Outsourcing Agreements

An outsourcing agreement is a contractual arrangement between a company and a third-party service provider to delegate specific tasks, functions, expertise or processes. The agreement should outline the scope, responsibilities, expectations, pricing, and other key terms governing the relationship between the parties.

When would you use an outsourcing agreement?

An outsourcing arrangement is commonly used when a company wants to delegate certain non-core functions to external specialists. One reason for this could be to make cost savings -  the service provider may have economies of scale and specialised expertise, reducing operation expenses for the client. Outsourcing also enables the service provider to focus on core activities so that a company can focus its resources and efforts on its core business activities, hopefully leading to improved efficiency and competitiveness. This sort of arrangement also gives a company access to expertise and to tap into the specialist knowledge of the service provider that isn't necessarily available from its core team. It also gives a business flexibility to scale up or down quickly based on business needs. This in turn may allow for faster implementation of projects or services, which can also save time and effort on tasks that are not central to the core company mission and allow internal teams to focus on high-priority tasks. As an outsourced service team, this also reduces the level of oversight required from a management and administration perspective. In some circumstances, an outsourcing agreement might be used to mitigate risk -  using a specialist provider can help mitigate certain risks and may address compliance challenges associated with certain functions.

What to think about for these arrangements..

The variety and quality of services should be accurately defined. Depending on what’s being outsourced there could be implementation services, operational services, exit services, etc. This is important for both the outsourcer and service provider. From the latter's perspective, you should also ensure that you only commit to service levels which are achievable and ensure there is clarity on response times and action times and that any remedy for breach of service levels is meaningful.

As an outsourcer you will also want to think about acceptance testing. Customers’ usually insist on testing the suppliers’ relevant systems in line with test criteria. These should be carefully considered given passing of tests is often linked to payment of a large initial sum.

Payment is a huge part of your relationship and for an outsourcer you'll want to push for payment to be linked to completion of matters to your satisfaction, rather than being linked to invoice dates. This can help reduce the risk of invoice disputes but in the event that these disputes do happen, it's important to have a mechanism in place to resolve them. As a service provider, you'll want to make it clear that you have the right to charge interest on late payment and if you've not worked together before you may want to consider requesting fees for certain items in advance.

Liability can be a sticking point in these arrangements. As an outsourcer you'll want to ensure any mutual liability limits and exclusions are appropriate and reflect a fair allocation of risk. You'll also want to consider any limits on the service provider’s liability would still leave you with a meaningful remedy. A service provider will equally want to ensure mutual liability limits and exclusions are appropriate and reconcile with limits under any available relevant insurance. Where cover is reviewed annually, ensure liability limits and exclusions are reviewed against any changes to your policies to ensure that they still align with the project and arrangement. If your customer has a strong negotiating position they may demand proof of coverage and may even be asked to be named on your relevant policies. Both parties will also want to conduct due diligence on one another to understand levels of assets (and any insurance) available to satisfy a judgment debt/settlement in the event of a successful claim (e.g. a debt claim for non-payment of fees).

As an outsourcer you'll want your agreement to provider a clear mechanism for requesting changes under the contract, to ensure the services are scalable and adaptable with your evolving needs. You'll also want to make clear which relevant IP is owned by each party, and who will own any foreground IPR arising out of the contract. You should make sure that appropriate licences are granted to the service provider to enable them to perform the contract without inadvertently infringing your IPRs. It might be necessary for you to consider whether you want the right to audit and if so, its scope and frequency. Set out who pays what costs and expenses in relation to the audit and consequences if the service provider falls below agreed standards. If any of your equipment or assets (including contracts) are being transferred to the service provider as a result of outsourcing, you should provide appropriate provisions within the agreement to cover this. Given the length and complexity of many outsourcing contracts, consider working with the service provider to agree a clear remediation plan with clear channels of escalation to deal with issues.

As a service provider you will likely already have disaster recovery and business continuity processes and policies but do ensure that these are robust and tested frequently in case they are ever relied upon during your relationship.

Nobody wants to fall out but dispute resolution is so important to consider at the outset of a relationship. It's better to have it in advance than when it's too late. As a supplier you’ll be more likely to breach the contract causing the customer to suffer loss. You should consider your litigation strategy - a customer may angle for multi-tiered dispute resolution in a bid to try an agree a settlement for any breach more quickly, as opposed to proceeding through expensive and slow litigation. Many longer-term outsourcing agreements use this multi-tier dispute resolution approach which will usually include an internal escalation mechanism, followed by mediation and finally litigation through the English courts. If the agreement is cross-border, certain dispute procedures (e.g. arbitration) may be more favourable.

Both parties should consider the need for an exit assistance plan - as an outsourcer you should consider what transitional services you’d require from the service provider if the contract comes to an end. As a service provider, you should only commit to exit assistance which you can actually achieve, and ensure you charge for it. Depending on your negotiation power, consider requesting payment for any exit assistance fee up-front.

How can we help?

We specialise in providing cost-effective legal solutions clearing your path to success, which means our bread and butter lies in crafting, reviewing, and dissecting commercial contracts. From T&Cs to aaS agreements and commercial negotiations, we support the likes of Onfido, Multiverse, and Office & Dragons - ensuring they can build, break, or bolster their commercial relationships.

In need of support from commercial contract lawyers in the UK? Get in touch with our team.

How to get started

Don't take our word for it

speech mark red

Real world legal advice from real people. No stuffy posh nonsense or complicated legal speak for the sake of it, just great value legal advice. Making the switch to Plume was easy and has saved us a lot of money compared to our previous subscription legal service.

Chris Lake, Ops Director. Glendining Signs
speech mark red

Rachael is a diamond and very intelligent. She has a lovely style and an efficient, commercial & more collaborative approach to advising clients. It's also reassuring to know that Rachael is a former litigator so you know you are getting all-round excellent commercially sound advice. Highly recommended!

Lesley Wan, GC
speech mark red

Having negotiated against Alice personally, we were confident of her legal skills and commercial acumen. They immediately submersed themselves into our business, acting as an extension of our legal team. They worked incredibly hard, are friendly, approachable and above all could always be counted on to retain a sense of humour.”

Jen Kitson, GC, BlueYonder
speech mark red

Rachael is commercially focussed, and her investment in taking the time to get to know our business means she takes a pragmatic, human-centric approach to negotiations. She proactively gets her head around the particular priorities and constraints on each engagement, meaning she hits the ground running adding value while being able to move at pace.

Eleanor Kearon, VP Legal, Onfido
speech mark red

“Plume is anything but your traditional law firm. We found the lawyers to not only be experts in their fields, but dedicated to understanding our business, which is so important to finding innovative solutions to the problems that we bring to them. Every single person I’ve met at Plume has been a delight to work with, and that just makes all the difference. I really do feel in very good hands working with Plume.”

Tara Haig, GC, Multiverse
speech mark red

Our favourite thing about working with Plume is it doesn’t feel like we’re working with a law firm but rather an extension of our own team. The lawyers have become so embedded in our business, so commercially focussed and so tuned to our risk appetite and way of working

Francesca Porter, General Counsel, Onfido
speech mark red

The best thing about working with the Employment team is the prompt guidance and support they have given with sensitive and complex issues. They offer professional and diligent advice as well as being incredibly genuine and encouraging. It is reassuring to know they are on hand to help at all times.

Katie Whitfield, M2A
speech mark red

Everyone internally has been incredibly impressed with your work and I'm sure we will want to continue working together long-term.

Semper
speech mark red

Plume is quite clearly the best law firm in the history of the universe. With trademark protections bestowed upon us by your godly lawyers, we'll be able to focus on what we do best.... developing awesome medical technology for the blind community.

LinkedIn follower
speech mark red

Quickly understood my requirements, carried out a thorough review of the facts and produced a user-friendly reference document tailored to my business which demonstrated a strong grasp of the commercials. Take on was pain-free and everyone was friendly and responsive. Would recommend.

Charlotte Ashton, founder director, The Implicit
speech mark red

Excellent firm. Professional and ideal for start-ups.

Joe Lines, co-founder, Nook
speech mark red

The team have supported us with day-to-day and strategic legal advice throughout the year. We're grateful to them for stepping up to support us through this important milestone in MyTutor’s development and for their commitment in getting the deal over the line.

MyTutor
speech mark red

We currently use Plume for our small business and have had a great experience! They are knowledgeable, professional and answer in a timely fashion. Would recommend!

Angie Allgood, CMO, SmashCo
speech mark red

Great working with the folks at Plume. The quality of their work was top notch, their communication was effective and overall happy with the services provided.

Jimi Daodu, founder and CEO, Vault Hill
speech mark red

You are without a doubt the COOLEST law firm ever, and we love working with you! <3

Katy Hamilton Jennings on LinkedIn
speech mark red

They're doing amazing stuff on social media and standing out from the crowd. This is a gold standard in disruption.

Sian Thomas (@IntegrowSales) on Twitter
speech mark red

You are continuing to shape the legal industry to be more creative, compassionate, and (most significantly) human. Keep breaking down barriers - your reach is further than you may realize 🦩

Tiffany Sanchez, Sustainable Wealth Lawyer on LinkedIn
speech mark red

The team have come on board to support MyTutor, a fast growing EdTech business which previously had no in-house legal resource. The team have made a hugely positive difference in a short space of time and we feel incredibly supported by the team, who offer a commercial, low fuss and highly responsive service

Manisha Chana, CFO, MyTutor
speech mark red

Plume are a wonderful, professional and caring law firm. The communication and attention to detail we received by them in dealing with our case was brilliant. I will definitely be using them again for future needs.

Frances Lucraft, CEO/founder, Grace and Green
speech mark red

The team provided excellent leadership and support throughout our funding process. In particular, they provided comprehensive ownership and management of the close process for AccelerComm, providing excellent, professional guidance from start to finish and enabling AccelerComm to focus on growing core business growth

AccelerComm