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01.06.04
 By
Basil Tesler
When your in-house expertise and/or budget doesn't allow you to implement
a vital IT development project, it's time to weigh the advantages
and disadvantages of outsourcing. If you finally decide to outsource
your project, you have to choose
an outsource service provider (OSP) that best fits your needs.
The next step - a most important and responsible one - is negotiating
and preparing a contract.
Signing a contract can be an easy thing to do. About ten years ago,
I witnessed the signing of a contract that was hand-written on a piece
of paper torn out of a spiral notebook. The contract contained just
a couple of clauses, it didn't take much time to prepare, and no lawyers
were involved in concluding it. (I know you don't believe that a contract
could be signed without a lawyer that had gotten their share of the
cake, but I always tell the truth however improbable it might seem.)
Even though the parties were two guys who didn't really like or trust
each other, the contract worked fine. I guess it was so because they
were standing on the same ground - having different interests, they
spoke the same language and saw things in the same way. Conversely,
your circumstances won't allow you to neglect any precaution. The
OSP you are going to sign a contract with will most likely have little
or nothing in common with you, and your contract will have to be thoroughly
thought over, discussed, and prepared. |
After
you make sure the project or the part of it that you are going to
outsource is described in the text unequivocally and in detail, I
recommend you focus as much attention on the payment details.
- If the project is going to be implemented prior to payment,
the text should contain the exact dates and conditions of both
commissioning and payment.
- You may expect the OSP to increase the contractual costs due
to inflation or other reasons; therefore, the contract needs an
additional clause indicating the inflation adjustment and any
other relevant factors.
- Implementing the project, the OSP is likely to provide you services
and/or fulfill tasks that the contract doesn't stipulate. This
requires another clause containing conditions and formulas which
will allow you and the OSP to calculate the cost of any additional
work.
Flexibility of Provisions
Any customer wants the provisions of a contract to be as strict as
possible, and it's only natural. No doubt, a contract should provide
for some penalties associated with the OSP's inability to fulfill
the contractual obligations. However, these provisions are a double-edged
weapon: when OSPs face excessively strict terms and severe penalties,
they tend to secure themselves by increasing the profit they get out
of the project. For example, they may take advantage of your inexperience
and include in the project the tasks and/or services that otherwise
could be needless. Another way to compensate for the potential penalties
is providing additional services and/or fulfilling tasks that are
not stipulated by the contract (see the previous section). If the
schedule doesn't get off track and the project is implemented without
any serious problem, no penalties are imposed, and this means you
lose money - I mean that part that your OSP managed to add to the
cost of the contract just in case.
To this kind of situation, make the provisions of the contract flexible
(to a reasonable extent, of course). Don't try to schedule every moment
of the project implementation, and don't set a milestone a day. It's
a good idea to find a compromise with your OSP and have a few major
milestones and deadlines in the project, while the entire schedule
can become a separate agreement appended to the contract. This agreement
may be subject to change on mutual consent.
Liability Limits
Apparently, you are interested in limiting your contractual responsibilities.
So is your OSP. Again, you have to be ready for a compromise. The
contract has to help you and your OSP solve most problems amicably
and to the mutual benefit. The party at fault should have as many
ways to rectify the situation as possible, while the other party is
supposed to be reasonable evaluating the amount of loss. And try to
avoid fines - both paying and claiming them.
Another clause that your contract should have is the one where you
will set the time limit after which no claims can be raised. The start
time is usually considered the moment both parties acknowledge the
issue.
OSP's Requirements
Have you compiled a comprehensive list of responsibilities for the
OSP? Good. Now, remember that your OSP will require a number of responsibilities
from your end.
- You'll have to supply your OSP with the necessary information
and documentation. Your OSP may also need to consult you on the
issues related to the project, and you are supposed to do it free
of charge and in proper time.
- You might need to appoint special representatives who will be
responsible for maintaining relations with the OSP and solving
any problems that might arise while the project is being implemented.
- You'll most certainly be bound to recover all losses incurred
by your OSP if you become a defaulting customer, i.e., if you
fail to meet the obligations listed above (or any of your other
obligations under the contract, for that matter).
Procedures
You shouldn't try to cram into the contract all of the procedures
that are necessary to implement the project. However, the most important
of them should be included in the text. For instance, OSPs are usually
required to cope with the increasing volume of work and to allow for
changes made to the project schedule. It's only fair for an OSP to
expect that in such cases the payment should be increased. An appropriate
procedure stipulated by the contract will help you and your OSP define
the increase in payment without negotiations that tend to become long
and weary.
Supervision
If you want to visit your OSP every now and then to make sure that
your project is not neglected, you may insist on including a corresponding
clause in the contract. The OSP may respond with a proposal to schedule
such visits and append this plan to the contract as a separate agreement.
If you disagree, there's always another option: you may be required
to notify the OSP about your visits in advance. Some OSPs even demand
additional payment for the expenses they incur due to such visits.
I believe you and your OSP will be able to solve this problem if you
understand each other's concerns: you can't let your project develop
as it might, while your OSP shouldn't be distracted from work and
kept nervous.
Intellectual Property
IT related contracts normally have clauses on intellectual property
rights. You and your OSP might need to use each other's intellectual
property, and this issue has to be negotiated and put in the contract.
The parties usually don't pay each other for their intellectual property
rights. However, if a third party's intellectual property is involved
in the project implementation, you should take care of proper agreements
and licensing.
Even more important is the answer to the question who will own the
rights to the product that is going to be created, as well as the
technologies and solutions that might be necessary to develop in the
course of work. I urge you to be reasonable and look for a compromise
here as well. I'm afraid that if you wish to be a sole proprietor
of everything, the OSP will make you pay for it this way or the other.
Confidentiality
This clause is a must for the majority of contracts. Neither contracting
parties, nor their staff and agents are allowed to disclose the contents
of the contract and the most important information about the project.
The non-disclosure term established by the contract or a separate
agreement may last longer than the contract term. If you want the
OSP's personnel that will work on the project to sign a non-disclosure
agreement, it will be accepted with understanding.
Contract Termination
Be sure there is a contract termination clause and the implications
of this outcome for the parties. You and your OSP should agree upon
the conditions on which the contract may end prematurely, the penalties
for the party at fault, and any exemptions (e.g., force majeure).
Conclusion
Signing a contract with an OSP is a serious business in itself. If
you are new to outsourcing, it makes the whole thing even more serious.
I told you a few things you should keep in mind while preparing such
a contract, and I hope my advice helps you.
Another thing. This contract isn't that piece of paper torn out of
a spiral notebook I told you about at the beginning. Consult your
lawyer before you sign on the dotted line.
Copyright © 1999-2004 by Web Space Station®. All rights reserved.
About the Author:
Basil Tesler is an Editor-in-Chief for Web Space Station®, an Illinois
based software company. Web Space Station provides total IT solutions
covering your most demanding technical needs. Our innovative approach
works for you to increase productivity, improve customer service and
reduce costs. And, we are dedicated to continually serving your needs
through our outstanding and ongoing commitment to quality and support.
See more information at http://www.WebSpaceStation.com.
Read this newsletter at: http://www.ctoupdate.com/2004/0106.html |
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| Networking Windows 2000+Xp |
Hi i am a newbie trying to set up a home network i have one computer with windows 2000 and another computer with windoes xp and i would like for me to be able to share a internet conection (Cable) i have cat5 Wire runing to both computeres and a LINKSYS router
Could Any one Please Help ME??? ...
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