulent information, or at least spurred the vendor to ask questions. Yet, they didn't deny a single claim. Legal accountability aside, the cost of covering XYZ's losses is insignificant compared to the loss of goodwill with their client, who likely will change benefit administration providers. Further, in the small world of HR specialists who purchase benefits technology, XYZ is likely to share their experience with others. Similarly, the benefits advisor now is hesitant to place new business with the vendor.


We hope the vendor will cover some of XYZ's losses as a goodwill gesture. Next, the vendor should review their adjudication process and implement new procedures and safeguards, to include training to spot fraud, to prevent reoccurrence. Finally, the vendor should inform XYZ of their actions and work to regain their confidence.

Service issues in the HR tech market are on the rise. Service is often the first casualty when vendors reduce operating costs. Employers feel the pain associated with outsourcing, insufficient training or reduced client support teams. Often an unintended consequence of cost-cutting, poor service erodes a vendor's brand and reputation—countering any savings or, worse, adding financial stress.

Steps to avoiding contract woes

Organizations can reduce the risk associated with new services by entering into an SLA. Consider the following best practices to contract for specialized services, including modifying an existing contract to add the service.

  1. Inform your HR technology consultant of your interest in adding a new service or amending the contract. An HR tech specialist familiar with your organization and the marketplace can provide guidance regarding whether the current provider is well positioned to support the new service. If you don't have an HR tech consultant, check with your benefits advisor, who can connect you with an expert.
  2. Ask your current provider about their experience with the specialized service. Ask for detailed information about their processes and associated training. Inquire how they plan to orient their team to your specific benefit offering and about safeguards to mitigate risk.
  3. Talk with similar sized organizations in your industry that offer the service. Ask which vendors they use and about their level of satisfaction. Ask your current vendor for client references and follow up to ask about their experience with the specialized service and any unforeseen problems.
  4. Have your legal counsel review all contract amendments. Never assume the SLA of an existing agreement covers new services added through an amendment.
  5. Orient employees who will review invoices or statements to anticipate benefit use and cost. Doing so increases the likelihood that they will quickly identify any red flags that call for additional review of benefit use.

The employer and the vendor gained valuable insight from this situation and are less likely to find themselves in a similar situation. Unfortunately, those most harmed were the employees legitimately taking advantage of the tuition reimbursement benefit and those who hoped to in the future.

With the labor market likely to remain tight for the foreseeable future, XYZ's decision to curtail the tuition reimbursement program makes them less competitive. It eliminates a benefit that could help attract workers and potentially retain them for several years. The decision also cuts off a talent development pipeline.

If your organization is considering adding specialized services to your benefits offering that involve a new or amended contract, contact your benefits advisor. For software-related SLAs, request guidance from an HR technology specialist concerning product options and assistance, Gallagher's Human Resources Technology consultants work with organizations to identify how HR technology can support strategy and advance organizational objectives.

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Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as "Gallagher Benefit Services of California Insurance Services" and in Massachusetts as "Gallagher Benefit Insurance Services." Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.