If you are a start-up company considering to outsource to an offshore partner, there are couple of points to bear in mind when drafting the outsourcing agreement. This article highlights few of the clauses which should be critically reviewed.

In general, the outsourcing agreements are very standard. But the catch is that most of them are drafted for a large established company environment where some peripheral work is outsourced. A start-up environment is radically different and so is the build-operate-transfer (aka BOT) based outsourcing model, which a start-up should use.

The unique needs of a start-up require some special care while working out the outsourcing agreement. Here are key points to bear in mind:

1.      Hiring Procedures

As a start-up you need top-notch talent with good domain expertise. You simply can’t afford to get people on board and train them. The agreement must have a hiring clause wherein every member identified for your team is made to take your qualification test (if you have one), can be interviewed by you and only when you approve, he/she becomes part of your off-shore team. Don’t accept sharing of resumes alone. This can be very misleading.

2.      IPR Protection

Intellectual property and confidential information protection is of paramount importance in start-up environment. Ensure that the outsourcing agreement has a clause wherein all inventions, discoveries or algorithms developed by your off-shore team are YOUR sole-property and the outsourcing partner has no claim on the same (not even in residual IPR). If as a start-up you have a standard employment agreement, ensure that the same (or suitably modified copy) is signed by each and every member of your off-shore team.

3.      Employee performance

Every individual in a start-up should be very effective and high performer. This is even more crucial when running an off-shore team which can not be supervised by you in person on a daily basis. Ensure that the outsourcing agreement has strict performance criterion identified and clearly spell out the notice period within which your outsourcing partner should get a replacement for a non-performing individual. If the outsourcing partner has a performance improvement plan, review the same critically. If required, capture clear reporting mechanisms like daily or weekly status update reports, fortnightly call etc.

4.      Authorized Transfer

As a start-up, you should outsource early so as to ramp-up resources at a relatively lower cost. But what if you are truly successful? What if you are the next Google? Would you still want to continue to outsource core R&D, which is your competitive edge? The answer is a clear NO. If you are successful, it’s best to set-up your own off-shore design center and keep all the know-how internal. To make this transition smooth, you must insist on a transfer clause in the outsourcing agreement which authorizes you (as a start-up) to transfer the complete off-shore team from your outsourcing partner to your direct subsidiary, as and when the latter is set-up.

If there is no such clause, you will have to hire fresh talent for the direct subsidiary and all the know-how with the off-shore team will be lost. This can be very painful and will lead to substantial delay in making the direct subsidiary effective.

Resource: www.samadhansys.com