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Precautions to be taken before Outsourcing of IT Services & Work

 > Business Laws  > Precautions to be taken before Outsourcing of IT Services & Work

Precautions to be taken before Outsourcing of IT Services & Work

Outsourcing refers to the practice in business where a party is hired from outside the company to perform certain services and creation of goods which were performed in-house by the corporate’s employees and local staffs. It is a basically a measure undertaken by the corporate to cut the cost. Now, in the case of IT-services, we have witnessed an upsurge in the outsourcing process. However, there are some legal limitations and issues acting as an obstacle in outsourcing.

Precaution to deal with the Issue of Taxation
In the upcoming paragraphs, we shall discuss the precautions that may be taken to deal with the legal issues creating obstacle in outsourcing IT -services work, or business processes. Taxation, Heterogeneity of law, Local Laws and Dispute resolution are some of those legal issues. Starting with Taxation, it is significant that the outsourcing company understands the tax structure of the customer country efficiently. For doing away with the legal issue, the corporate should conduct meeting with the outsourcing provider in India in order to decide and mutually reach a consensus on the tax related provisions.

Intellectual Property and Data Protection Laws
Now since different countries have varying laws related to intellectual property and data protection and in order to avoid any difficulty in outsourcing it is better that the corporate adheres to both the source and customer country’s legal system. Coming to the issues of local laws which is again connected to the heterogeneity of legal system. Both outsourcing and customer company should first identify all the intellectual property and data protection laws involved in the system of the services provided by customer, source company and the third party who shall be utilised in providing the required Intellectual property service. Now it essential to set out in clear cut terms as to who shall have the ownership of the Intellectual Property. It is important for the source company to expressly mention in the lawful agreement regarding its license to use and incorporate any third party in the provision of services.

Dispute Resolution and Jurisdiction of the Court of Law
Regarding dispute resolution, the clause dealing with the prevailing laws and jurisdiction of the competent court of law is wholly relevant in the event of a dispute among the parties. Now it important for the parties to the agreement to both consider the implication of obtaining a foreign judgement and jurisdiction of the court. in the case of a properly structured clause, the customer party expands its ability to recover against the outsourcing party’s assets in the case of any dispute. Furthermore, in the case of a dispute, the clause outlines the approach which shall be followed in order to reach a consensus.

It is important for both business outsourcing and customer party to effectually draft the agreement as a precaution to legal issues in offshore outsourcing. The terms and conditions set out in the legally enforced agreement should be clear cut and drafted with utmost precision. The scope of work clause should exhaustively define and state all the goods and services covered in the agreement. However, it may be noted that the aforementioned list of legal issues and their precautions are not exhaustive and furthermore, ultimate term and conditions of any outsourcing contract shall vary with the circumstances and situations of a particular case.
Authored By: Adv. Anant Sharma & Aniket Pandey

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