The importance of water tight contracts in the outsourcing sector

Last updated: December 2020 | 4 min read


The benefits of offshore outsourcing are many and include reduced staffing costs and a quicker turnaround, due to the time zone difference besides currency valuation. Many Fortune 500 companies are now outsourcing and off shoring support work abroad and India is one of the main destinations to receive such outsourcing assignments in many functional fields such as accounting, telemarketing, customer servicing, legal etc.

It is however, surprising to know that there is still not much importance attached to putting together a water tight contract when dealing with an overseas services provider. Most of the agreements are done via email with little or no regard to important aspects such as dispute resolution, intellectual property rights, confidentiality issues and employee infringement.

If you plan to use an offshore provider or are contemplating accepting outsourced work on assignment, you need to be guided by a different set of ideas to perform for International clients. There are some basic steps that may be essential to safeguard the interests of both parties:

Defined objective:

Since all the work is mostly intellectual and information exchange, which are vital from the point of view of loss or disclosure, it is advisable to define deliverables in a detailed manner to help ensure protection of information in safe hands.

Confidentiality and Non-disclosure:

The contract must be drawn up in a manner to covenant security issues such as confidentiality and non-disclosure of information by the service provider. It is felt that some projects do not warrant such a clause. It is however, suggested that since the information exchanged may be about the company, its clients, agents, vendors, associates or other business interests which is inadvertently given out unknowingly, may be saved from further spilling in the event that the confidentiality and non-disclosure clause is well in place at the relevant time and appropriately covered by way of formal agreement.

Employee Infringement:

Approaching a service provider's employee directly is one of the cardinal sins which can be committed by a mischief maker and in the process even a disgruntled employee can spoil the whole show by spilling the beans, which are essentially a proprietary information belonging to a highly prestigious client for the employer/service provider. Thus as a service provider, it is necessary that this clause is properly covenanted in a services contract. A mischief may be possible on either side. An employee infringement clause keeps a check on such mishap from the point of inception and also provides for a legal recourse if there is substantial evidence of the infringement to deter others from repeating the mistake.

Force Majeure:

The relatively recent natural calamities of the Tsunami and Hurricane Katrina have made it necessary for many large companies to seriously consider the Force Majeure clause. This is necessary to protect the interests of both parties.

Pricing and terms of payment:

This is probably the most common reason for arguments between a supplier and vendor and is applicable across all industries around the world. An unambiguous detail about the total project pricing, payment plan and stages at which the charges will be paid should be included as an important schedule within the contract.

There might be other specific terms and conditions which may have been agreed by you and the supplier. These should all be mentioned in the contract not only for the sake of posterity but also for ensuring continuity of work in case of personnel change in the service provider's company.

Intellectual Property Rights:

When it comes to awarding offshore contracts for development work of Computer Softwares, it is essential that a very vital element of Ownership of software - created or plugged in and the ownership of IPR are properly and unambiguously defined and covered. The object and nature of likely development of Intellectual Property is a matter of right, which may be retained by the creator, but for the reason that such creation is during the time when the creator was on a paid assignment, it may be the property of the party paying in.

Time period:

Without challenge, the most vital and important element of a service contract is the time. The time when the work should be delivered is an all time must covenant for a service contract and making it binding with a penalty clause should reinforce its importance in all circumstances, however, subject to force majeure.

Net Lawman legal documents:

It is sure that you will find all these elements in the contracts drawn by our attorneys and placed in our inventory of legal documents at Net Lawman India.

Some of the examples of all time best creations in the area of service contracts are as follows:

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