Types of contracts with IT providers

In today's world, where technology occupies an important place in business processes, cooperation with IT providers is an integral part of entrepreneurs. A successful interaction often depends on the right type of contract. Let's consider the main types of contracts used in the IT sphere.

Fixed price (Fixed Price Contract)

This type of contract provides for a fixed price for the entire scope of work agreed at the beginning of cooperation . A fixed price is most often used for projects with clearly defined requirements, volumes and deadlines. A fixed price is risky for long-term and large-scale projects, because you need to write down all stages of work in great detail in advance (for a month, a year or even two). In such a model, the IT company faces greater risks, because it is necessary to accurately calculate the time and resources for the implementation of the task. If these calculations are incorrect, the company covers the losses with its own funds, so when calculating the project budget, it is worth including an additional amount to cover potential risks, because changes in the project may require additional negotiations or new contracts.

Time and Material Contract

Time and Material (T&M, hourly rate ) is one of the most common pricing models in the field of IT services. However, many customers may have questions about this approach, including concerns about possible over-invoicing, which is perceived as a T&M risk. Hourly payment for work requires a carefully thought-out contract for effective cooperation and a uniform understanding of the conditions by both parties. The customer must have effective project control mechanisms, and the executor must have the ability to accurately assess the work performed. In addition, there are other important aspects that should be considered in the contract for the effective implementation of the T&M approach. They include:

• Use of Scrum/Agile methodologies.
• Clear definition of pricing.
• Project management and communication between parties.
• The issue of intellectual property.
• Controls by the customer to avoid excessive costs.

Outstaffing (Outstaffing Contract)

Outstaffing is an agreement under which the customer receives a team or individual specialists from the IT provider, but the project management remains with the customer . In this case, the provider only provides resources, and control and responsibility for the results of the project lies with the customer. At the same time, issues of salary payment, technical support and organization of the workplace remain within the competence of the outsourcing company. In certain cases, the customer may temporarily deploy the team in their territory to improve interaction and productivity. The advantage of outstaffing is that it allows you to reduce personnel administration costs and reduce labor costs by up to 30%. Leasing personnel gives the customer the opportunity to form a team for a specific project in accordance with technology and time requirements. Please also note that outstaffing requires well-established management on the part of the customer and removes the direct responsibility of the provider for the final result.

Outsourcing (Outsourcing Contract)

Outsourcing involves the transfer of certain functions or tasks on a permanent or temporary basis to an external company . The customer can outsource various tasks related to software development, IT infrastructure support, cyber security and other technical aspects to external service providers. This allows firms to focus on their core business by delegating technical or specialized processes to external teams. Unlike outstaffing, the executor is responsible for management and results .

Before implementing IT outsourcing, it is necessary to take into account the disadvantages of the approach and possible difficulties. The need to establish interaction between the customer's and contractor's teams, to clearly delineate areas of responsibility and the order of communication. All these issues are agreed in advance and specified in the service contract; risks of information leakage. To avoid such problems, it is necessary to carefully choose a reliable contractor and specify the responsibility for ensuring data protection in the contract. Unlike IT specialists in the company's staff, who can be entrusted with various tasks, the contractor takes care of the performance of the functions clearly prescribed in the contract. In addition, the customer loses part of the control over the processes and becomes dependent on one provider.

Conclusion

Choosing the right type of contract depends on many factors: the complexity of the project, the degree of certainty of requirements, the budget and flexibility in the performance of tasks. Each type of contract has its advantages and disadvantages, so it is important to carefully approach their choice and clearly define all conditions at the beginning of cooperation. Each business has its own unique needs, and the right contract will help to achieve effective cooperation with IT providers, ensuring transparency, control and cost optimization. It will not be superfluous to consult a lawyer who will be able to choose a contract exactly for your requirements.

Contract templates that may be useful:

- Offer invoice (Invoice) for software development (Ukrainian-English) ;

- Employment contract (Ukrainian, Ukrainian-English) ;

- Sublicense agreement ;

- Act of acceptance and transfer of services (to any contract on the provision of services) ;

- Agreement on the provision of services and performance of work on the development of a software complex ;