For businesses, cooperating with an IT outsourcing company is more affordable than building an inhouse IT team. But IT outsourcing risks should be carefully concerned; and to reduce them, you must prepare an IT outsourcing agreement carefully. This article will define IT outsourcing agreements, describe the 2 IT outsourcing contract types, and go through the 10 articles that every IT outsourcing contract must have.
An IT outsourcing agreement is a legally binding contract between you as the client and the IT outsourcing company. It specifies what you anticipate from the outside service provider.
The IT outsourcing services provider can require access to your private data, intellectual property, or even commercial assets. To protect your intellectual property, you should request your partner to sign an NDA (Non-Disclosure Agreement).
But first, let's take a look at 2 IT outsourcing contract types, then choose the most suitable one for your business.
Lab-type IT outsourcing contract is used for software development with a team consisting of fixed individuals. A lab-type IT outsourcing project is planned for a specific timeframe and budget. Lab-type contracts are famous for significant benefits, including strict personnel and budget control
A project-based IT outsourcing contract is signed between a company and an independent employee. He/she is not regarded as an official employee because their jobs often don't have expiration dates. This type of IT outsourcing agreement is significantly beneficial to independent contractors because they can set work hours flexibly and work for many projects simultaneously.
One of the must-have articles in every contract is a detailed description of the IT outsourcing project and its scope.
You can also include the Request for Proposal (RFP) and the subsequent response by the IT outsourcing service provider here.
This section must include:
All IT services requirements.
Detailed description of each part of the required services.
Service standards, such as adherence to international standards.
You can add a sentence describing duties that are intrinsic to the services, but are not mentioned in the description of work.
Once you’ve defined the general description of the IT outsourcing agreement, you can go into the specifics, such as the expected output after a period of time.
You, as a client, need to know the total amount payable to your partner for the IT services.
The actual amount depends on many factors, including the project scope and the requirements.
For IT offshore outsourcing, you need to consider exchange rate fluctuations. You can fix a rate, or allow the rate to depend on the exchange rate at the time the transaction is carried out.
Additionally, you should specify whether the IT outsourcing company is responsible for all tax payments in their nation, or whether they take responsibility for staff payment.
There should be terms involving changing market conditions. It may be the compensation for variable components such as new technologies or additional infrastructure.
The duration of an IT outsourcing contract mentioned clearly helps two parties effectively monitor budget and resources.
Important to bear in mind, this duration article should involve early termination. You can avoid getting stuck in a long-term agreement that doesn’t benefit you. It is recommended that you begin the outsourcing relationship using a short-term contract with quite a small budget and achievable output. It allows you to test if things work well and decide whether to extend the same IT outsourcing services with that vendor.
Your IT outsourcing partner might require you to transfer or grant them access to particular business assets in order to carry out a crucial delivery. For example, certain assets, like software licenses, may be transferred with additional taxes and stamp duties attached. Make sure these transfer expenses are taken into account in your IT outsourcing contracts.