IT Software Outsourcing Services: Things to Include in Your Contract

Tempting benefits, such as reduced costs, focus on the core business, benefits from the global talent, and the like compel businesses to look for IT software outsourcing services. However, most businesses don’t see the other side of the coin. They forget to take notice of legal business conflicts that may come up if everything is not clear between both parties. So, if you are a company planning to take such outsourcing solutions, you must prepare a crystal-clear contract to avoid any probable business issues. To know what such considerable points are, read this blog. However, before that, take a look at the types of outsourcing contracts first.

Types of Outsourcing Contracts:

When you understand the outsourcing contract model properly, you can ensure good financial condition, work efficiency, and risk management for your company. The better you are aware of the contract types, the easier it will be for you to get benefits from it. Now, let’s move ahead to know the 3 most common types of contracts for outsourcing an IT software company:

Fixed-price Contract:

In a fixed price agreement, you can take IT software outsourcing services from a company at a fixed price. So, if you think everything should be clear about your project with the service provider in advance, this option can work wonders for you. Opting for this type of contract will enable you to predict the costs beforehand.

Non-fixed or Cost-plus Price Contract:

When you take a cost-plus contract, you must pay for the expenses that come up while professionals are working to complete your project. In addition, you need to pay a profit margin or an already-agreed fee. If you decide to hire an outsourcing service and are not sure about your expectations, you should choose this model. Aside from that, you can choose this contract method if your project scope is subject to change. The outsourcing software company will send you a bill to let you know about the direct and indirect expenses. After that, you need to check the invoice and make the payment if you are satisfied with the bill.

Time and Material Contract:

A company chooses this type of contract when it doesn’t have an estimation of time or costs. This contract is based on the tasks and time required by professionals to do specific jobs. For example, if the outsourcing company professionals worked for 100 hours, you need to pay them for this time. Aside from that, you need to pay them for the materials used. This option allows you to make adjustments so that you can get the price deducted. The end of this contract is when your requirements are fulfilled.

Key Contract Considerations for IT Software Outsourcing Services:

Nobody outsources a software development company to face legal issues. However, you must be prepared for anything. The agreement you have with the provider of solutions must mention the below-listed points:

1.  Scope of the Project:

A clear project scope means a confusion-idea of goals, tasks, responsibilities, and deliverables. So, everything must be clear between you and the service provider.

2.  Agreement Duration and Termination:

The contract must have the starting and end period details. In addition, the way to renew the contract and the conditions under which the agreement can be terminated by any party must be mentioned.

3.  Project Warranty:

No matter how reliable IT software outsourcing services you take, be prepared for the worst. If something wrong happens to your software like technical glitches, the service provider must be ready to serve you so that you can avoid loss. Remember that the indemnification terms must have their presence in the agreement.

4.  Data Secrecy:

The agreement must state that the confidential and sensitive data between you and the provider of software solutions must remain safe. It must state that the outsourced company will return or destroy any such data when the contract is over.

5.  Conflict Resolution:

It’s wise to fix an authority to deal with any business disputes that may come up between you and the outsourcing software development company.

6.  Payment Terms:

The payment terms must entail the following: ·        Amount ·        Schedule ·        Currency ·        Payment methods ·        Conditions under which additional charges or penalties may be required Your agreement must express all these things so clearly that no confusion related to the payment may arise. It’s one of the most important points for any company looking for flexible team expansion for software development.

7.  Support:

If the provider of IT software outsourcing services offers support, this fact must find a place in the contract. The medium and scope of support services must be present in the agreement. In addition, don’t forget to include the limitations of support.

8.  Agreement Variations and Change:

Your contract must be ready for any changes or variations. In other words, if some changes and variations seem to be necessary, the contract must mention them.

9.  Integration and Installation:

The agreement must mention whether you or the service provider bears the responsibility for the configuration, installation, and integration of the software. In addition, it should clarify the way to deal with any technical problems that may come up during this process.

10. Transfer of Assets:

The outsourcing company needs some particular business assets from you, such as telecommunication equipment and software licenses. For that, you must have a sales agreement to transfer such assets formally. It’s because the transfer of specific assets like software licenses may bring about extra taxes and stamp duties. The agreement must mention these transferring costs.

Key Takeaways

The three most common types of contracts for IT software outsourcing services are fixed price, non-fixed price, and time and material. Your agreement must stipulate the necessary points, such as the scope of the project, its warranty, payment terms, termination, transfer of assets, etc.