Creating an Outsourcing Agreement

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Outsourcing agreements are an essential part of the modern business landscape - understanding why they’re important and how to create them is vital. The Genie AI team understands that a sound and mutually beneficial agreement is key for any successful business.

An outsourcing agreement is a contract between two parties - this could be a business, individual or another company - which outlines the duties, services and responsibilities of each party. It also specifies payment terms, and other relevant terms that both sides must agree upon before proceeding. Having all of these details in writing ensures that everyone knows what’s expected from them, while providing legal protection should any issues arise further down the line.

For businesses looking to outsource, there are numerous advantages to having an outsourcing agreement in place, such as reducing costs by delegating certain tasks or skills to third-party providers; freeing up resources that would otherwise be unavailable or expensive; and focusing on core competencies rather than struggling with outside work. Crucially, it also adds an additional layer of legal protection should anything unforeseen occur during the duration of the agreement.

When creating your own outsourcing agreement there are a few steps you must take: firstly defining what services will be provided; outlining roles and responsibilities; including payment terms; and ensuring all parties have signed off on it legally. This isn’t something you should attempt alone however - seeking expert advice from those familiar with producing outsourcing agreements will help ensure everything runs smoothly for both parties involved in the arrangement.

Creating an effective outsourcing agreement can prove complex without proper guidance - luckily here at Genie AI we provide free templates for crafting high-quality documents without needing a lawyer! That being said expertise does still play an important role when deciding on exact terms, so don’t forget to seek out qualified professionals if need be.

In conclusion, having an effective outsourcing agreement in place is essential for any business’ success - understanding why they matter and how to create them is key if you’re looking to outsource your tasks or services successfully. Here at Genie AI we believe with our template library everyone can draft customised documents quickly with ease! To read more about our step-by-step guidance and find out how to access our templates today click below!

Definitions

Scope of Agreement - A description of the services and outcomes that will be provided under the agreement.
Subcontracting - When a party hires another party to do a part of the work that was previously agreed upon.
Payment Terms - The amount of money to be paid and the schedule of when it should be paid.
Deadlines - A specific date or time by which a task should be completed.
Confidentiality Clause - A legally binding agreement to keep certain information private.
Liability - Responsibility for any damages or losses that occur during the agreement.
Intellectual Property Rights - The legal rights to control use and distribution of creative work, such as a logo or website.
Termination or Amendment Procedures - A legally binding agreement that outlines how the agreement can be ended or changed.
Arbitration - A legal process used to settle a dispute.
Governing Law - The laws or legal system that governs the agreement.

Contents

1. Identifying the scope of the agreement
2. Defining the scope of services to be provided
3. Establishing the duration of the agreement
4. Defining the geographical area in which the services will be provided
5. Defining the roles and responsibilities of both parties
6. Identifying who is responsible for what tasks
7. Clarifying any subcontracting arrangements
8. Establishing payment terms
9. Defining the payment amount and schedule
10. Setting out any additional charges
11. Establishing any late payment fees
12. Setting timelines for completion of the services
13. Specifying the completion timeline for each task
14. Outlining any deadlines for review/approval by either party
15. Outlining confidentiality clauses
16. Agreeing to maintain each other’s confidential information
17. Identifying any exceptions to the confidentiality clause (if any)
18. Discussing potential liabilities and risk management
19. Clarifying who is responsible for any damages or losses
20. Identifying any insurance requirements for either party
21. Defining ownership and intellectual property rights
22. Clarifying who will own the copyright of the deliverables
23. Outlining the use of third party materials and who will own the rights
24. Establishing termination or amendment procedures
25. Defining how the agreement can be terminated or amended
26. Outlining the notice periods and methods of communication
27. Creating an arbitration clause
28. Specifying the arbitration process to be followed
29. Identifying the governing law
30. Signing the agreement
31. Specifying who will be signing the agreement
32. Establishing the method of signature (electronic or physical)

Get started

Identifying the scope of the agreement

• Clarify the purpose of the agreement and the expected outcomes
• Identify the parties involved in the agreement
• Establish the timeline for the project
• Determine the scope of services to be provided
• Set expectations for the quality of services to be provided
• Establish a payment structure
• Agree on a process for disputes and modifications
• Determine the termination clause of the agreement

When this step is completed, you can check it off your list and move on to the next step.

Defining the scope of services to be provided

• Clarify the services to be provided by the outsourcing company, such as project management, development, design, etc.
• Describe each service in detail, including the requested deliverables and timeline.
• Determine the roles of each party and how they will work together.
• Outline the responsibilities of each party.
• Establish the quality standards that must be met by the outsourcing company.
• When you have defined the scope of services, timeline, deliverables, roles, and responsibilities of each party, you can move on to the next step.

Establishing the duration of the agreement

• Decide how long the agreement will last – specify a start date and an end date
• Consider if the agreement could be renewed or extended
• Agree on a notice period if either party wants to terminate the agreement
• Include a clause that states either party should notify the other of any intention to terminate the agreement
• When you have agreed on the duration of the agreement, document this in the contract and confirm it in writing with both parties.

You can check this off your list and move on to the next step when both parties have agreed on the duration of the agreement and it has been documented in the contract and confirmed in writing.

Defining the geographical area in which the services will be provided

• Identify the specific geographic area in which the services will be provided.
• Specify any limitations on the geographical area that the services may be provided.
• Include any pertinent legal information regarding the geographical area in which the services will be provided.
• Check that all geographical information is accurate and up-to-date.

Once all information is confirmed, you can check this off your list and move onto the next step of defining the roles and responsibilities of both parties.

Defining the roles and responsibilities of both parties

• Outline the tasks that the outsourcing party will be responsible for and the timeline for completion
• Clarify any special requirements expected from the outsourcing party
• Define the roles, responsibilities, and expectations of each party
• Outline the methods of communication between the two parties
• Specify any additional services that may be required
• Include a clause outlining the consequences for breaching the contract

Once all the roles and responsibilities of both parties have been clearly defined and agreed upon, you can move on to the next step.

Identifying who is responsible for what tasks

• Create a list of tasks that need to be performed
• Assign specific tasks to one of the two parties
• Make sure that each party understands their responsibilities and obligations
• Make sure that the tasks are clearly defined and that there is no ambiguity
• Make sure that each party has the resources and capabilities to complete the tasks assigned to them
• When all tasks are clearly assigned and defined to each party, you can move on to the next step.

Clarifying any subcontracting arrangements

• To clarify any subcontracting arrangements, both parties should provide a detailed list of the tasks being outsourced, and which company or contractor will be responsible for each task.
• It should also be made clear who will be responsible for managing the subcontractor and ensuring that the subcontractor is meeting the required standards.
• All subcontracting arrangements should be documented and agreed upon in writing.
• Once the details of the subcontracting arrangements have been clarified and agreed upon, the process can be checked off the list and the next step can be completed.

Establishing payment terms

• Identify the payment methods that will be accepted (e.g. check, wire transfer, PayPal, etc.)
• Determine the currency in which payments will be made
• Establish the payment schedule that will be followed (e.g. payment due in full upon completion of project, regular installments, etc.)
• Include any applicable late fees if payments are not received on time
• Specify any additional fees (e.g. travel, materials, etc.)
• When all of the payment terms have been agreed upon, include the payment terms in the outsourcing agreement
• Determine who is responsible for paying any taxes or other required payments related to the agreement
• Once all payment terms have been established and agreed upon, you can check this off your list and move on to defining the payment amount and schedule.

Defining the payment amount and schedule

• Establish the total cost of the project and how much you’ll pay upfront
• Agree on a payment schedule that works for both parties
• Include how often the project will be invoiced and when payment is due
• Specify the currency in which payment will be made
• Include a late payment penalty if necessary
• Once you’ve agreed on all the payment terms, include them in the outsourcing agreement
• You can check this off your list and move on to the next step once all payment terms have been confirmed by both parties.

Setting out any additional charges

• Decide if there will be any additional charges for services outside of the scope of the agreement
• Specify any additional charges, such as additional costs for services, materials, or changes in scope
• Include any applicable taxes and fees
• Define how additional charges will be billed and paid
• Include a clause detailing how any additional costs must be approved in writing and signed off by both parties
• When the additional charges section is complete, you can check it off the list and move on to the next step: Establishing any Late Payment Fees.

Establishing any late payment fees

• Review the payment terms you have set out in the agreement.
• Decide on the amount of additional fees that will be applied in the event of late payments.
• Include the details in the outsourcing agreement.
• Check that the agreement is signed off by both parties and the late payment fees are legally binding.
• You have now established the late payment fees and can move on to the next step of setting timelines for completion of the services.

Setting timelines for completion of the services

• Decide on the timeline you would like the services to be completed by and include this in the agreement.
• Agree on a timeline that is long enough to allow the services to be completed adequately and on time.
• Make sure to specify a timeline for completion of each task and the total project.
• Include deadlines for both parties to meet throughout the project.
• Once you have agreed on the timeline and included it in the agreement, you can move on to the next step.

Specifying the completion timeline for each task

• Identify the specific tasks and milestones that will be included in the agreement.
• Set timelines for each task and milestone, including expected start and end dates.
• Ensure that all timelines are realistic and achievable in order to avoid delays.
• Outline the penalties for late completion of any task or milestone.
• Include a clause that allows for any changes to the timeline to be agreed upon by both parties.

How you’ll know when you can check this off your list and move on to the next step:

• Once all tasks and milestones have been identified and timelines have been set and agreed upon, you can move on to outlining any deadlines for review and approval by either party.

Outlining any deadlines for review/approval by either party

• Establish deadlines for both parties to review and approve the agreement.
• All deadlines should be set out in the agreement in writing.
• Consider including a clause that allows for the agreement to be amended if needed.
• Make sure that both parties agree to the deadlines and are comfortable with the timeline.
• Once both parties have agreed to the deadlines, the agreement can be signed and implemented.
• You can check this off your list and move on to the next step when both parties have agreed to the deadlines.

Outlining confidentiality clauses

• Ensure that both parties agree to maintain confidentiality of any information shared during the agreement
• Draft clauses that will legally bind both parties to the confidentiality agreement, such as non-disclosure and non-compete clauses
• Consider other clauses regarding confidentiality, such as non-solicitation of customers, non-solicitation of employees, non-disparagement, or non-circumvention
• Outline any potential penalties for breaching the confidentiality agreement
• Have both parties sign and date the agreement

You’ll know you can check this step off your list and move on to the next step once you have both parties’ signatures and dates on the agreement.

Agreeing to maintain each other’s confidential information

• Discuss and agree to the terms of a confidentiality agreement for the outsourcing relationship.
• Establish the scope of the confidential information that each party is responsible for keeping secure.
• Include a clause that states the parties will not disclose any confidential information to third-parties without the written consent of the other party.
• Include a clause that states the parties will use the confidential information only for the purposes of their agreement and not for any other purpose.
• When both parties have agreed to the terms of the confidentiality agreement, have each party sign the agreement and maintain a copy for their records.

When you have completed these steps, you can move on to the next step of identifying any exceptions to the confidentiality clause (if any).

Identifying any exceptions to the confidentiality clause (if any)

• Identify any exceptions to the confidentiality clause that must be noted in the agreement
• This includes any terms and conditions for sharing confidential information among the contracting parties
• Consider using a standard non-disclosure agreement (NDA) to protect confidential information
• Make sure to include any exceptions in the NDA that are necessary for the outsourcing agreement
• Once the exceptions have been documented, you can move on to discussing potential liabilities and risk management in the outsourcing agreement.

Discussing potential liabilities and risk management

• Identify any potential liabilities that may arise from the agreement
• Consider the scope of the agreement and the potential risks associated with it
• Discuss the need for insurance to protect the parties involved in the agreement
• Establish a process for addressing any potential disputes or losses
• Clarify who will be responsible for any damages or losses that may arise
• Decide whether to include language in the agreement related to liability or risk management

Once you have discussed potential liabilities and risk management, you can move on to the next step: clarifying who is responsible for any damages or losses.

Clarifying who is responsible for any damages or losses

• Consult legal counsel to create a written agreement outlining any potential damages or losses and who is responsible for them
• Consider any potential liabilities that may arise due to the services being outsourced
• Outline any additional requirements, such as insurance policies, that will be needed to protect either party from unforeseen damages or losses
• Agreement should include clear language about who is responsible for any damages or losses, and the consequences of any breach of contract
• Review agreement with legal counsel to ensure all potential liabilities are addressed
• Once agreement is signed and finalized, you can check this off your list and move on to the next step.

Identifying any insurance requirements for either party

• Make sure to identify any insurance requirements for both parties
• Determine if the agreement requires either party to be insured against potential liabilities
• Consider any potential risks that may arise from the agreement and make sure to include any necessary provisions in the agreement
• Check to see if any additional insurance is necessary for the work to be performed
• Once you have identified any insurance requirements for either party and included them in the agreement, you can move on to the next step.

Defining ownership and intellectual property rights

• Draft and review an intellectual property agreement that defines ownership of any intellectual property rights in the deliverables.
• Ensure that all parties have a clear understanding of who owns any intellectual property rights in the deliverables.
• Agree on how any disputes regarding intellectual property rights will be handled.
• You can check this off your list when all parties have agreed on the ownership and intellectual property rights of the deliverables.

Clarifying who will own the copyright of the deliverables

• Agree who will own the copyright of the deliverables - the company or the contractor
• Set out the method of transfer of the copyright from the contractor to the company
• Consider whether the contractor will have any rights to use the deliverables that have been assigned to the company
• Include details of how the copyright and other intellectual property rights will be enforced
• Check that all parties have agreed to the terms of the copyright ownership

Once all parties have agreed to the terms and conditions of the copyright ownership, you can check this step off your list and move on to the next step.

Outlining the use of third party materials and who will own the rights

• Develop an understanding of which materials will be provided by a third party and which will be provided by your company.
• Establish a clause stating who will own the rights to the third-party materials used in the outsourcing agreement.
• Decide how to handle intellectual property rights regarding the third-party materials.
• Outline the use of third-party materials in the outsourcing agreement.
• Include a section in the outsourcing agreement detailing who owns the rights to the third-party materials.
• Once you have outlined the use of third-party materials and who will own the rights, you can move on to the next step.

Establishing termination or amendment procedures

• Decide if the agreement can be terminated or amended at any time, or if the parties must agree to termination or amendment
• Draft a clause that outlines the termination or amendment procedures
• Consider the circumstances under which the agreement can be terminated or amended
• Specify how notice of termination or amendment must be given
• Draft a clause that outlines how disputes will be resolved
• Check that the termination or amendment procedure is in compliance with your applicable state law
• When you are satisfied with the termination or amendment procedure, you can move on to the next step.

Defining how the agreement can be terminated or amended

• Agree on the terms for terminating the agreement, including any notice periods
• Decide if the agreement can be amended, and if so, how
• Establish a procedure for any amendments to the agreement
• Make sure all parties involved understand the terms of termination and amendment

Once all of the above points have been addressed and agreed upon, you can then move on to outlining the notice periods and methods of communication.

Outlining the notice periods and methods of communication

• Agree on the length of the notice period for terminating the contract
• Decide on the method of communication to be used for sending notices of termination (email, letters, etc.)
• Determine the timeframe for when the notices of termination must be sent (days/weeks)
• Specify the format for notices of termination (letter, email, etc.)
• Include any additional clauses related to the notices and communication methods

Once you have completed these steps, you can check this step off your list and move on to creating an arbitration clause.

Creating an arbitration clause

• Decide on the type of arbitration process to be used (e.g. arbitration board, mediation etc.)
• Outline the rules for the arbitration process (e.g. who should decide the outcome, what information should be provided etc.)
• Agree on the fees and costs associated with the arbitration process, and who should cover them
• Specify the language to be used in the arbitration process
• Agree on the laws that will govern the arbitration process
• Decide on the location for the arbitration process
• Outline the process for appointing the arbitrator
• When the arbitration clause has been agreed on and is included in the contract, the task is complete and you can move on to the next step.

Specifying the arbitration process to be followed

• Choose the jurisdiction where the arbitration process will take place
• Determine who will pay for the arbitration fees
• Identify whether the arbitration will be conducted through an arbitration association or a court
• Determine whether there will be an evidentiary hearing and if so, what kind
• Specify the applicable rules of evidence
• Decide on the number of arbitrators and whether the arbitrators will be chosen by both parties or appointed by a court
• Establish the timeline for the arbitration process
• Establish the language to be used in the arbitration

You can check this step off your list when all the details of the arbitration process have been added to the agreement.

Identifying the governing law

• Research the applicable laws in the country or state where the agreement is being executed
• Consider consultation with a lawyer to ensure that the agreement is in compliance with the applicable laws
• Specify in the agreement the governing law
• When the governing law has been identified and specified in the agreement, you can move on to the next step.

Signing the agreement

• Gather the necessary documents to be signed, including the agreement itself
• Meet with the counterparty to sign the agreement in the presence of witnesses
• Make sure all parties involved have signed and dated the agreement
• Ensure that all parties have received a copy of the signed agreement
• Check that all signatures are legally valid
• When all parties have signed the agreement and all necessary documents have been gathered, the signing of the agreement has been completed.

Specifying who will be signing the agreement

• Identify both parties who will need to sign the agreement - the outsourcing organization and the customer.
• Make sure that each party has a representative who is authorized to sign the agreement.
• When both parties have identified representatives who can sign the agreement, the step is complete and you can move on to establishing the method of signature.

Establishing the method of signature (electronic or physical)

• Determine if the agreement will be signed electronically or physically
• If electronically, ensure the signature is legally binding
• If physically, establish who will sign the agreement and where
• Once all parties agree on the method of signature, document the method in the agreement
• When all parties have signed the agreement, you can check this off your list and move on to the next step.

FAQ

Q: What is an outsourcing agreement?

Asked by Megan on June 15th 2022.
A: An outsourcing agreement is a legally binding contract between two or more parties that specifies the terms of an arrangement in which one party agrees to provide services (outsourcing services) to the other party. The agreement outlines the rights and responsibilities of each party. It might include details such as the obligations of the outsourcer, the responsibilities of the parties, the quality of services, payment terms, and any other terms and conditions.

Q: What are some important clauses that should be included in an outsourcing agreement?

Asked by Sarah on March 4th 2022.
A: When creating an outsourcing agreement, there are certain clauses that should be included for the benefit of both parties. This includes the scope of services and any related deliverables, payment terms, confidentiality provisions, dispute resolution provisions, intellectual property transfer provisions, termination provisions, and other relevant legal clauses.

Q: How do UK vs USA vs EU jurisdictions differ when it comes to outsourcing agreements?

Asked by Christopher on August 5th 2022.
A: The laws governing outsourcing agreements in different jurisdictions may differ in terms of their requirements for formation and enforcement. In the UK, most agreements will be subject to English law and must comply with the Contracts (Rights of Third Parties) Act 1999. In the US, different states have varying laws governing contracts and agreements, so it is important to research these differences before entering into any agreement. In the EU, different countries have their own laws that govern contracts and agreements; however, under EU rules, all agreements are subject to applicable European Union law.

Q: What should a business consider before entering into an outsourcing agreement?

Asked by David on January 14th 2022.
A: Before entering into an outsourcing agreement, businesses should consider a number of factors such as the provider’s reputation and expertise in their field; what services the provider is offering; how much it will cost; how long it will take for the provider to complete their services; any potential risks associated with entering into an agreement; whether there are any existing legal obligations or restrictions that could affect performance; and finally, if there are any available alternatives that could be more cost-effective or better suited for your needs.

Q: What should I do if I need to amend or cancel an existing outsourcing agreement?

Asked by Matthew on November 9th 2022.
A: If you need to amend or cancel an existing outsourcing agreement, you should first review the original contract in detail to ensure that you understand all of its terms and conditions. You should then contact your provider to negotiate any changes or cancellation terms and confirm them in writing. If you are unable to reach an agreement with your provider then you may wish to seek legal advice in order to understand your rights and obligations under applicable law.

Q: How can I ensure my data is protected when outsourcing services?

Asked by John on April 11th 2022.
A: When entering into an outsourcing agreement, it is important to ensure that your data is protected from unauthorized access or misuse by your provider. This can be achieved through including specific clauses within your contract such as confidentiality provisions or data protection policies which set out how your data will be stored, processed and shared with third parties. Your agreement should also include details about who has access to your data and what measures have been taken to protect it from unauthorized access or misuse. Additionally, you may wish to conduct background checks on your provider’s personnel who will have access to your data in order to ensure they have appropriate security clearances and training in data protection laws.

Q: How can I ensure my intellectual property will remain protected when using an outsourcing provider?

Asked by Ryan on September 21st 2022.
A: It is important to ensure that your intellectual property (such as trademarks, copyrights etc.) remains protected when using an outsourcing provider. This can be achieved through including specific clauses within your contract such as non-disclosure agreements or intellectual property transfer provisions which set out how intellectual property rights will be transferred from you (the owner) to your provider (the licensee). Your contract should also include details about who has access to your intellectual property and what measures have been taken to protect it from unauthorized use or misuse by third parties. Additionally, you may wish to conduct background checks on your provider’s personnel who will have access to your intellectual property in order ensure they have appropriate security clearances and training in intellectual property law.

Q: What steps can I take if my service provider fails to deliver promised services?

Asked by Joseph on July 23rd 2022.
A: If your service provider fails to deliver promised services then you should first review the original contract in detail in order understand any rights or remedies available under applicable law. You should then contact your provider directly in order explain why they have failed deliver promised services and discuss potential solutions for resolving this issue without resorting legal action; this could include extending deadlines for providing services or negotiating better terms for payment for example. If you are unable to reach an agreement with your provider then you may wish seek legal advice in order understand what options are available for enforcing any rights or remedies available under applicable law against them such as termination of the contract or seeking damages for breach of contract.

Example dispute

Suing a Company for Breach of Outsourcing Agreement

• A plaintiff may seek to sue a company for breach of contract if the company fails to comply with the terms of an outsourcing agreement.
• The plaintiff must be able to prove that they have suffered damages as a result of the company’s breach of contract.
• The plaintiff must be able to show that the company was in breach of the terms of the contract, such as failing to deliver on the services outlined in the agreement.
• The plaintiff must also be able to demonstrate that they attempted to reach an amicable resolution with the company prior to filing the lawsuit.
• The plaintiff should also be able to demonstrate that they are eligible for damages, such as lost wages, costs of additional services to complete the contract, or other losses related to the breach of contract.
• A court may award damages based on a calculation of the losses the plaintiff suffered.
• The court may also order the company to comply with the terms of the contract and to pay any additional costs the plaintiff incurred due to the breach of contract.
• Finally, the court may order the company to pay the plaintiff’s legal fees.

Templates available (free to use)

Contract For Short Term Outsourcing Services Customer Friendly
Employment Provisions For Long Term Outsourcing Agreement
Interim Contract For Outsourcing
It Outsourcing Agreement
Outsource Agreement
Outsourcing Agreement
Parent Company Guarantee For Outsourcing Agreement
Simple Outsourcing Agreement
Spreadsheet Of Employee Information For Re Tendering Or Outsourcing Tupe

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