Outsourcing Contract Sample: Everything You Need to Know

An outsourcing contract sample is a guide to use when you need to draft an agreement to contract out a particular function within your business.3 min read

An outsourcing contract sample is a guide to use when you need to draft an agreement to contract out a particular function within your business. Outsourcing is a practice becoming more and more common, and the term is familiar to most employees of private and public entities.

What Is Outsourcing?

When a function is outsourced, that means the work related to that particular task or field is handed off to an outside company that specializes in that particular arena. Outsourcing reduces costs, but it also saves time. A specialized contractor can usually do the work more efficiently and accurately.

Some examples of commonly outsourced fields are:

• Accounting: A business can save money by outsourcing the work to an accounting firm instead of hiring its own full-time accountant.
• Manufacturing: A company may want to outsource the production of certain parts and components to another supplier to avoid the cost of producing them itself. Setting up a system to produce a delicate or sensitive part is expensive and difficult. Hiring employees who have the knowledge and skill to operate such a system is a challenge as well.
• Websites and other forms of information technology: These tasks are commonly outsourced to specialists in that technological field.

What Is An Outsourcing Services Agreement?

An outsourcing services agreement is a legal document that requires all the parties to follow the rules set out in the business relationship. Such an agreement reduces the risk of fraud and helps ensure that the work gets done on time.

It's important to have the agreement in writing. Verbal agreements are unreliable unless the parties do business often and are very close with a great deal of trust between them. Another advantage of written agreements is that they make it easier to avoid ambiguities and disagreements that make the environment less pleasant for employees.

What Should an Outsourcing Contract Include?

The contents of an outsourcing agreement will vary based on the needs of the parties. Some factors could be:

• The time required for the contractor to do the work.
• Fees charged by the outsourcing firm.
• The quality standards that the contractor must achieve.

These components are common to most outsourcing contracts:

• A clear description of the goods and services related to the agreement.
• Timelines.
• Conditions or standards which must be met.
• Insurance requirements.
• Provisions for terminating the agreement.

Who Drafts the Outsourcing Agreement?

Putting together an outsourcing agreement is a task for the board of directors or an attorney. A lawyer can watch for any legal problems in the language to minimize the risks of conflicts later. Though risks can never be eliminated completely, it's wise to have the agreement reviewed by someone who specializes in creating contracts. Including all the right terms and conditions reduces the risk of fraud and improves efficiency.

Either party can be guilty of negligence. The specific language in the agreement is important because a client can refuse to pay for work that isn't done to satisfaction. Likewise, contractors can delay finishing a job or produce a substandard product if they don't have a clear blueprint to work from.

What Are the International Considerations?

As the business world gets smaller thanks to the internet, your contracts may need to involve the contract law of multiple countries. Different jurisdictions allow for different levels of protection for confidential information and other matters. Intellectual property (IP) is another area for special consideration.

You may need to seek IP rights in other countries before you can hire contractors there. Professional advice is imperative in these situations. A template found online won't be sufficient to protect your best interests.

What Is Vested Outsourcing?

Vested outsourcing is a new trend that allows a company to outsource functions and work more closely with the contractors. The approach is collaborative and based on performance. The interests of the parties are aligned so that each is more invested in the success of the other.

The pricing model in a vested outsourcing arrangement should provide incentives for reducing costs and trading resources. Confusion often arises about the different types of vested outsourcing due to a lack of consistency in terms.