The most popular types of outsourcing contracts — How to choose the right one?
Tags: Technology, Software Development, Legal, Programming

You may find a lot of obstacles when you will try to outsource the work to the different company. It could be tough to deal with the competence shortage. Shortlisting the best outsourcing suppliers is really challenging. Once you headed throughout the process of seeking for the right ones you can feel relieved. But this feeling will not last forever. Companies representatives will urge you to sign the contract which is the best for them. But which one is the best for you?

Feeling uneasy in that sort of situation is normal. Unsurprisingly, depends on what you choose, your project could be a success or a real disaster. It is all about your project requirements. About what you have and what outcome you want to achieve. Eventually, everything is about how you set up the contract with the new contractor.

There are two the most common types of contracts between you and your new deliverer: Fixed Price Basis and the Time and Material Basis.

Fixed Price Basis

The Fixed Price basis is a type of contract when you detailly specify the scope of work, budget and deadlines. This type of contract is the best choice for the project when details of functions are clearly specified. This sort of contract can require exact attachment with a clear description of each module that has to be developed. In most cases, the wireframes will be needed as well. Not every company demands you to deliver it. But it is your business to deliver it because once you do so, you will avoid misunderstandings when wandering throughout the development process. Sometimes a supplier will propose you to order wireframes, and development of the details of functions before you will start develop your project. It will cost you extra money, but if you do not have the wireframes ready and the scope of work is not specified properly it could be a great investment.

Also in that type of a contract you may ask a software development company to provide you a free guarantee or a few months of free corrections period.

The best advantage and a disadvantage in the same time of that form of contract is that the project has to be specified in the details. It can be an advantage because you know what outcome you receive, how much you pay and when the project is finished — if everything goes right. But also it may be a disadvantage because once you want to change something in the project you have to pay more and change the attachment to the contract at first. Sometimes changing a scope could be impossible because it could collide with the application structure. This is why the wireframes are so important to develop before you begin with the development.

Time and material basis

This type of the contract can be used in the two types of situations. First, if you want to develop a software but the scope is not clearly specified. Second, if you already have a project development ongoing and you want to extend your team. This agreement requires you to pay hourly to each of your employees from your team . Mostly you pay for each “Man-Day(MD)” — business day of work to every team member. This is a solution when your company deals with the competence shortage. When you have a work ongoing, you cannot specify the scope because you do not know what is going to happen. Time and material is for you.

Also when you have an idea of the software that will change a life of each individual but is not specified in the details. First you have to develop an MVP and then the right application. But you cannot predict in which direction the development will go. You are still researching market for the answers which may change the scope. Time and material is for you.

The biggest disadvantage of this type of contract is that in the end of the day you cannot predict how much your software development will costs. On the other hand, you are the one in charge. You control the process of the development. You manage the people. You are the one responsible for the outcome. You decide when the work is finished. This freedom could be really important when it comes to the development of your new software that will bring a great value for your future clients.

Conclusion

These two types of contracts which are mentioned above are the most common on todays market. Fixed prices basis are mostly for the smaller projects when the scope of work is clearly specified. Time and Material basis are rather for the bigger projects when you cannot specify the details of function and the outcome is still unknown.