Outsourcing your software development process with an outsourcing provider is very similar to hiring a new person into your company, in the sense you will both have to sign a legal type of agreement, also known as a contract.
Contracts are extremely important in these types of working relationships since it helps making things more official, plus it protects both parties under the eye of the law.
That being said, making a contract for an outsourcing provider or team is quite different than your regular contract, which is why we have put together things blog with useful information you should know about how to contract a nearshore development partner.
##Discuss all the important details first
A contract should be a reflection of the previous discussions you both had during the interviewing time, which is why the very first step to contracting a nearshore development provider is to discuss all the important details first hand.
During the interview process make sure all of these topics are carefully discussed and agreed on:
1. The scope of the project
2. The expected results
3. The ways the outsourcing team will manage to meet this expectations
4. Payment and payment methods
5. People involved
6. And duration of the project
These are just some of the core aspects every company should discuss with their nearshore development provider or any other outsourcing team really, that should be included in the contract as well.
Of course, feel free to add any other aspect you might find relevant or important to the project and include it as one of the clause or subclause of the contract. After all, you will be able to customize the legal agreement to suit your necessities
##Pick the correct type of contract for your project
Once both of you have discussed the important aspects of the project, you can move on into choosing the right type of contract that will suit this future work relationship better.
There are four main types of contracts you should consider when running a software development process, such as:
1. Time & Materials contract
2. Fixed price contract
3. Target costs contracts; and
4. Long-Term contracts
Each and everyone of these legal agreements offers different benefits for both the customer, meaning you, and the provider, meaning the nearshore team. That being said, let’s take a deeper look into each one of them.
##Time & Materials Contract
This is the most common type of contract used in nearshore development partnerships since it is aimed to pay for the time and materials invested during the project.
In this type of contract, the provider sets up an average hourly rate, and the costumer (meaning you as a company) pays for the total amount of hours and materials invested into the project.
Keep in mind that when referring to “materials” it means the use of the software license and any other thing the nearshore software development might have had to invest to successfully develop a software.
These types of contracts are extremely common and usually useful since it benefits both parties. On one side the customer knows how much they will be paying from the start, and two, the provider should work towards delivering the project within the stipulated time.
It’s also worth to mention these types of contracts are mostly used for short-period collaborations between the company and the outsourcing provider.
##Fixed Price Contract
This one is also extremely common and can be used for short period collaborations. You see, in this contract the provider supplies the costumer with a very detailed scope of the project explaining all the money and resources that will go into it and charges a total amount for the overall project.
To put it simply, a steady price is established from the very first moment and the client agrees to pay for such price once the provider has explained why they’re charging that amount.
##Target Cost Contract
Although this type of contract can be used, we don’t recommended unless you have previously worked with this nearshore development provider, since this type of legal agreement centers around the idea of the costumer (you) paying once the project is completely done and all expenses can be accurately calculated.
This means you won’t know how much the project really costs until it is completely finished and you’ll be at risk of paying a really high price for a software development process.
##Long Term Contract
Last but not least, long term contracts usually last at least a year, and are pretty similar to those used to hire in-house team. In this type of contract the customer usually offers the provider a much more steady relationship, monthly salary and better benefits.
Long term contracts are a great idea if you’re looking to establish a much more serious relationship with your nearshore software development provider or if the project itself is really huge, other than that, you should be good using any of the other three types of contract.
Remember, the type of contract you use will completely depend on the type of project you are trying to develop, so simply choose one that fits your and the nearshore development team’s necessities.