7 points of any contract for outsourcing development

We, as an outsourcing company, understand how important and stressful contract formation can be. Mainly because we can be located in different countries, have different laws, rules. To avoid any risks before signing an outsourcing contract, we advise you to pay close attention to these points first:

1. Payment terms

It is easy to make a mistake at this point if the vendor and client do not discuss when, how, and where exactly payments will happen. To avoid any mishaps, it is important to define certain rules on invoices before signing the contract. If you are not sure what kind of payment to choose, read our article “Fixed price vs. Time and Materials: choose suitable variant” where we talk about possible models.

Another crucial point of payment terms is a possible retainer. Try not to miss payments as there always rules for missing them. For example, if you do not pay for a certain period, outsourcing company might suspend their services altogether.

2. Liability and warranties

A liability cap is a useful tool in your hands if you use it smartly. It can help you with risk management while putting a certain border to the liability of both parties. With the help of it, you can manage your company’s financial exposure.

Also, remember about warranty clauses. It means your vendor provides you services or develops products of a certain level and quality. However, keep in mind that warranty relates only to outsourcing projects with fixed prices. It is proof that the outsourcing team will provide all discussed results and do their job on time.

3. Notice periods

A notice period is a period given to an outsourcing company to organize the team. It helps with the control of project development and delivery process. There are two types of notice periods:

• Search and organization of developers’ team. The outsourcing company should know how to find, change and fire professionals in a short period so that it will not affect project development. Usually, such kind of notice period lasts 1-3 months.
• Contract termination. It indicates in advance that it is time to disband the team. However, remember one thing. The longer you collaborate with an outsourcing company, the longer period of contract termination will be. It can last up to 6-12 months.

4. Data security

Ask the vendor for confirmation whether they:

• Follow global standards that regulate data security. Among them: ISO 27001, PCI DSS, HIPAA, etc.
• Follow all requirements on different levels to protect clients’ corporate data from leakage, loss, falsification;
• Provide strong password management, log-on process, network protection, data asset management;
• Educate their employees on correct data management and ask them to sign NDA.
• Secure the office where the outsourced team works from any unauthorized intrusion.

5. Intellectual Property rights

An outsourcing contract should explicitly say that your company (as a client) is an owner of all intellectual property related to the outsourcing project. This way you will protect your software code from being reused somewhere else.

6. Non-solicitation clause

Nowadays, many outsourcing companies are fighting against poaching their IT professionals. Therefore, if you decide to hire their professionals without noticing them, you may have to pay fees. Because clients come and go, IT employees stay with vendor-company that has to pay taxes, educate and manage them.

If you want to work with an IT specialist without an intermediary, you should discuss it with the vendor. The situation can be resolved legally. However, remember to mention all conditions in your contract.

7. Jurisdiction

As outsourcing development becomes more popular globally, more companies are bold enough to choose vendors from other countries. And it is great. However, you still should remember about jurisdiction in your contract. Discus with vendor which governing law of which country is your contract. So, if there any case between both parties, you will know the laws of which country you will follow. Also, there are situations when you can use international arbitration to resolve the case.