Your contract is an essential roadmap for your IT outsourcing partnership. Without well-defined clauses, it’s easy to get lost and run into hazards.
Crafting an airtight software outsourcing contract is essential in today’s complex landscape. By having the right documentation, you can avoid loopholes that expose your business.
Here we'll go over key software development outsourcing contract best practices. This way, you can reduce risk, streamline collaboration and set up your IT project for success.
First, your software outsourcing contract should define all the parties involved. Here you’ll want to spell out your evolving needs and specify what your IT partner will bring to the table.
Identify the required team size and availability. To ensure you have the right specialists on your project, you should also list key roles. An average team may include a few developer experts, a UX designer, a QA engineer and a project manager. Any third-party tech vendors (i.e. for servers, tools, etc.) should also be listed in this section.
Detail your IT partner’s technical capabilities and resources essential to the project. For example, describe any licenses, equipment, tools, etc. that your partner holds. You should also detail the amount of developer hours estimated to complete the work.
In addition, you should define how software milestones will be completed. Describe key processes such as workflows, communication channels and more. Check that your IT partner is using the agile methodology and PM tools, too.
To ready your organization to create a contract, consider all these factors and more. Use our outsourcing preparation guide to define your full requirements in advance.
Now that you understand your IT partner, you should dig into your project. Outlining a clear scope of work (SOW) is crucial to aligning your teams toward a shared vision. Be sure to include these key sections in your scope (learn more about the software outsourcing process):
Take special care to identify your success indicators or KPIs. Having clear objectives will guarantee that you meet customer demands. They will also be your guiding principles to make critical product decisions. For example, often these project goals help determine your software outsourcing strategy.
The tighter your scope, the less risk involved as well. After all, scope creep and delays tend to arise out of unclear project parameters.
Your contract should also go in-depth into your project deliverables and milestones. While this timeline may be revised over time, you’ll want a clear starting point. A few strategies to establish straightforward deliverables include:
One of the greatest risks of IT contracts is not locking down your IP and data. As part of your software development outsourcing contract best practices, safeguard your confidentiality. Start by creating clauses that specify:
In particular, companies typically require a Non-Disclosure Agreement (NDA) to protect their project. You should also have strong measures in place to ensure sensitive data isn’t at risk of leaks or theft.
Flouting security and data regulations can be expensive and shatter your business reputation.
Within your contract, define applicable laws that you must adhere to. This often includes data and privacy regulations, as well as consumer protection rules.
Also check your jurisdiction, as you may have obligations at the local/state level. Your jurisdiction will determine potential fines, so analyze your responsibilities in-depth.
Hidden fees can derail your IT project. Keep control of your budget by defining all your outsourcing costs in your contract.
The most important element is the pricing model. Usually, a “Time and Materials” contract is your best bet, as it lets you pay as you go for developer hours worked. (That said, you should rule out alternatives such as “Fixed Price.”)
As part of pricing, you should also define:
The golden rule for pricing is to get everything in writing. All your agreed terms should be clearly documented within your contract.
Software development is highly dynamic, so you’re sure to face unforeseen changes. Your contract should speak to this potential to make modifications.
Software development outsourcing contract best practices should include clear change procedures. Address how and when you can request, approve and implement changes. This process should have step-by-step instructions and a sample change request form. Any fine print about restrictions should also be detailed.
Top IT partners will provide reporting through your project. Set up this type of tracking directly in your contract, so that you can keep an eye on progress.
Software outsourcing can help reduce many risks involved in building a new product. Yet, you should still cover all potential liabilities in your contract.
We’ve already mentioned the importance of IP, security and data clauses. In addition, you should include risks, such as regulatory compliance, currency rates, etc.
The best way to safeguard your business is to include a dispute resolution clause. In it, you can specify a process for resolving conflicts to avoid a complete breakdown. Often this is preferable to stopping work in the middle of development.
When this resolution procedure doesn’t work, you should also have a defined exit plan in place. Exit plans can help you break a contract amicably, forgoing the extra costs and hassle.
Once you’ve drawn up a solid contract that encompasses all your needs, it’s time to get approval.
To guarantee your contract is well-defined, undergo a review process with your stakeholders. Get feedback from key staff, especially in the IT department. Wrap up the contract process by getting the green light from your legal advisor.
From here, you’ll sign the final version of the contract with your IT partner. Be sure that you use smart storage to keep the contract accessible. Having a digital copy is useful to reference clauses as you kick-off the project.
Create a foolproof agreement with our software development outsourcing contract best practices. Take your time to get into the nitty-gritty of your IT needs, so that your contract is 100% comprehensive.
Don’t forget that the contract negotiation process is a two-way street. For best outcomes, you’ll need a top IT partner who values transparency. At Netcorp, we combine business values and technical expertise to achieve high-caliber products. Reach out to us to meet our elite, ethical teams and discuss your project vision in-depth.
Paavo Pauklin is a renowned consultant and thought leader in software development outsourcing with a decade of experience. Authoring dozens of insightful blog posts and the guidebook "How to Succeed with Software Development Outsourcing," he is a frequent speaker at industry conferences. Paavo hosts two influential video podcasts: “Everybody needs developers” and “Tech explained to managers in 3 minutes.” Through his extensive training sessions with organizations such as the Finnish Association of Software Companies and Estonian IT Companies Association, he's helped numerous businesses strategize, train internal teams, and find dependable outsourcing partners. His expertise offers a reliable compass for anyone navigating the world of software outsourcing.
Download the free copy of our "Software Development Outsourcing" e-book now to learn the best strategies for succeeding in outsourcing!
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