Outsourcing your business’s work to a third party provider can be a great idea to save time, costs and gain greater access to a skilled workforce. 

However, when outsourcing, it is important that you are aware of all the legals associated. This especially means having the appropriate contracts in place. 

Outsourcing certainly has many pros, and the correct legals will assist you in ensuring these pros come to fruition. 

What Is Outsourcing?

Outsourcing is where a business assigns work to a third party provider. 

Outsourcing can save time, money and internal resources. It can allow you to focus on the tasks that you are efficient at whilst allowing somebody else to handle the tasks that you are not so well-versed in. 

Outsourcing tasks to a third party provider is often a much cheaper option than hiring an entirely new staff member. 

Outsourcing has grown rapidly in recent years and has certainly contributed to many  businesses efficacy and success. 

Some common examples of outsourcing include: 

  • Information technology (IT) services 
  • Social media services 
  • Website design
  • Finance and accounting 
  • Human resources 
    • This may include recruitment and payroll. 
Example 1 
Business X is looking for an admin assistant. 
Business Y specialises in sourcing admin assistant’s for businesses in need. 
Business X outsources the recruitment process of hiring an admin assistant to business Y. 
Business Y then provides business X with a fantastic admin assistant, allowing business X to avoid the hassle of sourcing the admin assistant themselves. 
Example 2 
Social media can be a fantastic way to market your business, however, it may not be your strong point. 
Business A offers services in managing businesses social media accounts. 
Your business engages business A to manage your social media accounts. 
In doing so, you have avoided the necessity of hiring an entirely new staff member. You have  also engaged specialist social media services saving both time and costs.

The Importance of Contracts

It is vital that you have an appropriate and well-formed contract between your business and the third party provider you are outsourcing work to. 

Having a contract will help ensure that the intended work is carried out appropriately and upon terms that both your business and the third party provider agree to. 

Often, businesses can make the mistake that an outsourced task is ‘too small’ or ‘not important’ enough to form a contract. This can be very dangerous for your business.

For example, without a contract, you may lose control over confidential information you have provided to a third party provider when outsourcing work. This can be detrimental to your business and its clients. 

Outsourcing contracts will usually contain clauses relating to, however not limited to: 

Scope and Performance of ServicesThis will usually include details about the task you are outsourcing to the third party provider.The time-frame in which the task is to be completed by may be mentioned here. 
Pricing, Fees and Payment Terms Any fees associated with the outsourced work should be mentioned here. This includes any surcharges, reimbursements for expenses and any relevant tax obligations.It should be made clear how your business will provide payment to the third party provider for the outsourced work. 
Obligations and Rights of Parties This includes the third party provider’s obligations to sufficiently complete the outsourced works. This also includes your businesses obligations to provide and pay for the outsourced work as agreed upon. 
Data Ownership and Protection Outsourcing work will often involve exchanging or creating data that is relevant to your business and its clients.  It is important to detail your businesses ownership over that information and how that data is to be managed.
Confidentiality and Privacy  It is important to detail any information that is to remain confidential. All information should be kept secure and comply with relevant privacy legislation.For example, the Privacy Act 1988 (Cth) is the governing law in Australia.
Liability Your contract must detail what happens if something goes wrong. For example, who is liable?
Non-complete A non-compete clause will ensure that the third party provider does not utilise the outsourced work to disadvantage your business. 
Governing Law This clause can be particularly important if you are outsourcing work to a third party provider in another country. 

Outsourcing contracts can differ on a case to case basis, depending on the circumstances. 

When forming a contract for outsourcing work, it is recommended that you speak with a lawyer as it can get tricky at times. 

It is imperative to the efficacy and success of your business that the correct and most appropriate contract is put into place when outsourcing work.

Important Tips To Consider 

  1. Explore Your Options 

When looking for a third party provider to outsource work to, it is important that you consider a few different providers before going with one. 

It is important that you:

  • Consider the location of the third party provider 
    • Are they located within your country or offshore? 
  • Compare costs of third party providers 
    • Prices for services may differ drastically, it is important you do the appropriate research to ascertain why some providers may be more expensive than others. 
  • Consider the third party provider’s previous works 
    • This can help give you a good indication as to the quality of the third party providers work.  
  1. Communicate 

Upon engaging a third party provider and setting up the appropriate contract, it is important that you maintain a high level of communication. This way, you can ensure that the outsourced work is being completed exactly the way you intend it to be. 

Providing detailed instructions can help overcome common misunderstandings and ensure that both you and your business acquire the best possible services. 

We’re Here To Help! 

Outsourcing has many pros, however, for those pros to come into fruition, you must ensure that you have the appropriate legals in place. 

Having an appropriate and specifically detailed contract will place you and your business in the best possible position to have outsourced work completed efficiently. 

It is recommended that you speak with a lawyer about what your business’s outsourcing contract might look like. 

If you have any more questions, reach out to our team for a free, no-obligations chat at team@sprintlaw.com.au or 1800 730 617

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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