Tips for Signing an IT Outsourcing Contract -

Tips for Signing an IT Outsourcing Contract


Outsourcing contracts in the simplest possible terms shield all company owners and call centres from any adverse circumstances that can occur during a partnership. Outsourcing contracts are nothing but legal documents that contain every single detail of what the outsourcing company expects. Just the job, it also includes information and knowledge about the quality criteria, schedules, pricing, incentives, etc. of the outsourcing agreement between the two parties.

Outsourcing is a technique that is becoming increasingly common in healthcare IT companies, dot net technology companies, web development companies

Type of contracts in IT outsourcing

Offshore Software Development Company has become a giant industry with more to come. Outsourcing contracts are now the secret to a company’s growth. In the age of globalization and technological advances, it is the best solution. There are 3 popular types of outsourcing contracts:

1. Time and materials contract

It is a kind of contract where the client pays the manufacturer for working time and products used (e.g. using the software license). The hourly rate of the executor, determined by the manufacturer, includes both expenses and benefits.

Time and materials contracts are usually used in short-lived projects, where the scope of the cooperation at its early stage is difficult to define. It needs both parties to trust each other-consumers know what they’re paying for and the price is good enough in their mind.

The customer is completely exposed to the risk of this contract model, while the manufacturer only cares about the people to work well with the customer and for getting in the solution with acceptable quality on time.

2. Fixed-price contract

The fixed-price contract is one of the types of IT outsourcing that you can use in the project-based commitments. This means the payment doesn’t depend on how much time and resources the vendor can expend on completing the project.

This model of IT outsourcing pricing works best when used in projects with predefined job scope, standardized specifications, and consistent time frames. The model allows the customer to include a detailed list of project specifications and all the necessary developer documents, so contractors can plan and work a Scope of Work with unchangeable deadlines according to a strict road map.

Fixed-price models are perfect for long-term projects with a high value for the outsourcing partner as they are encouraged to more efficiently complete the work and to derive more value from the contract.

3. Dedicated Team

In this form of outsourcing pricing models, the closing stage of collaboration is difficult to define, as it may differ depending on the project-specific. Remote developers are full members of the customer’s team, adapt their corporate culture working to the good of the company. Therefore, the customer can eventually change the course and entrust new responsibilities while continuing to cooperate with the outsourcing company.

It should be noted that the latter’s function is reduced to a minimum after the team is created. The company controls the process and makes its own decisions on the progress of the project.

Best practices when signing an outsourcing contract

Drafting a solid contract that is free from any legal loopholes helps ensure you don’t miss out on any of the critical issues during the production of the proposal. Here are the issues you should be mindful of when writing a contract with the outsourcing firm.

#1 Feature-based contacts over time-based ones:

Instead of contracts specifying time-based creation and implementation, getting a feature-based contract that prioritizes a well-written and thoroughly tested specification over one where the developers are encouraged to strictly stick to the deadlines. Dividing the results into job level sprints helps to ensure ownership and responsibility in the organization to which you outsource.

#2 Time Limit:

You should read and agree on the time limit written on the contract so that when you need your projects to be done, you can expect something from an outsourcing company on your expected date. This is important to give you the full timeline for your project so that it cannot be considered a breach of contract because they cannot do it for a certain time.

#3 Milestone based payments:

Dividing the project into different milestones and identifying the payment schedule by the accomplishment of such milestones simplifies payment structure. Plan daily follow-ups to reach milestones and arrange stand-up meetings with the team. Having a milestone-based payment plan provides a lot more consistency to the contract and enables the resolution of any payment disputes.

#4 Intellectual property rights:

Intellectual property is very important, especially in software development. So you have to make sure the clauses are in such a way as to please both parties. For certain nations, it is more common for the provider company only to provide the solution, but the provider company also retains the rights to the source code. This way you can re-use the source code again. We would want to have the rights to the source code in other countries too.

#5 Termination clause:

Although you are hoping things will go smoothly, planning for the worst-case scenarios is always advisable. Be sure that you have in your contract a termination clause that lays out the course of action that will be taken should things go south and project fail to complete.

#6 Confidentiality agreement:

This clause not only protects the agency but also the client. Through your written permission it will explicitly state something you don’t want to talk about in public.

Common things to include in a confidentiality clause are the prices of your agency, the procedures that you use to produce goods, any exchanges of communications between your agency and your client.

#7 Indemnity clauses:

An indemnity clause is a contractual transfer of risk between you and the outsourcing agency.  It states who would bear the legal fees and pay for any lawsuits that crop up in the application being developed.

Sanjeev Agrawal

Sanjeev Agrawal

My name is Sanjeev Agrawal. I am a Director and Co-founder of Dreamsoft4u, IT Consulting Company. I am having a keen interest in the latest trends and technologies that are emerging in different domains. Being an entrepreneur in the field of the IT sector, it becomes my responsibility to aid my audience with the knowledge of the latest trends in the market.