This document provides a checklist of issues a company should consider before
entering into an outsourcing agreement. An outsourcing agreement is an agreement
between a business and a service provider for necessary services, such as for data
processing and information management. Companies should consider use of staff,
equipment, and facilities. This checklist can be customized in order to help shape a
company’s analysis of an outsourcing agreement prior to executing the agreement.
Checklist for Outsourcing Agreements
1. Definition of the relationship, goals and objectives of both parties
A. Exclusive of other vendors
B. Protect market position of customer
2. Scope of services to be provided
A. Define services and deliverables to be provided to customer by vendor
B. Define services excluded
C. Define service levels (i.e., performance standards) and remedies
D. Provide for modification of service levels from initial levels upon execution after
conversion to vendor operations
E. Provide for milestones and project schedules (time phased, person loaded)
F. Scope of vendor's authority
3. Term of Agreement
A. Renewal periods
B. Automatic renewal
4. Personnel
A. Staffing requirements
1. On customer site/off customer site
2. Vendor right to change personnel
3. Customer right to approve personnel
B. Specific obligations of vendor regarding vendor personnel
1. Confidentiality
2. Non-compete
3. Guaranteed service period for certain personnel
4. Succession planning
5. Mix of staff levels
C. Vendor to offer employment to customer's work force
1. Define employees to be transitioned
2. Parameters for offers of employment
D. Employee transition plan
5. Use of Customer Facilities
A. Vendor to provide services from customer premises until specified date for
conversion to other facilities
B. List of equipment and services at facilities available for vendor use
C. List of facilities square footage and rate to be paid, if any for use by vendor
D. Vendor access to customer facilities
E. 24 hour/normal vendor working hours
F. Security issues
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G. Relocation of vendor
6. Customer owned equipment
A. Purchase of equipment owned by customer used to perform the services
B. List of equipment/depreciated value
C. Disposition of equipment subject to capital leases
D. Obligation of customer to provide or acquire certain equipment
7. Customer leased equipment
A. Vendor permitted to use equipment leased by customer to perform the services
B. Customer to terminate or assign leases for the leased equipment
C. Customer to exercise option to purchase equipment under terminated lease and
sell to vendor at cost
8. Data Processing services -- For customer-owned intellectual property
A. Customer grants vendor license to use customer owned intellectual property for
term of the agreement or until conversion of services using other intellectual
property, if contemplated by parties
B. Assignment to vendor of licenses for non-customer owned intellectual property to
be used to provide services
C. Termination of licenses for intellectual property not required by vendor to
perform services
D. Obligation for integration, new products
E. Cost of correction of processing errors
9. Vendor intellectual property
A. License to use/included as part of services
B. License with respect to termination
1. Bankruptcy issues
2. Substantive license issues (scope of use, updates, warranties, etc.)
10. Third party services
A. Customer to assign agreements for third party services to vendor
B. Vendor responsible for cost of third party services
C. Vendor to have the right to replace third party services with its own services or
services of a third party of its choice
11. Management of projects and other services
A. Appointment of project managers by vendor and customer to be principal liaisons
between parties
B. Respective roles of parties (e.g., establishing priorities)
C. Management planning
D. Acceptance testing of vendor deliverables
12. Customer responsibilities
A. Establish priorities
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B. Delivery of data
C. Training
D. Forms/documents/supplies/consumables
13. Confidentiality obligations
A. Customer business information/data
B. Vendor business information
C. Intellectual property of either party or its licensor
14. Customer data
A. Security
B. Right of customer to obtain data at any time
C. Back-up procedures
15. Procedures to change scope of services
A. Customer right to change priority or scope of vendor's services/effect on rights
and obligations of both parties
B. Procedures for requesting changes to vendor's services
C. Different performance standards for changes
16. Conversion services
A. Development of a plan to convert from customer's procedures to vendor's
procedures to provide services
B. Rights and obligations related to performance standards
C. Software or processing modifications
1. Scope
2. Approval by customer
3. Vendor obligations for updates, legal and regulatory changes
17. Training -- Training for customer personnel
A. Full training -- "train the trainer"
B. Daily/hourly
18. Fee structure
A. Fixed time/time based fee/volume based fee
B. Basis of calculation
C. Credits/reimbursements to customer
D. Expenses
E. Cost of living adjustment
F. Fee schedule based on milestones
G. Late fees/payment and billing/disputed amounts
19. Liability issues
A. Limitation of liability
B. Warranties regarding services/products/personnel
C. Disclaimer of warranties
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D. Indemnities
20. Termination
A. Specific rights
B. Right to extend for limited time upon termination
C. Termination assistance
D. Transitional rights and obligations
1. Offers to personnel
2. Acquisition of equipment/software
21. Sharing of computer resources
A. Use of resources other than customer purposes
B. Use by customer (if less than a full outsourcing)
22. Dispute Resolution
(For Example): Notwithstanding the foregoing, and anything herein to the contrary, any
dispute under this Agreement shall be required to be resolved by binding arbitration of the
parties hereto. If the parties cannot agree on an arbitrator, each party shall select one arbitrator
and both arbitrators shall then select a third. The third arbitrator so selected shall arbitrate said
dispute. The arbitration shall be governed by the rules of the American Arbitration Association
then in force and effect.
23. Assignment
(For Example): The rights of each party under this Agreement are personal to that party
and may not be assigned or transferred to any other person, firm, corporation, or other entity
without the prior, express, and written consent of the other party.
24. Insurance requirements
25. Independent Contractor Status
(For Example): Contractor is an independent contractor and is not an employee, servant,
partner or joint venturer of Owner. Owner shall determine the services to be provided by
Contractor, but Contractor shall determine the legal means by which it accomplishes the services
in accordance with this Contract. Owner is not responsible for withholding, and shall not
withhold or deduct from the commissions FICA or taxes of any kind, unless such withhold