Articles | May 29, 2017
IT Outsourcing Agreements Under the Magnifying Glass
Agreements in general are concluded for both sides so they simply know what, why and with whom they do business, as well as other details like the date, location and price. We use plenty of different types of agreements on a daily basis, usually informally and without writing them down. Buying food or clothes, asking somebody to go out on a date to the cinema, or picking up the kids from kindergarten all involve some kind of agreement. In some situations, these verbal agreements may also be perceived as the formal acceptance of terms in the eyes of the law. But let’s concentrate on the written ones, which are something that we use in everyday life as well in business. And my main question of this article is: do we really need all these agreements?
Let’s take a look at non-disclosure or data protection agreements, which is the most common agreement that we use here at JCommerce. It’s something that starts with cooperation really, and makes the trust between both parties just a little bit stronger.
This type of agreement specifies who is who in the business relationship – just explaining which companies are the signatories, where they’re registered, their official ID numbers and so on. It is important that the person who signs the agreement on behalf of the company, for example the CEO, should be listed as such on official documentation or should have the official acceptance of the board of directors to sign such documents. Don’t be afraid to hand over company information if the Contractor asks you for that as well. From their perspective, they would just like to be sure that they’re signing the right contract with the right person as well. I think this is just a normal part of doing business.
Read also: The best practices in IT nearshoring
Another very important point to include in the NDA relates to definitions. Remember that you may understand something very differently than someone else from another company. To avoid misunderstandings or miscommunication, it is important to put definitions at the very beginning. Remember to define what is “affiliate”, “confidential information”, “disclosing party”, “permitted recipients”, and “receiving party”. Write these definitions in a clear way so everybody can understand them, not just lawyers or the like. The language should be simple, and definitions as short as it is possible.
Read more: Effective communication in IT outsourcing
As you can see, “confidentiality” is another very important element for the NDA to keep information private. The parties agree not to disclose any information they both sign at the NDA. Moreover, the parties can’t make copies of those Confidential Information. You should also consider whether you need extra 1:1 NDAs with the engineers or directly with the team that provides services for you. This is very common practice, because when you work with sensitive data your partners would like to rest assured that all information is protected.
Standard framework outsourcing agreement
At this level of the agreement we should specify further important details and definitions that define our business relationship and co-operation. And one more time, you should write those definitions in understandable way. At that point, when established with the Contractor, you can describe “business days” and “the worksheet”. Also, you should define the specification of IT services, the period of ordered consultation days and a person responsible for the implementation of the Agreement.
As you probably expect, it is just the beginning before your IT outsourcing agreement will be fully ready. Let’s take a closer look at the following parts of the contract like subject matter and obligations in an agreement – including the terms of payment, the force majeure clause or copyrights.
Subject matter and obligations
The subject matter of the agreement is the provision of outsourcing services by the Contractor for the Ordering Party, consisting in analytical, design, testing, programming, system maintenance and other which relate specifically to the area of software development and Information Technologies.
The services commissioned are based on Time and Material model, in which the Ordering Party agrees to pay the Contractor based upon the time spent by the Contractor’s Consultants and to perform the work. The services covered by such agreement shall be provided by seconded Contractor’s Consultants. A list of the team, their roles, order’s start and end dates, hourly rates and any other project or profile specific information, like e.g. communication methods, you should include at a separate written Order. Also you should include in the Order the purpose of the service order and scope of work, all schedules, living expenses (flight tickets, accommodation) and contacts. Of course, there is more aspects that you should consider, but those should be good at first.
It isn’t a secret that both parties have obligations to each other. The Contractor undertakes to carry out the work connected with the implementation of the provisions of the agreement and Orders. From the other hand, the Ordering Party is obligated to assign tasks and set timelines for completion of work to the Consultants according to the IT services identified in the Order. Furthermore, on your side is to ensure that Consultants have the possibility to work by providing them the access to worksite when necessary, and if needed secure access to devices, equipment and so on. I know that all of those information are logical, but it is good to have them written.
Nobody likes to talk about money, but when it comes to the agreement, don’t hesitate to do it. Focus on the formal issues like:
- how to calculate the total remuneration for all the seconded Contractor’s employees,
- where outsourced employees report the working hours,
- what’s the procedure when the developers have overtime work during business days or at the weekend.
Last but not least, every IT outsourcing agreement have two clauses, Non-performance of obligations and Force majeure event. Like I said at the beginning, agreements are for the bad times because we can’t predict the future, for e.g. war, natural catastrophes, explosion etc. Therefore, the Parties shall be free from any liability for total or partial non-performance or undue performance of the obligations specified in the contents of the agreement in cases caused by Force Majeure. In the end of the agreement you should include the Copyrights, IP Rights, Law and final provisions.
I hope that you realize now how value can be every piece of document at the agreement. Don’t prepare the agreement in rush, because every element is relevant for both sides. Do you recall my question from the beginning of this article? It was: do we really need written agreements? If you ask me, we don’t exactly need them, but nevertheless it is good to have them just in case. In other words, agreements are written not for the good times but for the bad times. Especially in the IT world.
To receive the link with the recording provide your e-mail address below.