Small and mid-size companies are discovering the benefits of outsourcing business functions as a way to save money, gain flexibility, and get things done faster. By hiring another company to manage operations not central to their product or service, these businesses free staff and capital for core activities and avoid costs associated with acquiring equipment, training skilled staff, and managing day-to-day performance.

Likely functions to be outsourced include intensively technological operations such as Internet projects, voice network management, computer support systems, and data network management. Other possibilities are accounting and payroll, sales and marketing, travel and expense reimbursement, and human resource management.

Although outsourcing is a reliable technique when dealing with trustworthy service providers, it can be risky if you choose the wrong firm. A carefully crafted outsourcing contract can minimize risks when entering into agreements with firms you haven’t dealt with before and is in fact a useful guide to performance expectations in all outsourcing endeavors. The contract should spell out critical elements of the outsourcing arrangement.

Confidentiality
Protect your rights to your data. What safeguards will the service provider put in place to protect your information? How will the outsourcer guarantee protection from outside intrusion?

Licensing
Fix responsibility for all software licensing used on your behalf. What system will be provided to ensure that licenses are in order for all software used by the outsourcer in providing service to your company?

Recovery
Require a written plan for restoring service in the event of a service interruption. What will the provider do to provide backup protection in case of a failure of key equipment or the loss of data?  

Price
Establish the rate and manner of payment. How will the service be billed? By the hour? By unit of items handled? What is the payment schedule?

Services
Define in specific detail the services to be provided and stipulate which side is responsible for costs arising from unpredicted problems. What tasks are part of the core service? Which will be considered extras? How quickly will the service provider respond to requests?

Standards
Establish a set of metrics for measuring performance. Will you track the time it takes for a transaction? The total number of tasks accomplished in a given period? Number of individuals served?

Management
Specify a mechanism for supervision of outsourcing relationships. Who will be responsible for overseeing the arrangement? Who will the service provider designate to provide liaison.

Termination
Stipulate steps for concluding the arrangement. How much notice is required to terminate the relationship? What happens to equipment, inventory, and mailing lists?