How to Ensure Your Outsourcing Agreement Isn’t One Sided

August 6, 2014

By Steve Mezak

How_to_Ensure_Your_Outsourcing_Agreement_Isnt_One_Sided_Some people focus only on the agreement. It’s as if they think you can look up a section in the agreement and learn how to treat the people on the other side.

Yes, the agreement is between corporations, theirs and yours, but ultimately, an agreement is between people. And no matter where people are from, my experience is they have a universal sense of fairness that you should not betray if you plan to work together for the long run.

Here are some tips to ensure that your outsourcing agreements don’t favor one side.

Your Master Services Agreement (MSA) Should Include These Elements

Once you’ve selected your outsourcing partner, you need to develop and sign a contract with them. The agreement should reflect the business relationship that was discussed up to that point. While reading the agreement, you need to ask yourself, “Does this favor them or us?” and “Is this fair to both parties?”

  • Independent Contractor Relationship: The outsourcing company is an independent contractor; therefore its engineers are not your employees. It’s important to note that this distinction has important tax consequences in the United States.

  • Intellectual Property Rights: You should own all intellectual property that is produced, including source code, inventions and etc.

  • Assignment of Copyright: A separate part of the agreement that specifically assigns the copyrights of the software source code to your company.

  • Nondisclosure Obligations: This contains the definition of your proprietary and confidential information and an agreement not to disclose it. It’s important to state the length of the agreement and the rights of each side to end it. For example: terms of one or two years with the ability for either side to terminate with 30 days’ notice are common.

  • Noninterference with Business: This clause specifies that neither party will interfere with the sales and other business activities of the other company or hire away employees of the other for some period of time.

  • Force Majeure: Limits the liability of both parties if work is interrupted by major natural disasters like fire, flood, and hurricane, or by man-made causes such as war, terrorism and government regulation or restriction.

  • Assignment: The outsourcing service provider should be restricted from contracting out or outsourcing your work to another service provider without your written permission.

  • Governing Law, Jurisdiction, and Venue: Make sure if there is an issue that the laws of your own state and country will apply.

These are many of the important elements of an outsourcing agreement. There are a few other clauses and details that you will want to include, such as pricing and payment terms.

Neither Side Should Seek an Unfair Advantage

The agreement should document what you have already agreed to in principle through your discussions about the work to be performed, and how and when it will be paid for. And, it should protect each other from the misinterpretations if either party is no longer in the picture.

There is an ultimate purpose both parties are aiming to achieve. It is the reason for having the agreement to begin with. It is the spirit of the agreement. It may be “spirit” but it is a real and palpable thing. If you seek out some other undeserved benefit, even if it is allowed by the words of your agreement then you are violating the spirit of that agreement. And it probably won’t work.

 

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