How to Overcome the Challenges of Outsourcing — Contract Warning Signs
Your business can harvest considerable benefits when software development is outsourced; the efficiency of operations can grow, the costs of IT services can be slashed, and projects can be sped up past the limits and abilities of the internal team.
In this blog series on the challenges of outsourcing, our previous articles have navigated through topics such as hiring the most effective outsourced development team and the best practices for doing so, as well as how to assemble your team in the most optimal way, and how to manage knowledge transfer for the best start to a problem-free project. Take a look at them here:
While all those things are so important to making your project succeed, you must still ensure you set things up properly from the beginning of your joint venture. Not spotting those little warning signs in your software development contract can leave you in a difficult position. If you take just one thing from this, you need to guarantee that your contract properly defines these two crucial areas:
- Governance of the project. Project management is under whose jurisdiction? Who is in charge of managing the scheduling and delivery timeframe of the project?
- The scope. What, relating to the services and deliverables, is the outsourced vendor going to contribute to the project?
If the answers to those questions aren’t cleared up by the contract, you run the risk of being charged a significant amount in additional fees with your lawyers unable to wriggle you out of paying.
Software Development Contracts: The three types
Legal documents containing precise details about what your company is looking for the vendor to provide, that’s what a software development contract contains. But the type of contract can depend on what engagement model works best for your project, and these models generally can be sorted into three types:
- Dedicated engineering team contract
Perfect for long-term projects where the scope is more open-ended, this model of cooperation sees the outsourced team act as an extended part of your company
- Time and material contract
If your project has quite limited time and a quite ambiguous scope, this often used contract may be the one for you. Under this co-working model, full control of the project remains in your hands, and you only fork out for the completed work.
- Product development model with a set-price contract
Here, as suggested, the vendor returns a particular deliverable or service for a fixed price. These set-price contracts are suited to small to medium projects with the scope of work already defined, where your company opts to keep minimal control over the process of development.
Danger signs to watch out for in a software development contract
When the contract lacks specificity or isn’t transparent enough, red flags may emerge from the shadows. To avoid this happening, consult this list of the possible problems you may come across:
● The fixed price project’s scope is not properly defined
Specific from start to finish about the work that is to be done and the services that will be given; that’s what a proper contract looks like. You’ll be hearing alarm bells ringing if any of this information is poorly defined in fixed price negotiations
● Vague responsibility definitions for both sides
Any decent contract will clearly outline the compulsory actions of both the client and the vendor. Include comprehensive oversight to keep costs and scheduling organized.
● Quality expectations aren’t specified in the contract
Service level agreements and warranties for software quality are an absolute must have
● No predefined criteria for acceptance
A correctly defined project scope will contain the process for guaranteeing that deliverables comply with the terms agreed. The final payment — often around 20% of the bill — is typically associated with successful acceptance
● The skills issues of individuals
Don’t let the vendor give huge tasks to the work experience Junior developer! Put in the contract that only specialists with the appropriate skillsets and proper experience can do the job.
● Ambiguous cost and payment agreements
You’re going to want to avoid an unfinished product and being overcharged for unagreed work, right? This will happen unless the contract precisely outlines the work involved and what you are to pay for it. Invoicing and payment policies need to be agreed, also.
● Lacking indemnification
Service contracts for professional business should — as a minimum — include a clause which protects your business from any claims of copyright infringement by the vendor against a third party.
● Caps on liability
Liability of both sides has to be transparently defined for the project’s duration, otherwise either your company or the outsourced vendor could end up footing the whole bill in the event of an unsatisfactory project result
● No handover or transfer process
How will project ownership move after it’s finished? What happens in the case of contract dissolution? The contract must be clear about such questions.
● Notice periods aren’t outlined
The agreement must be certain about the amount of advance notice the vendor has to provide relating to any changes or even the demise of the project.
● Undefined code ownership
When the contract doesn’t mention that your company doesn’t own the code or the deliverables, that’s a really big red flag. If the vendor departs, you can lose control of your software if ownership isn’t clarified.
● You aren’t protected by the agreement
Any software development contract needs to cover data security and confidentiality, with non-disclosure agreements where required. A non-solicitation clause, preventing the vendor from stealing your employees post-project, should also be written into the document. Dispute resolution on an international jurisdictional level has to be set out.
If you want to look for outsourced help with a long-term project or a shorter service, our experts can enable you to make your most complicated software requirements a reality. Contact us to find out how.