The outsourcing business operations strategy has proven beneficial for companies, leading to significant growth. It plays a distinguishable contribution in companies as it increases profitability, is not too heavy on the pocket, and provides global-level access to resources that are unavailable in-house. Additionally, some supporting statistics show a reduction in annual labor costs by 20-90% based on the role and geographic location. Furthermore, On average, businesses can save 30% on call center outsourcing and up to 90% in other roles.
Besides these contributors, there are also other more that have strengthened the importance and relevancy of outsourcing. However, we won't be discussing that here, as before you dive deep into outsourcing, it is integral to consider the legal aspect of it. In this blog, we will explore and discuss some key legal considerations:
1. Guaranteed Performance
It's important for every job to have a set of agreements that would guarantee that an employee delivers. Similarly, it is an absolute must and essential part of the outsourcing agreement. Given the distance proximity shared between the contractor and the provider, it makes sure that the outsourcing provider is crystal clear of job requirements and commits to clear and accurate performance criteria. These performance criteria are of two kinds:
Key performance indicators (KPIs)
Specific criteria that measure the service provider's performance. For example, tracking customer satisfaction rates via surveys to measure the outsourced agent’s performance track record.
Service Legal Agreements (SLAs)
formally established agreements outlining performance standards, responsiveness, penalties, and work quality. For example, a 24-hour response time for outsourced IT service providers for critical situations, such as a system crash.
Count in factors like how often the performance is to be reported and the consequence of failings to meet your performance criteria and appropriate remedies. Establishing this agreement sets expectations and serves as a benchmark for performance evaluation.
2. Intellectual Property Rights
Safeguarding your outsourced service provider’s Intellectual Property (IP) is essential to the legal agreement. The ownership and usage of IP must be explicitly addressed, including, clarification of ownership of newly developed IP, guaranteeing the rights of the clients to proprietary information, and defining the permitting use of preexisting IP. Make sure that the agreement aligns with your company's IP strategy and safeguards changes from unauthorized use or disclosure
3. Signing NDA’s
“Non-disclosure Agreement” commonly known as NDA. It is a confidentiality clause that is crucial for sensitive business-like Tech outsourcing. It is important to specify what constitutes confidential information and the duration of keeping it secretive and draft out the consequence of any breach of any obligations. Remember to implement strong non-disclosure agreements to safeguard intellectual assets.
To give an example of its importance, going back to earlier days before Facebook came into place. Two individuals known as the Winklevoss twins got Zuckerberg on board to help them build a social networking site called “Harvard Connection”. However, when they shared their idea with him, little did they know that he’ll later launch Facebook, a similar concept. However, it all could've been avoided if a well-drafted NDA would've been implemented.
4. Regulation and Compliance with Laws
When devising the outsourcing agreement, it should explicitly require the service provider to comply with all relevant laws and regulations applied both domestically and internationally. Consider data protection laws, export control regulations, industry standards, and local legal frameworks in your agreement. Ultimately, this will sustain ethical practices that will build trust with clients and reduce legal liabilities.
5. Risk Management and Liability Allocation
To predict and identify potential risks proactively and allocate responsibilities and liabilities clauses thoroughly. Create a soundly defined understanding of the liability for breaches, delays, performance issues, and unavoidable casualties. The better you outline the risk management strategy, the better the transparency, leading to minimizing legal disputes.
6. Contractual Terms and Termination Clauses
Be sure to create contractual terms that are fair, transparent, and mutually beneficial. Properly lay out termination clauses specifying conditions, notice periods, and exit strategies. Clearly outline rights and obligations post-termination, including data handover, confidentiality, and dispute resolution mechanisms.
7. Dispute Resolution Mechanisms
Disputes are inevitable and can come up during outsourcing arrangements. That said, it's good to prepare in the event of a dispute by having clear effective dispute resolution mechanisms such as mediation, arbitration, or escalation procedures can save time and resources. Such implementations help with a smoother outsourcing partnership.
8. Dynamic Management Protocols in Outsourcing
Remaining flexible is crucial in industries where advancements occur at every given second. To keep up to date, writing up changes in management protocols is essential to accommodate modifications in project scope, deliverables, or timelines efficiently. Make sure your agreement protocol describes the procedures for requesting changes, assessing impacts, obtaining approvals, and adjusting contractual terms when required
To further explain, if any party requires a change in project scope, deliverables, or timelines needs to submit a formal request outlining the proposed modifications. If a change request is submitted. A thorough impact assessment is to be conducted to evaluate it based on factors such as feasibility, risks, dependencies, and stakeholder interests. After obtaining approval from relevant stakeholders, the contractual terms are adjusted to any necessary changes and communicated to all parties for alignment.
9. Vendor Selection and Due Diligence
We keep a keen eye when we deal with business with outsiders and it's thorough due diligence that it's also important to consider when selecting outsourcing partners. What exactly to look out for? You can evaluate vendor credentials, expertise, financial stability, past performance, and reputation. Perform legal reviews of vendor agreements, licenses, certifications, and compliance records so it all aligns perfectly with your company's standards and mission. This proactive approach is a great help to have your outsourcing partners meet on agreed terms clearly.
10. Continuous Monitoring and Compliance Audits
An ongoing compliance check through regular monitoring and audits. Have a proper track performance metrics check, adherence to contractual terms, and regulatory compliance. Periodic reviews and audits to pinpoint areas for improvement, manage emerging risks, and strengthen the partnership with vendors. Furthermore, take time to address gaps in compliance and issues found during audits promptly, apply corrective actions, and process improvements as needed.
Conclusion
Successful outsourcing goes beyond finding the right partner; it's about laying a firm legal foundation. Fully equipped with elaborative contracts, tailored agreements, adherence to compliance standards, transparent communication, catering intellectual property rights, and ongoing legal due diligence are the keystones of a fruitful outsourcing partnership.
Thanks for reading our insightful blog about legal considerations in outsourcing agreements. As we will come back without another informative soon. Don't forget to learn more about our employee outsourcing practices by visiting our official website and LinkedIn page.
