Key elements of an offshoring service contract
Even when you have decided on an ideal offshoring destination, drafting an all-encompassing offshoring service contract still requires a lot of careful consideration. We set out below the 5 key elements of the contract that are worth discussing.
Period of Validity
Offshoring services has never been a short-term solution for merely cost-saving purpose. You should expect 2-3 years before your global offshore team can reach your business goals or company’s objectives. However, within a year of offshoring, you will be able to see the positive impacts of the offshore services provided by these highly capable and motivated international employees. By stating the period of validity clearly in the offshoring service contract, you will have the complete comfort and feel in control the entire time.
A professional and trustworthy offshoring service provider will guide you through the whole implementation process. This includes both technical and legal preparation, on-site and in the destination country (e.g. on-site IT set up, staff recruitment and training, after-sales support). Make sure your offshoring service contract covers these clauses in detail and most importantly, the timeline until the implementation process is completed and your offshore teams are in full operation.
In terms of remuneration, there are 2 types of offshoring contract: cost-reimbursement contract and fixed-price contract. Fixed-price contract is clear, simple and easy to plan while cost-reimbursement contract is more flexible and allows additional payments for incurred expenses. You are advised to discuss this clause thoroughly with the service provider to ensure that all parties are incentivised and mutually beneficial.
Protection and Security
Data security and confidentiality is extremely important in offshoring services especially in IT, legal or financial functions. The contract should clearly set out the service provider’s responsibility in safeguarding your Confidential Information, Client Material or Contract Material. Also, the service providers must maintain a safe working environment for the selected offshoring employees.
Termination and Exit
Despite all good intentions, your offshoring relationship with the service provider will eventually come to an end. Whether you choose to terminate or renew the Offshoring Service contract, it is best to set out this termination clause in the contract. Some relevant aspects includes the need to give advanced written notice, the costs of termination of employment, liabilities or remedies if the agreement ends among others.
This list is of course not exhaustive and only includes some of the most common clauses in an offshoring service contract. If you would like to find out more about our professional offshore services or how to draft a mutually beneficial contract, feel free to contact us here.