Companies outsourcing is no longer a new phenomenon in the business world. When done for the right reasons, outsourcing can bring a lot of benefits for an organization such as access to expertise and technology lacking in-house, costs savings as well as enhanced effectiveness.
Here, we will examine some of the important contract considerations for outsourcing;
1.Terms of Agreement
What is obtainable generally is shorter-term renewal option, which could be eight years or less. It is recommended that managers insist on spelling out some conditions clearly in the agreement. For instance, it should be stipulated in the contract that contract renewal should only take place if a notice is sent to that effect.
2.Confidentiality/Ownership of Data
Ensure that the agreement spells out clearly, that your company would keep ownership of the data submitted to the outsourcing firm, and that strict confidentiality should be maintained by the vendor regarding your company’s data. In case of IT outsourcing, request to take ownership of the source codes and other sensitive information associated with the entire contract.
3.Minimum Services Level
Establishing minimum service levels from the onset should be an essential part of the contractual agreement. The contract should spell out accurately the services to be provided by the outsourcing company and the levels of the services as well. Also, any auxiliary service or services that would be provided by the company should also be spelled out clearly in the contract. Set the contractual relationship straight from the onset when working with outsourcing.
4.Incentives
It is good idea to provide the outsourcing company with an incentive to carry out the services. You may consider incentives such as shared risks/benefits, guaranteed savings, cross-marketing opportunities, profitability index and others.
5.Warranty
Warranty should be an essential part of the contract. The vendor should warrant that they would not fall short of expectations regarding the defined services in the agreement. The warranty should also include accommodating specific increase in requirements.
6.Measures for Performance
Performance measures cannot be eliminated from a sound contract. In the absence of performance measures, there would be no substantial standards for carrying on the outsourcing relationship. It pays off if the manager works out such measures prior to the contract.
7.Disclaimers Structure
No doubt disclaimers will be part of the contractual agreement. However, the manager should make sure that the indemnity and warranty sections are not excluded or avoided by the disclaimer.
When selecting from the list of companies outsourcing, these and other contract considerations should be considered. This way, there would be a complete legal binding to the contract and any party would have the right to file for damages or non-compliance to the content of the contract.
Daven Michaels is an award-winning outsourcer and author of the book, ‘Outsource This!’ Daven has been honored more than any other individual or outsourcing organization. You can get more information on outsourcing by visiting www.123Employee.com
