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IT OUTSOURCING CONTRACT AND ITS ESSENTIAL COMPONENTS  /
September 25, 2019
Viktoriya Polyarush Social Media Coordinator, an avid reader with the passion for technology.

The outsourcing contract is the legal basis of the outsourcing agreement, and as such is of fundamental importance. This document is designed to be balanced and flexible enough to withstand the inevitable changes that will occur in technology and the marketplace during the length of the outsource. It covers everything from arbitration to support, and from costs to responsibilities. It is an excellent basis from which to form a durable and sustainable outsource contract.

It is important that the outsourcing contract reflect all issues critical to both parties:

  • Term of the agreement. This should include length of the agreement and any renewal options. Depending on the function to be outsourced, and how much of that function will be moved to the service provider, an agreement could be as short as six months or as long as several years.
  • Scope. In order to protect both parties, the contract should specify the services to be provided in as much detail as possible — including a complete list of all services to be performed, service levels, deliverables, etc. (See Service Level Agreements below.)
  • Confidentiality. Specify that all information submitted to the outsourcing provider is owned by the originating organization and is to be kept strictly confidential.
  • Service Level Agreement (SLA). A document that provides the objective criteria for managing the initiative. (See below.)
  • Force Majeure. These are provisions that excuse the vendor from liability for non-performance under certain unexpected or uncontrollable events, such as a natural catastrophe.
  • Warranty. Statement indicating that the vendor will provide the services as defined in the agreement and will accommodate a specific increase (or decrease) in requirements.
  • Dispute procedures. Addresses disputes between the organization and its outsourcing provider.
  • Pricing. Flexibility in pricing can be tied to the SLA, so that business risk is spread between both the organization and the outsourcing provider. Then each will have a significant interest in the business performance. (See Service Level Agreements below.)
  • Termination plan. Specifies the manner in which a decision to terminate the relationship will be executed in a fair and equitable manner, without resulting in disruption for either party.

SLAs are generally a section of the Outsourcing Contract. However, they can stand on their own, as a legally binding contract. (Some outsourcing providers may replace the SLA with a Project Requirements Document (PRD) and Performance Scorecard.)

The SLA is a negotiated agreement between the two parties (client and service provider). It records the understanding about services, priorities, responsibilities, guarantees and warranties. It should be written in plain language, without industry acronyms or technology-specific terms.

When developed in detail, Service Level Agreements provide the information required to fully understand the quality of service the outsourcing provider is delivering.

Typically, SLAs include:

  1. Executive Summary describing the general purpose of the document, the duration of the agreement and the stakeholders involved.
  2. Scope and objectives of the services to be provided.
  3. Detailed description of services and the agreed performance levels.
  4. Service Level Metrics applied to measure and report the actual performance levels (see below).
  5. Service Level Management documenting processes to track, measure, and report on the various service level metrics; problem resolution guidelines; the escalation process; change and new services requests and implementation procedures; the service level review process.
  6. Roles and Responsibilities required of all parties to ensure the objectives are met.We hope you may find this information useful in order to avoid all possible pitfalls and misunderstandings!