BPO Agreement

According to Grand View Research, the business process outsourcing market worldwide is predicted to increase at a 9.1% CAGR from 2022 to 2030. Organizations across domains prefer BPO because of the greater operational flexibility it offers.

If your company is looking for BPO services to reallocate time and resources to the core competencies and gain a competitive edge in the market, understanding a BPO agreement is of foremost importance.

In this piece, we will delve deeper into BPO or outsourcing agreements, what they should include, the types, and the overall benefits of having such an agreement in place.

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What is a BPO Agreement?

A Business Process Outsourcing or BPO Agreement is a contract between a client organization and a third-party vendor or service provider. The latter decides to take over a non-core part of the client’s business operations.

The contract or agreement appears in the form of a performance contract that establishes a long-term arrangement. In this agreement, the third-party service provider acts as an agent of the client company, providing an essential link in the operational chain.

A BPO contract has several components. The client organization is concerned with the efficient transfer of business functions handled in-house so far. On the other hand, the service provider is concerned about the performance measures, the scope of service, and benchmarks to set and maintain a high standard of work quality.

What Must an Outsourcing Agreement Include?

A BPO agreement must include all the following points in their details.

1. Scope of Work

Scope of work is the first point of an outsourcing agreement, and it defines the project's scope. Delineation of the scope and the requirements guides the supplier on what they are responsible for handling on behalf of the client.

2. Service Levels

The section of Service Levels will typically include the outsourced services, the key performance indicators (KPIs), the reviews and change requests, and the clauses for hiring subcontractors. All these points make the expectations of both parties clear. Also, defining the KPIs is highly crucial for Human Resources BPO.

3. Pricing

A BPO agreement should mention all the pricing, charges, and payment structure details. It should be able to answer how, when, and with whom you will make the BPO transaction. Further, it must also include the terms of cost negotiation over a specific period.

4. Use of Assets and Transfer of Employees

The outsourcing agreement should have details about the use of assets if the client is transferring or leasing any assets to the BPO Company as a part of the agreement. Similarly, if you need to transfer an employee to assist or oversee the outsourced business process, it is necessary to mention all the terms and conditions in the agreement.

5. Ownership & Intellectual Property Rights

Through a Business Process Outsourcing Agreement, the client organization completes the ownership of the intellectual property (IP) rights on the final product. However, you might have to share the ownership with the BPO service provider in some cases.

That is why it is essential to mention the details of this ownership right of the product/software in the contract to avoid future disputes and misrepresentations.

6. Protection of Data & Warranties

If the company you are outsourcing the services to access personal data on behalf of your organization, the BPO contract must have the necessary regulatory compliance.

For instance, the CAN-SPAM ACT lays out the rules and regulations for commercial emailing in the US. The data security clauses will be equally applicable to the subcontractors that the BPO vendor appoints.

On the other hand, a warranty is a documented guarantee of the quality the BPO service provider promises to the customer. The BPO agreement should ideally include the liability clauses, the general warranties, and the industry-specific warranties.

7. Limited Liability Clause

The limited liability clause fixes and limits the amount that one party has to pay to the other in case they suffer losses because of the service contract. Legal liability arises from a breach of contract, misrepresentation, negligence, and infringement of IP rights.

The liability clause in the outsourcing agreement depends on the extent to which a party suffers a loss in situations where the outsourced process fails.

8. Dispute Resolution

Chances of disputes are higher in the case of outsourcing services. As a client, you should be prepared for these disputes to safeguard yourself from legal complications.

An arbitrator is the best person to list all the details regarding the provisions for such unforeseen circumstances in the BPO contract.

9. Monitoring & Audit Provisions

An outsourcing agreement should also contain provisions that monitor the supplier’s services and conduct audits to comply with the service levels.

Some of the points worth mentioning under this section are reporting duties and procedures, step-in rights, frequency of audits, and provisions of increased monitoring if and when the service level goes down.

10. Termination of Agreement & Exit Management

This is the last point of a BPO agreement. Termination rights are necessary because it enables the client organization to end a contract if the agreement is not working as expected.

As termination does not happen instantly, an exit plan must also be in place. Details relating to how the client will terminate the BPO relationship, what assets the BPO partner will give back or retain, and with whom lies the intellectual property rights should all be there.

3 Popular Types of Business Process Outsourcing Agreement

Business Process Outsourcing is getting vast by the day, and depending on the factors of the agreement, BPO agreements come under three broad categories:

1. Times & Materials Contract

In this type of outsourcing contract, the customer/client pays the supplier for work time, as per the prearranged hourly rate of the dedicated team members, along with the materials that the outsourcing service provider uses. The total cost of ownership and the possible flexibility are the two most critical factors of consideration for the Times & Materials Contract.

2. Fixed Price Contract

In a Fixed Price Contract, the client and the outsourcing service provider agree on a steady, fixed price for the service. The supplier estimates the cost based on the scope of the work and the deliverables. The deadline is also constant for this type of agreement. A Fixed Price Contract works best for hybrid contracts where the customer/client pays for each milestone separately.

3. Flexible Scope Contract (DSDM)

This is an outsourcing agreement framework, a stand-alone and entire lifecycle agile project management and delivery method. While the agreement is more detail-oriented, it is popular for its ability to deliver results to the customers effectively and quickly. In this, the collaboration between the parties is based on the principles of Agile, and the success of the project aligns with the business goals of the organization.

Key Benefits of Outsourcing or BPO Contracts

For organizations across multiple domains, drafting a detailed BPO contract is necessary for several crucial reasons. First, it helps define the scope of the outsourced work as in the operations that are to be outsourced, the service levels or business targets, and the deliverables of both parties.

The outsourcing process entails additional legal complexities, especially if it is an offshore BPO. The outsourcing contract, in this case, establishes the local investment-related policies, taxes, and other regulations that affect the partnership.

When outsourcing contracts are in place, all the parties involved in the partnership expect to get fair treatment. That is also why the long-term sustainability and flexibility of the agreement are more important than the urge to squeeze in terms that would benefit one or the other party.

BPO Agreement Takeaway

When companies draft a detailed Business Process Outsourcing Agreement, they need to consider several aspects, from the service levels to the use of assets. As a customer, you need to ensure that this agreement is as comprehensive as possible.

Once a BPO agreement is entirely ready, organizations can hire suitable companies to streamline their business processes in no time.

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