Writing An Outsourcing Contract

Once you’ve made the decision to outsource, you will need an outsourcing contract. This guide will give you key points to consider and areas you should pay close attention to. Ultimately, you should hire an attorney who concentrates in contract law and has a lot of experience writing contracts specifically for outsourcing services. Outsourcing pros and cons can be enhanced and avoided with a well written contractual agreement.

Long before you sit down with your attorney, it would be a good idea to write an outsourcing contract draft. Create an outline that states what your priorities are and what the desired outcome of your outsourcing agreement should be. Always keeping in mind that the purpose of any contract is to assign risks between you the buyer and the outsource provider or vendor.

The Importance Of Flexibility

There are many areas in an vendor contract where being flexible is crucial. It’s not a matter of if technology or your industry changes in the marketplace. It is instead almost a given that they will. It goes with the territory of being in business. So you’ll need to come to an agreement that you and your provider can agree with as changes occur while under contract.

Let’s take a look at a few of the most common areas of the contract agreement you should consider.

Price

You might this would be the easiest area to deal with. How much your vendor wants and how much you’re willing to pay for their services. Here are two common scenarios.

Fixed Price- This payment agreement allows the outsourcer to perform all services as listed in the contract. Any additional services performed outside of the contracted services can be done as well but typically will require a renegotiation of the contract.

Time & Services- This agreement also calls for the vendor to execute all services in the contract. The provider can also do any additional services not listed in the contract. However, in this situation you both agree on a rate you will be billed if the provider is asked to perform services not included in the contract.
These are not the only pricing agreement scenarios, but are quite common. Whatever agreement you ultimately agree to, make sure it is one you and your vendor can stick with.

Scope Of Responsibilities & Services

Also known as ” scope of work ” or ” statement of work”, this part of the outsourcing contract will define exactly what services the provider is going to do for you. No matter what industry you are in, you will need to be as specific as possible. Let’s say for instance you hire a vendor to write and develop software for an area that is core to your business. But within your agreement you failed to add testing requirements. Now you’re going to have a problem.

The vendor is going to charge you for this additional service because you failed to put it in the contract. Even if as in this case, testing should be a normal part of the process. The best advice, is to not assume that a specific service will be automatically included.

So, include everything you can think of when you are creating your draft. Especially if you’re on a tight budget, you don’t want to have to deal with a large bill from your vendor.

Terms & Conditions

This is standard for any contract, outsourcing or otherwise. This is where your attorney lays down the “law” in regards to how everything should be executed and the consequences of breaching the outsourcing contract.

Deliverables

Everything the provider should deliver according to an agreed upon schedule and series of due dates. Again, depending on your industry the specifics vary. If you will require specific software development for example. List what will be due from the vendor and when. This could be any number of things. Files, codes, serial numbers etc..

The Service Level Agreement (SLA)

This is really important because the SLA if done correctly, will give you the best indication of cost vs services rendered. Unlike the obvious cost savings that can be seen immediately when there is a reduction in employee staff. Outsourcing savings are not typically realized for at least a few years into the contract. The service level agreement lists services that can also be tied in with payments. The items listed can be measured. This will allow you to see where your money is being spent and whether or not you are getting what you contracted for in terms of expenditures.

In any contract situation you will quickly realize that there is no such thing as a “perfect contract” and there are advantages and disadvantages in every situation. Writing an outsourcing contract draft can help you create a contract that while it won’t be perfect it will be one that both you and your provider can live with.

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