Outsourcing part of your business? Your guide to outsourcing agreements

Businesses small and large will almost inevitably engage with outsourcing in some form – whether that be a cloud application hosted by an external provider or a whole arm of their service provision.

Cloud computing is one of the most widely used examples of outsourcing, with a dedicated service provider hosting a business’ communications, client portals, job tracking and more.

Outsourcing can be a cost-effective way to introduce efficiencies and expertise into your business – but it can carry risks.

Why do I need outsourcing agreements?

When you outsource any area of your business, you create risk by sharing data with an external third party and relying on a service over which you don’t have direct control.

This can be managed through careful data protection policies and selection of a reliable provider, but not entirely removed from the process.

An outsourcing agreement is intended to legally protect your rights and outline your responsibilities when using an outsourced service, in the form of a contract between your company and the provider.

They also help to avoid disputes between you and your service provider should anything go wrong, such as a data breach or supply disruption.

What does an outsourcing agreement look like?

Outsourcing agreements are tailored to the service and parties to which they apply, but they typically include:

• Service contract – The agreement should outline the basic provided, by whom and the expected level and quality, by whom and the expected level and quality of service
• Term – How long the service is to be provided to your business
• Intellectual property (IP) – How data owned by the company or products owned by the service provider will be protected and respected under IP law
• Data protection – This will ensure the supplier is GDPR compliant where necessary and that your customer and company data is secure
• Liability – This will outline which party is responsible for disruptions to the contract and what penalties or warranties may arise as a result
• Monitoring – The agreement may outline provisions for your business to monitor the performance of your supplier and report any disruptions, which may also include ‘step in rights’, allowing you to take over control of the outsourced business function if it remains below the expected standard
• Termination – Outlining how the contract may be terminated, including fees or processes for early termination.

Having these agreements in place is an essential step towards receiving a high quality and reliable service from your supplier – and delivering the same to your clients.

Outsourcing agreements do not need to be complex, but it’s essential that they are accurate and all-encompassing, so it is advisable to seek advice as early as possible to avoid any disputes or service disruptions.

Need advice on an outsourcing agreement with a supplier? Contact us to discuss your requirements.