8 Tips for Managing an IT Outsourcing Contract [2024]

Introduction

Before you start the cooperation with a chosen software house, remember to examine the IT outsourcing contract closely.

In such a document, you should look for information considering the rights, obligations, frequency, and type of communication etc, so that you will not end up with poor quality code, full of errors, and lacking security.

Below you’ll find a complete list of things to check before signing an agreement.

How do you know if a software house is right for you to outsource?

Ok, you are considering several companies to choose, you checked their references, you verified quality, experience, and stability. They are communicating clearly and agreement’s provisions are clear. So how to choose the right one?

When you are considering a several IT outsourcing companies you should:

• State your needs and requirements clearly – see their reaction and the time they need to do that. Decide whether you have long-term or short-term needs.
• Say what the improvements you expect to see are. Which company offers more improvements or is more creative and open?
• Let your team speak to the outsourced IT team – are they going to achieve great things together? Are there any IT, culture or communication gaps?
• Put attention to the way the executives talk about their company – do they focus on their successes only? Do they make references to your goals? Do they speak specifically about their toolsets, processes, and resources they have?
• Communicate your budget – What budget do you have? What did a given company promise to do within the given amount of money?

Scroll down for more detailed advice.

Read through the exclusions in the SLA (service level agreement)

Every CIO/CTO ought to carefully examine exclusions stated in IT outsourcing Service Level Agreements. Pay attention to:

• outsourcing contract parameters for 3rd party dependency
• how old their equipment/tools/infrastructure is?
• what is the state of the data center?

Does the outsourcing contract have all provisions that match your needs?

Check if application support includes future development

Does the outsourcing agreement state the estimated time for development and enhancement? If not, remember to add provisions for it. Work upon the contract and co-decide on what conditions the outsourcing provider will support you.

Check the stated quality and ask for references

It is a good idea to double-check the provider’s developer’s talents, client’s opinions and reputation on the market. Is the company: popular? solid? stable? experienced? highly rated? recommended?

CTOs and CIOs should ask for any information needed to verify the company and decide whether they want to cooperate before signing the outsourcing agreement.

Does the outsourced IT team possess the domain expertise?

Do not be ashamed to ask the provider if the outsourced IT team is really proficient in eg. React JS development. Ask about their recent projects and experiences. Always remember that technology changes really fast – choose a partner who understands that and works in an environment that will cover the business needs both now and in the future.

Insights on managing an IT outsourcing contract

Always focus on true governance, negotiated conditions, documented rights – it is the “basic package” when you start managing an IT outsourcing contract.

IT outsourcing brings real value when it is governed right – and it is mainly based on active communication between a customer and provider. Polite motivation of a supplier/provider to deliver what was agreed on in a contract may be the key to a successful finale.

Watch out for others’ mistakes

Something not right? If you are the IT leader that is a receiver – leave it to the outsourced service provider (you should have it stated in the outsourced IT contract). Do not assign any fixes in the code to your employees. When a task that ought to be performed is ignored, the best way is to ask the provider about an immediate fix.

That makes it fair – the message/notice you send ought to state that whether the provider does not fix the error or does nothing to improve performance etc. in a given period of time, the receiver will address the issue by charging providers or reducing their pay.

Always inform about a breach of contract

In case of breaching or not fulfilling the provisions of a contract, send a written notice of breach/mistake/failure/error immediately. If you are a CTO/CIO, remember to instruct your employees to inform about every breach or anything that is disturbing and catches attention. It is always better to double check something than to continue to work when something is missing or done wrong. Both sides should always aim to be diligent and share information.

Establish clear communication

To achieve a strong partnership you need to be specific, clear and consistent in communication. Sometimes business discussions over an agreement get serious and bitter – react soon enough because it may end in a huge litigation case because of poor or improper communication.

The best scenario is when the client and the provider choose the communication channels at the beginning. The predetermined schedule of 2-way contact: e.g. the alerts, comments, questions should also be discussed. What’s more, a good idea is to co-write a list of expected subjects that emerge to be discussed during the execution of a contract in a given period of time.

However, sometimes a situation that is not stated in an outsourced IT contract with a software house happens. Then, always remember to keep a record of engagement and communication to clarify and agree on additional cases that were not addressed before. It is good to be open in reaching agreement – both parties will be more open to cooperating.

Clarify the unclear as soon as possible

Managing an IT outsourcing contract requires clarification very often. When you have a dispute – be as clear as you can – provide case studies, clarifications, definitions. By being open to clarifying the unclear, the parties of a contract will reach a settlement earlier and avoid the unnecessary cost of resolution of the discussion and overrunning the developers’ job.

Manage your IT outsourcing contract the right way

The right contract provides you with multilevel security and prevents you from receiving a code full of errors, and a product very different from your vision and specifications.

It needs to contain the rights, obligations, frequency, and type of communication. And most importantly, you need to be sure that you understand every word of it.