Outsourcing Agreement (Drafting)

Outsourcing is a common practice through which a firm hires a third party to perform a given task, manage operation or render services to the company.  The outside business entitycalled as the service provider or third-party supplier, arranges activities or programs for its own staff or computer systems at the recruiting company’s own facilities or at external locations. The main reasons for outsourcing can be expansion of the business for a temporary period which demands more resources. If a company does not want to recruit more staff as it may not be required in future once that particular job is done, then the decision would obviously be to arrange for outsourcing the activity to third-party services.

Features of Outsourcing Agreement

1.DETAILED PROJECT SCOPE:

The first thing that an outsourcing contract must have is detailed project scope. It describes what services requirements are there at your company’s end.

2.TRANSFER OF ASSETS:

There are various IT assets that need to be transferred while making an outsourcing arrangement. These assets might include telecommunication equipment, computer hardware, leases on equipment, software licenses, etc. A formal sales agreement is required to formally transfer these assets to the outsourcing company. 

3. WARRANTY FOR THE PRODUCT/PROJECT:

There are various uncertainties and risk associated with outsourcing development to offshore companies. Explicitly mentioning the way of recovery of any such losses in the contract is imperative as well.

4.OWNERSHIP OR GOVERNANCE OF PRODUCT:

Every company would want the complete ownership of the intellectual property and the final product. However, in some outsourcing contracts, it might be so that the ownership of the software created might be shared by the vendor and the company outsourcing IT services. 

5.IP PROTECTION CLAUSE

One of the biggest inhibitions of the clients is they feel their intellectual property, their ideas would be stolen when they share it with the outsourcing company. When outsourcing development to India, China, or any other country, mentioning clauses to protect your IP is undeniable.

6. COST & PAYMENT STRUCTURE

This comes to help especially when the outsourcing model is the fixed cost model. In fact, the pricing of the outsourcing arrangement, mode of payment, and the payment structure should be clearly mentioned in any outsourcing contract. It should answer the when, how, and whom of pricing. Apart from that, the amount to be paid along with its break-up should also be clearly mentioned.