[Outsourcing contract form] Everything you need to know

When outsourcing IT outsourcing, many people may have the following problems. "I don't know how to conclude a business consignment contract because I have no experience of business consignment." "What types of outsourcing contracts are there?" "I don't know how to proceed with the outsourcing contract."

[Outsourcing contract form] Everything you need to know


[Outsourcing contract form] Everything you need to know

Many people may have the following problems when outsourcing.


"I don't know how to conclude a business consignment contract because I have no experience of business consignment."


"What types of outsourcing contracts are there?"


"I don't know how to proceed with the outsourcing contract."


Therefore, in this article, we will introduce the outline and types of contract types in the IT industry: how to conclude contracts and matters to be stated in contract documents. In short, many features, such as location and pricing contracts, need to be investigated to complete the best solution for your business.



1. What is the outsourcing contract form?

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If you are new to all these outsourcing and outsourcing contracts, start with the basic definition.


An outsourcing agreement is a legal document that binds both parties in accordance with the agreed terms. This contract includes many matters regarding pricing models, the scope of work, delivery dates, etc. The parties involved in the IT outsourcing contract are the vendor and the customer. This contract often includes legal terms regarding intellectual property, non-disclosure agreements, etc.



2. Three main types of outsourcing contracts

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Nowadays, outsourcing has been favored by many business leaders for its many benefits, including vendor expertise, improved quality, and cost savings. However, enjoying all of this may not be as easy as you might think.


For many different projects, there are various efforts to achieve the goals. This idea also applies to outsourcing contracts. There are three types of outsourcing contracts:


  • Project-based
  • Time and materials
  • Dedicated team


2.1. Project-based IT outsourcing contract


➤ What is it?

Project-based IT outsourcing contracts are the most common type of contract. On a project basis, the first thing customers want to clarify is the pursuit of project requirements, and once they've done that, they look for the right vendor.


The request for proposal must clearly state the requirements in advance. Answer the following questions:

  • What kind of service do you want the vendor to provide?
  • What are the goals you expect from vendors?
  • What is the scope of work?


Project-based contracts are appropriate for customers who want complete control over their IT outsourcing spending. Under this agreement, vendors work under specific requirements and goals. Work that is irrelevant and out of scope will not be processed. The product will be delivered within the promised time at a fixed cost.


➤ When do you use it?

  • You certainly know what your company wants and how you want your vendors to handle it.
  • The project time frame is short.
  • The requirements are clear and no flexibility is required.
  • The project is simple and unaffected by any cause in the direction of development and implementation.
  • You don't want to interfere with how the vendor does the project, as long as the vendor can provide the expected results according to the initial requirements.

2.2. "Time and Material" IT outsourcing contract


➤ What is it?

The Time and Materials form, as opposed to what a project-based IT outsourcing contract offers, is an IT outsourcing contract based on the working hours and resources spent on the project.


Time and materials are typically used when a software development project is long-term and the time and cost required cannot be estimated in advance. Even if you make some plans and start an IT project, the cost of outsourcing will not be as high as you would expect.


Time and Materials IT outsourcing contracts are probably the most common form of the outsourcing contract. The main reason for this is that the world of technology is moving at an unprecedented pace. Today's trending technologies can become obsolete the next day, and enterprise operations revolve around the customer experience. It is the customer who decides success. Customer centricity is paramount, and customer demand changes over time.


In particular, in order for technology companies to survive in such a highly competitive market, they need to change according to market demand. In these situations, a Time and Materials IT outsourcing contract is the best solution. In the form of time and materials, you don't have to look at a specific goal, you can later grasp the desired output and pivot appropriately when needed.


This adds an element of flexibility and allows you to complete long-running projects seamlessly. The Time and Materials contract will continue as long as the customer so desires.


➤ When do you use it?

  • Domains/fields are expected to change over the next few years and need the flexibility to adjust in the process.
  • The project is complex with a raw concept and requires a lot of time to spend on it.
  • There may be requirements for the introduction of new technologies along the way.
  • Concepts and ideas are innovative and cannot be estimated in advance.
  • You want to manage a project while leaving the project to an external team.


2.3. IT outsourcing contract for a dedicated team


➤ What is it?

A dedicated team is a team of technical engineers who work with a focus on the project only. Under this IT outsourcing contract, customers hire with the help of vendors. Basically, the vendor provides a talent pool of the best talent, and the customer conducts interviews, tests, etc. to select team members for the project.


The dedicated team IT outsourcing model requires that development tasks and outsourcing contracts be pre-defined for all types of goals or details. Dedicated teams are geographically separate but act as internal teams. At this time, the technician is basically an employee of the company, and if the company specifies the job he wants to ask for, he will respond.


You can choose from a variety of service offerings to build and collaborate in teams to ensure smooth and clear communication.


➤ When do you use it?

  • You want to have complete control of human resources.
  • The project is complex and requires constant iteration and change.
  • You want to build long-term connections and relationships with outsourced teams.
  • You are planning an expansion and need a team of expert developers working exclusively on the project.


The above three IT outsourcing contract types can be adjusted upon request. First, keep in mind that there is no exact contract that fits your company right away. You must negotiate with the vendor before deciding on a contract. Next, create a required skeleton contract that looks like this:

➙ Detailed project scope


  ➙ Service level agreement


    ➙ Transfer of assets


      ➙ Product warranty


        ➙ Product ownership


          ➙ IP protection


            ➙ Cost and payment structure


              ➙ Dispute resolution


                ➙ Subcontractor


                  ➙ Indemnity


                    ➙ Exit strategy


If you include these terms in your contract, you basically don't need to add anything else. If you need it, it's probably just a few other small negotiations.


Once the negotiations are over, create the first draft for look-behind or have the vendor prepare it. In any case, the IT outsourcing contract should include details to avoid misunderstandings.



3. Why are outsourcing contracts attracting attention?

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Demand for outsourcing has increased in recent years. According to a survey conducted by the Yano Research Institute in 2019, the size of the domestic BPO market is expected to rise and exceed 4.6 trillion yen in 2023.


So why is the domestic BPO market expanding? The background to this is the decrease in the working population and workstyle reforms. We outsource operations to an external specialized company with the aim of covering the shortage of human resources and reducing overtime hours.


Recently, some companies are promoting remote work and reducing the size of their offices. With outsourcing, facilities such as offices can be minimized. For this reason, there is growing interest in outsourcing.



4. Summary

Each IT outsourcing contract has its own capabilities and is only suitable for a specific purpose and effort. Therefore, consider the type of contract that suits your company's challenges.




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