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.
Business Proposal - Project Costs Breakdown
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. 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.
Business Proposal -
Work Breakdown Structure
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.
Proposal Manager Toolkit - Cost Breakdown
About the Author
Basil Tesler has experience in content writing, and editing. Copyright © by Intetics Co./ Web Space Station®. All rights
reserved.
I'm Ivan Walsh, the person behind this site. I help people improve how they write, publish and extend their business assets.