SOFTWARE DEVELOPMENT OUTSOURCING CONTRACTS A GUIDE TO AVOIDING GAPS

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Outsourcing software development has become a powerful improvement tool for many organizations. It allows for a quick save of experienced resources with unique skills that might not be easy to find locally. But how do you make sure you’re getting what your organization really needs? The key seems to be a well-written contract, which guarantees the crucial aspects of cooperation.

In this article, I’ll walk you through the key issues you need to pay attention to in order to secure your business interests when signing a software development agreement.

software development outsourcing contracts

Key Aspects of Software Development Outsourcing Agreements

Here are some issues that you should pay special attention to when signing your software development outsourcing contract:

Resources,

time,

who is in charge,

Payment,

intellectual property rights (IP), confidentiality and logo,

non-solicitation,

Duration and termination,

final provisions and protection of personal data.

RESOURCES: The right software developers

First, the parties need to agree on the exact people who are to complete the client’s team – both their numbers and their characteristics and qualifications.

To ensure flexibility, it is advisable to allow a simplified procedure for adding new resources (i.e. new software developers to the team), for example in the form of an email . Otherwise, formally signed appendices to the agreement may be required for each of these changes. The agreement should also mention potential changes within the team, which can be agreed upon by email. It should be noted that in some jurisdictions an electronic message is not equivalent to the written form.

It can also be agreed that throughout the initial period, the client may resign or replace a particular person if the performance is not satisfactory (to avoid this, each candidate should be checked beforehand by the client, for example in a series of tests). In such cases, the outsourcing company should do their best to provide a suitable substitution.

Key points to remember:

Decide on the exact number and skills of software developers to join your team.

Agree on a simplified procedure for adding / changing developers in your team (for example, by email).

Establish possible scenarios for an extraordinary replacement.

TIME: the exact number of working hours

It is advisable that the agreement stipulates the exact number of hours spent on the work for the client, for example in a week. On the one hand, it is the assurance of adequate support for the client. On the other hand, it is also a guarantee for the company which subcontracts, because the time of the consultant must be used adequately.

Usually, the law requires that people hired on the basis of an employment contract be paid extra for overtime. This is why overtime rates must also be expressly mentioned in the agreement. The client may require overtime to take place only if this is expressly requested if the sudden needs of the project so require.

We must also remember that every individual may, from time to time, be out of work due to vacation. It is reasonable to agree that the absence should be agreed with the client (unless it is sick leave).

Key points to remember:

Decide on the exact number of man hours spent on your project.

Set overtime rates and rules.

Agree on rules for taking days off.

software development outsourcing contracts

WHO’S IN CHARGE: adequate responsibilities

Outsourcing services can have different characteristics depending on whether an entire team or only specific team members are provided. In the case of mixed teams, comprising both the resources of the client and the subcontracting company, the responsibility should be appropriately distributed.

If the general control of the project and the main management functions are reserved for the client, the subcontracting company remains responsible for securing the agreed resources or the actions of these resources, but can only be jointly responsible for the outcome. of the project.

To remember:

Divide the responsibilities between your company and the outsourcing company.

PAYMENT: no hidden costs

Payment arrangements are important not only for companies of subcontracting. In some jurisdictions, the relevant provisions should explicitly confirm that royalties cover not only the securing of resources and their work, but also the transfer of intellectual property rights. Otherwise, we leave the parties with a risk of incurring additional costs associated with the IP transfer.

Usually, the agreement stipulates the hourly rates of a consultant with knowledge of a particular technology. However, the parties can individually assess the skills of each consultant. Accordingly, it is advisable to ensure that changes to the agreement can be made in electronic form, for example by e-mail.

It is also important to determine possible overtime rates and other additional costs, such as the fees for specific licenses needed for the project. Insofar as the object of an outsourcing contract is the provision of suitable human resources, the costs of specific licenses will generally be borne by the principal.

Last but not least, the parties should also establish the rules for reimbursement of travel and accommodation costs – the work would be carried out outside the headquarters of the subcontracting company.

Key points to remember:

Check the payment arrangements for the transfer of intellectual property rights.

Determine any additional costs, such as license fees.

Establish the rules for reimbursement of travel and accommodation expenses

IP RIGHTS, CONFIDENTIALITY AND LOGO: your code, your logo, your partnership

Intellectual property rights provisions seem to be crucial in any outsourcing agreement. As a rule, the subcontractor grants intellectual property rights to the principal. At Napollo, we generally let clients use their own clauses to ensure that the scope of rights meets their needs.

Likewise, the confidentiality agreement is an integral part of most agreements. When writing this part, it should be remembered that strict provisions may block the possibility of informing about cooperation. Preventing your outsourcing company from informing you about the cooperation and / or from using your logo may or may not work in your favor, depending on your promotional goals.

Key points to remember:

Guarantee intellectual property rights.

Think about the optimal scope of your confidentiality commitment.

software development outsourcing contracts

NON-SOLICITATION: damage prevention and damage control

Consultants are the biggest asset of most outsourcing companies. This is why these assets are usually protected in agreements. The scope of prohibited actions may include hiring or mere solicitation, both by a party to the agreement, as well as by related companies. It is also possible to stipulate that the non-solicitation clause will work both ways and protect both parties to the agreement.

Most of the time, the violation of a non-solicitation clause is linked to a contractual fine (called “liquidated damages”). This is a recommended solution to avoid proving the exact amount of the loss in lengthy legal proceedings. At Napollo, we believe that contractual provisions should be respected and that all disputes should be resolved in a conciliatory manner if possible.

Key points to remember:

Adjust the scope of prohibited actions (hiring, solicitation) and protected parties in the non-solicitation clause.

Establish contractual fines (“damages”) if necessary.

DURATION AND TERMINATION: it’s time to say goodbye

The contract must prescribe its duration and its termination periods. The termination period may depend on the number of consultants hired as after the termination of the relationship they should find replacement positions in alternative projects.

Termination can also take place due to extraordinary circumstances. Typical causes are non-confidentiality or non-solicitation, as well as payment clauses.

Key points to remember:

Set the appropriate termination deadlines and periods.

Appeal to extraordinary circumstances resulting in termination of the contract.

FINAL PROVISIONS AND PROTECTION OF PERSONAL DATA: secure data, secure interest

Finally, we must remember some final provisions. These may include contact details and the choice of applicable law and jurisdiction. The parties may also agree that any potential dispute will be resolved through arbitration.

Ave c a high probability, outsourcing can also lead to the processing of personal data. Any access to personally identifiable information should be recognized as a data processing activity, regulated in the EU by the General Data Protection Regulation (GDPR). In such cases, the subcontractor is acting on behalf of the customer as a subcontractor. This requires the conclusion of a data processing agreement in accordance with Art. 28 GDPR, which can be part of the contract.

Key points to remember:

Include the contact details in the contract.

Select the applicable law and jurisdiction.

Establish ways to resolve potential disputes (eg through arbitration).

Recognize data processing activities and, if necessary, sign a data processing agreement.

Conclusion

There are a number of issues to consider when creating an IT service outsourcing contract. Some of them may be agreed upon in accordance with the interests of the parties, others may result from applicable laws (such as intellectual property or data protection). Yet a well-written contract can protect your interests well and let your business forget about the legal issues and focus only on the project itself.

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