Before You Outsource IT Services Provider, Check Out these Legal Issues

Outsourcing is when an individual or company hire a service provider which could be an individual or company to perform a task for one’s company.

Similar to this is offshore, when a company prefer to use foreign labor/service provider to substitute for local one.


There are different reasons why companies do choose to outsource work and important factors to consider when deciding what business activities to outsource (either to there country or other country).

Possibly because the company want the following:

  • They want professionals to perform the task and for efficiency
  • They need more labor for the job.
  • It reduces the labor cost or/and production cost and many more.

The importance of outsourcing in information technology services in today’s business are many as several businesses are outsourcing IT due to much benefits that come with the move.


While there are pros and cons of outsourcing work generally and reasons why some companies don’t outsource, the advantages of outsourcing are much more than the disadvantages.


For example, IT outsourcing exposes the company to the most advanced software tools for the business; it eliminates the cost of hiring professionals on a full-time basis and allows the business to concentrate on its key competencies.


However, IT outsourcing brings about several legal issues whether to the vendor and/or the business and this is one of the determinants of your decision to outsource.

Below is a list of legal issues that you should explore when negotiating a contract or a service-level agreement with your IT vendor.



Data Security

Data is an asset to the company! It contains your client addresses, business information and lots of information regarding the running of the business and some may be confidential and not to be exposed to business competitors.

Mismanagement of data can cause identity theft and tax fraud when hackers get access to the clients’ data.

By entrusting your data to a third party, you bring in new security vulnerabilities and risk.

Your contract or the SLA should give data protection benchmarks, steps to take in case of a data breach, and which party is responsible in case of a lawsuit arising from a case of a data breach.

All these should be considered in the terms and conditions of the outsourcing service.



Jurisdiction of the vendor

Sometimes, the business hires the services of an international IT expert. Should either party seek arbitration or justice from a court, there might be a problem when determining where the lawsuit would be heard.

Your SLA or contract should state the location of the court(which country’s legal system) and the laws governing such a trial.


Agree on both areas. If the country of origin is not stated, you can go for a third-party neutral governing law that both parties feel comfortable using.

However, you should understand the rules and regulations related to outsourcing in that particular country; for example, if you’re in US and you outsource in India, UK or Australia




In many cases, licensing is part of the outsourcing, especially where a system and software are involved.

Your contracts should define the exact item that is being licensed as well as the rights and obligations of both parties.


The business should evaluate the terms of the license to determine if it has sufficient rights to use the software tool as intended.

For example, the license terms should allow for certain modifications to enable the software to perform certain tasks in the course of the business why still protecting the licensor’s intellectual property.



The change process

As the business evolves, new additions or improvements may become necessary on the IT systems or projects.

The IT contract should take care of minimal changes that do not amount to an overhaul of the core project or significant change that involves renegotiation.


The change process is vital for long-term projects where there is a likelihood that some business objects or solutions may change in the course of the contract.




Unlike other outsourced services, IT service providers hold a lot of data and other internal information that should be destroyed on the termination of the contract.

The contract should spell the procedures for disengaging from the IT service provider.


Moreover, should there be a lawsuit, the SLA should have a clause that requires such service provider to notify you of any secure information that they may have taken from the system and intend to use in the litigation.


Take time when negotiating your IT contracts. Look at aspects that make the business vulnerable to legal proceedings or loss of cash.

You may hire an IT consultant and legal professional to help with the negotiations.

What is not laid down in the contract may not be enforceable by law.



David Brown is an entrepreneur that has been helping businesses since 1999. He’s worked with mom & pop start-ups to INC500 and Fortune 500 companies. He is always looking for ways to improve companies through technology.