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Key Elements in an Outsourcing Agreement

— January 30, 2023

Another crucial aspect that should be included in an outsourcing agreement is mentioning all the fees and payments.

The term outsourcing is no longer just a passing fad. Especially after the dawn of COVID-19, outsourcing development services have become a sure-shot norm to succeed in today’s times. Yes, today it seems to have become one of the major phenomena where more and more businesses irrespective of their size and industry vertical are found jumping in the bandwagon day in day out. And why not? Since here all you have to do is simply get in touch with a reputable and reliable third-party development service provider, tell them your needs and then focus on nothing else but all your core competencies. 

What is an Outsourcing Agreement?

An outsourcing agreement is more like a legal document that covers all the crucial elements or aspects required when conducting such a project. Now what exactly types of aspects that will be further mentioned. 

Outsourcing agreement is a detailed work handled by third-party but it comprises expectations and requirements and takes care of both the parties. Right from legal issues to intellectual property rights, protection of confidential information, indemnities and whatnot! Now much like outsourcing services, creating an outsourcing contract comes with a wide range of advantages. First and foremost, everything is written down so that there is no scope for any confusion. Second, not creating a contract might lead to severe misinterpretations. And third, choosing any random template of such a contract from the internet can be more harmful. 

The Importance of Outsourcing development Services  

The basic meaning behind outsourcing is to make use of external resources for a while so that you can keep your core competencies intact. Though this cannot be called a one-off episodic concept, it is for a predetermined time. IT outsourcing is one term that seems to have gained popularity within a very short span of time but have you wondered what it is and why people or businesses are going gaga over this concept every now and then.

As the name implies, outsourcing software development services is said when you end up choosing a reliable software development company that is not located within your region or country, however it can still offer amazing services and that too at a much reasonable price. Now why more and more businesses have started outsourcing software development services? Well, you may ask for one reason or a two, I can give you many more here! 

#1 Cost-effective 

Outsourcing software development services might seem costly but to be precise they are pretty good when it comes to savings. And not just cost-effective solutions but you can gain a pretty competitive edge. Some of the best outsourcing destinations to consider for your upcoming software development projects are Vietnam, Philippines, India, China, and so more. You can spot the major difference by yourself, in the US you get 100$/hour services whereas if you choose countries like India, you might get a pretty reasonable deal because of the low taxes and other factors. 

Also, when you prefer outsourcing you no longer have to pay for the excess rent, hardware depreciation, product support and maintenance, recruiting employees, and all other aspects. 

#2 Access to Wide Range of Talent

Another benefit gained by outsourcing software development services is gaining access to a wide range of talent. When you hire an in-house team of programmers, you get a few professionals whereas outsourcing means the entire world is at your display. Yes you can hire software developers from anywhere and everywhere across the globe. 

#3 Quick time-to-market

Another crucial advantage offered by outsourcing software development services is that you get to launch the product within a pretty short span of time. We all know that to succeed in business one must be able to be quick and effective. When you outsource a software development team what happens is they focus on your development project whereas you can focus on managing and enhancing the performance of your business. 

You see, being able to go faster-time-to-market is a real skill that is cultivated as time grows. 

#4 Use of the latest technologies

Another reason that must be taken into account is using the latest bunch of technologies. No matter whenever you decide to create a software development project, I am pretty sure you must consider using the latest modern technologies especially in the modern IT projects. And for that, you need to hire specialists or developers who have a wider experience and expertise. You see the tech stack keeps on changing every now and then, so having an in-house development team might not be that updated and well-versed with the new techs. So choose an outsourcing software development services provider that ensures to use all the latest technology stack.  

#5 Maintenance and High-end Support

Another interesting benefit offered by outsourcing IT services is that other developing a fruitful solution for your business they do offer continuous maintenance and support services. So in case, if there is any issue even after the product is being launched, your outsourcing company will give you all the required support. In addition to the ever-changing needs the support needs to be evolved by time and again. 

You see software development is important but at the same time you need to consider that bugs and glitches are inevitable here. Sooner or later, your outsourcing partner will turn out to be an invaluable resource. 

I can simply go on and on when it comes to pointing out benefits offered by outsourcing software development services but you see what is the most crucial aspect when conducting an outsourcing development project? It is to consider the outsourcing agreement. 

Creating an Outsourcing Agreement – Certain technical and Legal aspects to Take into Account

Team meetings in open plan workspace; image by Proxyclick Visitor Management System, via
Team meetings in open plan workspace; image by Proxyclick Visitor Management System, via

#1 Detailed Project Scope

Now sooner or later you have to go through this. One of the leading aspects to take into account is project scope. One of the best parts of project planning is project scope. Here you have to determine and document a list of specific project goals, deliverables, tasks, costs and deadlines. 

As the name implies, a project scope determines all the boundaries and guidelines regarding the project. Everything from when the work will begin to how it will be completed and handed over. A project scope has to be well-thought and thoroughly detailed. Also, it must be able to describe all the possibilities and how it can affect the budget and time. 

Also, the IT service provider is always liable for diligent operation. All these types of obligations must be included in the contract. 

#2 Fees and Payments

Another crucial aspect that should be included in an outsourcing agreement is mentioning all the fees and payments. After all, you must know what total amount will be required to conduct such development projects overseas. Of course, the actual amount depends and can be variable but it’s quite upto an extent depending on factors such as the scope of the project, job staffing requirement and so more. 

In case, if you are opting for offshore outsourcing then do not forget to address exchange rate fluctuations. Also, keep this in mind, to ensure that the service provider is highly responsible for all the tax payments. Also, do not forget to add a clause of covering negotiating contracts due to ever-evolving market conditions. Here what you can do is consult a financial law firm before you proceed further with the software development company. 

#3 Assets

Another crucial aspect that must be taken into account in any outsourcing agreement is to transfer the assets. You see when choosing an outsourcing partner be extremely clear about transferring relevant assets or providing them easy access to specific business assets. I am talking about all the telecommunication equipment or all types of software licenses. Just make sure that all these assets are transformed formally. However, this might lead to additional taxes or stamp duties but it is worth considering. 

#4 Warranties and Libraries

In a normal scenario, when you try to outsource services, it is their duty to provide necessary deliverables. And as for your part, you have to release timely payments. You see it’s about both parties being loyal and offering warranties to each other. For example, make sure the outsourcing company offers solutions that stay adhered to industry-specific regulations and demonstrate reasonable skills. As from your part, you need to provide warranties regarding assets and equipment. 

All the liabilities and warranties must be discussed prior.  

#5 Intellectual Property Rights (IPR)

Last but certainly not the least aspect to take into consideration is intellectual property rights. To protect the company’s property, outsourcing service providers are asked to sign NDAs or Non-Compete agreements or clauses.

So what you can do is copyright your IP, trademark software and other relevant goods, apply for patents and so forth. 

Final Thoughts

So yes this is it! These are certain aspects to take into account for conducting successful outsourcing agreements. It’s all about having clear expectations and receiving amazing results. I hope you did find this post meaningful.   

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