19 Clauses of a Winning Outsourcing Contract


19 Clauses of a Winning Outsourcing Contract

Your handbook for ensuring a successful cooperation

Written by:

YanContent Marketing Lead


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18 min read



How do I make sure the collaboration happens and the company doesn’t get away with my money? How do I protect my company’s data? How do I get the product developed according to my business goals?

These are some of the concerns, trying to resolve which you clicked on our article. You’ve come to the right place! Today you’ll learn how to protect your IT outsourcing with strong outsourcing contracts and embrace its full power instead of getting a major disappointment. Let’s rock.

On the spot

The 19 clauses we recommend including in every outsourcing contract are:

1) Detailed project scope
2) Service-level agreements
3) Contract duration
4) Transfer of assets
5) Warranty and liabilities
6) Product ownership
7) IP protection clause
8) Data Protection
9) GDPR compliance
10) Subcontracting clause
11) Payment structure
12) PCI DSS compliance
13) Governance
14) Performance monitoring and audit
15) Dispute resolution
16) Business continuity and disaster recovery (BCDR)
17) Indemnification clause
18) Documentation hierarchy
19) Termination and exit strategy

Read on to learn why they matter and for our bonus tips on how to sign a winning outsourcing contract.

Why Treating Outsourcing Contracts Seriously Is Important

According to Dun & Bradstreet's Barometer of Global Outsourcing, approximately 20–25% of outsourcing relationships fail within two years, and 50% fail within five. Mostly, it happens due to budget overruns, delays, low-quality services, or sudden contract termination.

Let’s take a look at a vivid example:

Queensland contracted IBM in 2007 to develop an application to administer payroll for its health department. The initial cost was $6 million. However, following several unanticipated technical issues, IBM notified the Queensland government that the project would cost $27 million. Ultimately, the project ended up costing $1.2 billion. And even though the project went on for several years, the payroll platform failed to function properly.

A poorly concluded outsourcing contract is the main reason for hidden costs. Unlike one-off vendor contracts, outsourcing contracts require a detailed scope of all the crucial points.

To avoid this and other hidden traps of software development outsourcing, you can apply some proven tactics to conclude a winning contract. Read on to find out how.

19 Сlauses of a Winning Outsourcing Contract

outsourcing contracts clauses

A failsafe agreement may require a lot of time, money, and effort, but for the course of our operation we clearly learned that going through all of this is the only way to ensure both parties stay happy with cooperation.

To facilitate this uneasy task for you, below we have listed 19 points to include in your outsourcing contract that withstood the test of time in our work. Let’s learn what.

1. Detailed project scope

An image illustrating a clause of outsourcing contracts - detailed project scope

The very first clause of your outsourcing contract is a thorough description of your outsourcing affair. This includes a list of:

  • project goals, 
  • tasks, 
  • work schedules, 
  • and deliverables

compiled in close cooperation of both parties, which is important. The main point of this section is establishing clear boundaries and responsibilities while setting up procedures for future work.

Never underestimate this step, as in our practice it helped a great deal to determine our Clients’ expectations from us as well as our expectations from them. Providing specifics helps avoid further disagreements and necessary amendments, ensuring a successful relationship.

2. Service-level agreements

outsourcing contracts clausAn image illustrating a clause of outsourcing contracts - service level agreement

Service-level agreements (SLAs) outline the necessary standards to be met. They are needed to set the bar for the level of service that you expect to receive to achieve your goals.

The SLAs should be as precise and comprehensive as possible, covering all essential service levels: the scope of your project, the performance standards, the financial side of the agreement, specified obligations, problem-solving, enhancement, and monitoring and analysis.

3. Contract duration

An image illustrating a clause of outsourcing contracts - contract duration

This provision should not only specify how long your agreement will exist but also outline the early termination cases.

Let us give you an example of its importance:

Back in 2004, BBC and Siemens signed a 10-year outsourcing agreement. In the first year of the deal, 60% of the important technological projects from Siemens were either delayed or over budget. While it was Siemens’s responsibility, the BBC had to bear the opportunity cost of lost service enhancements. Instead of signing a contract with another vendor, the company was tied with Siemens in a long-term agreement without the possibility of exiting.

4. Transfer of assets

An image illustrating a clause of outsourcing contracts - transfer of assets

Sometimes, IT outsourcing partnerships presuppose certain assets transfer. For instance, our banking & fintech Clients often demand that we work solely on their equipment and send it to us via mail. Other examples can include proprietary software licensing or non-computing equipment, e.g. telcom. This clause formalizes such transfers and regulates their conditions.

Note that some things, such as software licenses, may include additional 
costs, stamp duties, and taxes. So we always make sure this is also mentioned in the outsourcing contract cost.

5. Warranty and liabilities

An image illustrating a clause of outsourcing contracts - warranty and liabilities

No contract is possible without this section. But we strongly believe that its second part stays purely theoretical.

The clause protects our Clients, giving them the peace of mind that our services will indeed live up to their expectations and meet industry standards, showing proficient expertise.

It also protects us, granting timely payments from our Clients and warranties on their assets or equipment.

We strongly believe that the “liabilities” part always stays purely theoretical. We are adherent to building long-term partnerships by delivering the best services possible and through it, achieving both our and our Client’s goals. And here are our principles:

  • Our goal - To make the world better through effective software development.
  • How - Make money for us and our Clients.  
  • Our codex - Taking care of our experts.
  • Our aspiration - Deliver on time.

Our company’s main goal, as stated in our Codex, is to make the world better. And like each master worthy of producing his goods in a qualitative and timely fashion, we’ve learned to produce value and nest it into our world. We do it via our skill and aspiration, dignity and honor, by that joy that we get from the very process itself.

SENLA = quality

And to demonstrate our attitude in practice, we’ve partnered with our local banks to offer a unique feature on the market — all our projects are financially insured in case of any unprecedented circumstances.

6. Product ownership

An image illustrating a clause of outsourcing contracts - product ownership

In certain instances, we can not fully transfer property for the software that we develop to our Client. The typical causes for this is when we:

  • Customize a Client’s existing software or create an extension to it.
  • Take over development or maintenance of software that was created by another firm.

Whether you are developing new software from scratch or simply modernizing an existing product, outsourcing agreements should clearly express product ownership to avoid potential issues.

7. IP protection clause

An image illustrating a clause of outsourcing contracts - ip protection

Intellectual property rights (IPR) are the biggest concern of the businesses that consider outsourcing, as they fear giving away their sensitive data.

However, these fears can be calmed if you properly protect your IPR. And here’s how to do it:

  • Perform thorough research on the vendor.
  • Copyright your IP.
  • Determine whether your information qualifies as a trade secret.
  • Apply patent protection.
  • Trademark your software or other goods.
  • Sign an NDA (non-disclosure agreement) with a vendor.
  • Consider restricting data and server access.

Upon our Clients’ requests, we are always ready to perform all the range of actions to ensure their IPR and make them feel safe.

8. Data protection

outsourcing contracts clauses

Guarding your operational data is as crucial as protecting your patent rights, and we perfectly understand it. For this reason, this section is paid all due respect in our outsourcing contracts.

We ensure your full data protection not only during our collaboration but also after a project’s completion. Whether we house the infrastructure or all development happens on your side, with this meticulously compiled section you can be sure the data isn’t compromised.

Upon mutual agreement, we may also additionally state the terms of return or destruction of everything that you pass to us for development purposes. Ideally, such confidential information should self-destruct after a specified period of time.

9. GDPR compliance

outsourcing contracts clauses

In addition to restricting server and data access, you can take extra steps to safeguard your data.

If you are located in the European Union, you are obviously familiar with the GDPR (General Data Protection Regulation), which specifies all the steps a business must take for data processing, maintenance, security, and deletion. All companies that operate within the or with residents of the EU, must comply.

For this reason, if our Client is from this region, we also include this clause in our outsourcing contract.

10. Subcontracting clause

outsourcing contracts clauses

In case you don’t fall under GDPR compliance, remember to include the subcontracting clause in your contract.

It is mandatory because many untrustworthy IT outsourcing providers wil shadily subcontract without you knowing. This is a bitter reality, unfortunately. So if you don’t state your attitude towards this in your outsourcing agreement, you basically untie their hands.

We have a fantastic article that exposes such filthy players at large, where we go full berserk mode on crushing them: we dive deep into their kitchen and — first in the industry — expose how they operate, what motivates them do so and what signs give away that they’re not the ones they’re disguising themselves as. If you want to learn the inside-outs of this fake IT outsourcing kitchen, how to avoid unknowingly falling into this trap and how to indeed make your IT outsourcing affair work to your benefit — read our article on the fake IT outsourcing vs the real one. In our opinion, this is one of the most valuable pieces that the executives, who are new to IT outsourcing or who have already got burned by untrustworthy providers can only read.

However, If you’re not against subcontracting, make sure to specify the extent to which you accept it in your outsourcing contract. This will solidify that a vendor will keep it within your expectations and won’t play too much with it. In addition, make sure you are able to request the needed resources and find out who will be held responsible in case of subcontracting.

SENLA Never Subcontracts

We at SENLA are strongly against any form of subcontracting and proudly state it in each and every outsourcing agreement that we sign. We aim at forming long-term partnerships instead of catching immediate benefit, so for this reason we are ready to invest in cooperation and raise the talent that our Clients need. This approach has already rewarded us with an overwhelming 90+% of repeat businesses with us. You can learn more about how we nurture our tech talent.

11. Payment structure

outsourcing contracts clauses

No matter what outsourcing engagement model you choose, an outsourcing contract specifies the cost, payment method, and payment structure of cooperation. It also addresses the issues of when, how, and whom to charge.

Depending on the pricing models adopted, this clause may differ:

  • Fixed price – the cost remains unchanged unless agreed otherwise.
  • Time and materials – the contract specifies the agreed-upon rates per hour and any materials used.

The payment structure clause in our contracts also covers software licensing costs, taxes, stamp duties, and any other necessary information. In addition, we ask you to mention all fixed and variable pricing components, including any re-negotiation of charges within a certain time frame.

12. PCI DSS compliance

outsourcing contracts clauses

If your business uses card processing or other payment systems, we include the Payment Card Industry Data Security Standard (PCI DSS) compliance in our outsourcing contract. By mentioning it, we solidify our eligibility to store, process, or transmit cardholder data and sensitive authentication data.

While some filthy agencies, mentioned before, may consider adding this unnecessary, it is important to understand that in the event of data leakage from a vendor with whom you exchange card data, you will bear the financial and reputational penalties.

This is why to create peace of mind for both parties, we always include this clause in our outsourcing contracts.

13. Governance

outsourcing contracts clauses

Our outsourcing agreements also include a clear governance framework to assist communication.

It specifies the following:

  • Contract managers – people designated as the principal point of contact for all contract difficulties. Additionally, we can also assign a local delivery manager for our Clients to facilitate communication even more and streamline delivery. We have been following this practice for quite a while and it brought us nothing but satisfaction from our Clients. You can learn about how we did it for BOSCH, Bayer, Abbott, We4G and Banx.one.
  • Governance board – some agreements may include many governance boards addressing various topics such as personnel, operations, transition, and strategic decision-making.

14. Performance monitoring and audit

outsourcing contracts clauses

We always include software development performance monitoring in our scope of services to help you identify and prevent any unnecessary actions, potential problems, and conflicts without requiring legal intervention.

This part of our outsourcing agreement include:

  • Reporting requirements;
  • auditing frequency;
  • a ‘global’ review – you agree to conduct a thorough evaluation of performance each specified period;
  • procedures for service delivery disruption;

15. Dispute resolution

outsourcing contracts clauses

Even though we always try to do our best, this is life and sometimes, the partnership may not go as planned.

To avoid legal battles, we make sure that a dispute resolution provision is included in each of our contracts to help both sides reach an agreement regarding the matter.

But we always believe that this section stays only on paper.

16. Business continuity and disaster recovery (BCDR)

outsourcing contracts clauses

In addition to the previous point, there is always a chance of something happening and the work not being done on time due to unanticipated conditions.

Some force majeure events may include:

  • Getting a computer virus or malware (we have very strict security policies in place and regularly conduct staff trainings to prevent this from happening).
  • Changes in regulating legislation.
  • Problems with the supply chain .
  • Illness or resignation of an employee.

BCDR assures that in case of something similar happening, your business will continue operation with little to no delay.

17. Indemnification clause

outsourcing contracts clauses

This is a very important moment as in some cases, outsourcing agreements may generate legal difficulties. Including an indemnification clause in our contracts allows both of us to allocate any risks between the parties and compensate the indemnified party for breach of contract, non-compliance with any laws, negligence, losses, liabilities, or claims.

Indemnification clauses allow us both to protect our businesses from any damages and lawsuits as well as customize the amount of risk during the collaboration.

18. Documentation hierarchy

outsourcing contracts clauses

During some transactions, we or our Clients may put clauses in the invoice or purchase order declaring that our or their own forms replace the others.

Documentation hierarchy allows to map out all the documents so that they can be easily found and used. So, in these cases we incorporate this clause to precisely clarify the framework of all content that will potentially be used during the collaboration.

This helps avoid time delays and unnecessary paperwork that is mailed back and forth to outline the hierarchy.

19. Termination and exit strategy

outsourcing contracts clauses

First and foremost, again, we do believe that this section stays only on paper. But for the completeness of legal documents, including this very important aspect is mandatory. So here’s how it’s compiled.

Firstly, a termination procedure should indicate how many days' written notice is necessary.

Then this clause should include the following information:

  • Costs associated with termination; 
  • returning corporate assets and equipment procedures; 
  • penalties for non-performance on the service provider’s part; 
  • after-termination IP handling;

It’s also wise to consider whether an exit strategy may influence your company’s image and if yes — come up with ways of minimizing the impact.

Bonus Tips from SENLA

1. Seek legal advice before signing the contract

Taking your services to an outsourcing vendor requires additional legal steps. It is especially important to research their local legislation, tax laws, and other restrictions that may affect your company prior to signing a contract.

To ensure that your contract covers everything, consider speaking with legal professionals, if you don’t have such on-site, who have experience with similar collaborations.

2. Discard a standard contract

Filthy vendors insist on using conventional contracts. Such agreements are often one-sided, requiring them only to deliver the same quality of service that your assigned department currently provides.

Failure to ensure that the final contract meets your requirements obviously creates high chances of leaving the door open to future problems. To avoid the issues of poor outsourcing contracts while getting all the advantages, you should draft a new agreement that includes and comprehensively covers all your company’s requirements.

Our practice

That’s exactly how we at SENLA treat the creation of outsourcing contracts. We hold several discussion sessions to know in detail what our Clients' needs are. Only after both parties agree that they interpreted each other’s intentions and conditions unambiguously and to the fullest, then we sign an outsourcing agreement.

3. Do not sign incomplete contracts

Even though this may seem obvious, there are still occasions where a firm and the vendor get impatient for the partnership to begin, and both may be inclined to stop the discussion early. An dishonest vendor that we’ve talked about a lot in this article, in particular, may put pressure on you to sign the agreement before all of the specifics are worked out.

Since they are not legally obligated to revise the contract afterward, they may never agree to change the original agreement if you forget to mention an essential part. But even if adjustments are made, the approach may end up causing harm to the ongoing partnership.

Again, we insistently recommend you to read our article on the real outsourcing vs the fake one to learn how to distinguish and avoid such filthy IT outsourcing vendors and why such behavior from a vendor’s side as pressure is an immediate red flag.

Therefore, again, to avoid unforeseen problems, we make sure that there are no blind spots left when we put our signature on an outsourcing contract. This is SENLA’s quality mark.


In this helpful handbook, we shared our 10+ years of experience in signing winning outsourcing contracts that brought us what we have and led us to where we are today. We sincerely hope that it will help you build an outsourcing agreement that will correspond to your organization's criteria and helps achieve your project's goals.

Before you begin your outsourcing cooperation, make sure you’ve documented all, even the most minor details to avoid confusion or unnecessary problems. Remember, your agreement should be clear to both parties. Only then will your cooperation be successful and resilient.

As you can see, there is a lot to mention in your outsourcing contract to ensure quality collaboration and obtain the best possible outcome. If you liked our practice and attitude that we laid out in this article and would like to see us on your next software project, SENLA will gladly be that reliable outsourcing partner you’re looking for. Fill in the form below, and we will help you find the most efficient software development solution!

Why Senla?

Proven track record

For our 10+ years of operation we’ve legally provisioned hundreds of projects ranging from startups to Fortune 500 enterprises. An exceptional level of trust towards our services and their legal protection resulted in a 90% rate of repeat business with us.

Financial insurance

One of the things that allowed us to reach such an exceptionally high return rate is our unique offer on the market. We partnered with local banks to insure every project that we have — no matter what — so that both we and our Client were sure of our cooperation.

Offices in 5 locations

We have offices in the UK, Israel, Poland, Croatia and Georgia and are well aware of legislation peculiarities in various parts of the world.

Frequently Asked Questions

What is your process of compiling and signing an outsourcing contract?

First, our BD team contacts you for a quick intro call to better know your needs. Upon your request, we sign an NDA. Then, after we present you preliminary solutions (estimates, CVs, etc.) and you approve them, our lawyers compile an outsourcing contract in close cooperation with you to account for the needs of both parties and protect their interests in the best way possible.

How do we make changes in outsourcing contracts?

If any changes are needed, we discuss them with you and arrange as appendices to the main contract only upon both parties' agreement. We also state which contract areas are overtaken by these appendices and which remain in action.

For how long are the contracts valid?

An outsourcing contract states when parties consider the services to be fully provided. It may be the end of development or extended maintenance as most of our Clients choose. Typically, an NDA is valid through 10 years after signing the contract.

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