There are many different types of contracts that your business might enter into if you are dealing with other businesses. These contracts will target different areas but are only enforceable if they are formed using the elements of a binding contract. A binding contract means that both parties to the contract must follow its terms or risk being in breach of contract. One important type of contract that businesses will use is an outsourcing contract. This article will explain what an outsourcing contract is and what legal considerations your business should bear in mind.
When is a Commercial Contract Enforceable?
A commercial contract is enforceable when it meets all the elements of a binding contract. The elements of a binding contract are:
- clear offer;
- unequivocal acceptance;
- sufficient consideration;
- certainty in terms; and
- intention to be binding.
Clear Offer
For a contract to be binding, one party must send the other a clear offer that details the terms that one party wishes to contract with the other.
Unequivocal Acceptance
The party receiving the offer must then accept without any conditions. If the party receiving the offer changes the terms, then this is called a counteroffer, and the original party must then accept the offer. The acceptance must be conducted in the way prescribed in the offer.
Sufficient Consideration
An important term of a binding contract is that consideration must be given. This means that each party must receive a benefit or incur a detriment for the contract to be binding. However, consideration does not have to be equal between the parties and can be nominal. The only requirement is that something is given in exchange for the other.
Certainty in Terms
The terms of a contract must also be certain for a contract to be binding. Certain terms mean that they are not ambiguous or have two meanings. If a term is ambiguous then a court may not enforce that term. If the term is essential to the meaning of the contract, then a court may make the whole contract unenforceable. This is where using a severability clause may be beneficial
Intention to be Binding
Both parties must also have the contract to be binding for it to be enforceable. This means that if one party does not believe the contract is binding, then the contract cannot be enforced. A contract also cannot be enforced if it was entered into by minors or someone who lacks proper mental capacity.
What is an Outsourcing Contract?
An outsourcing contract is a contract you use to outsource work to another business or individual. Your business may wish to outsource work if you cannot complete it yourself. Alternatively, it may not make financial sense to do so. For example, your construction business may not have the expertise to undertake plumbing work. As a result, you may outsource this to another business. Outsourcing arrangements are similar to contracting arrangements and the contracts may contain similar elements.
IT businesses that cannot complete a specific task themselves often undertake outsourcing. IT businesses may outsource work to offshore agencies that can do the work cheaper than a local agency.
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Legal Considerations
Confidentiality Agreement
A legal consideration you must consider when outsourcing work is to use a confidentiality agreement. If the work you are outsourcing has private details of your client, you should ensure that your outsourcing business does not leak or utilise this information. A confidentiality agreement will ensure they are bound to keep this information private.
Quality Control
Another consideration is quality control. As you outsource work to another business, you do not have control over the quality of work they are undertaking. You must set a regiment when negotiating with your outsourcing business to ensure that the work quality is up to an acceptable standard. This regiment may include you being sent updates periodically or one of your staff members being seconded to the outsourcing business.
Key Takeaways
It is vital that you consider the legal consequences of outsourcing work to other businesses or traders. Outsourcing is a process by which your business gives work to another business. This may be because your business cannot complete the work due to a lack of expertise or due to a current large workload. Outsourcing arrangements are underpinned by an outsourcing contract which should contain key clauses to ensure that it covers the arrangement. You should consider entering into a confidentiality agreement with your contracting partner to ensure that your client’s information is kept private. You should also make sure that you have a procedure for maintaining quality control.
If you need assistance with your contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
Outsourcing is very similar to subcontracting but outsourcing is usually a permanent arrangement to allocate a business function to another firm, whereas subcontracting is temporary.
Your firm could be held liable for this and your client may sue you. You must have a confidentiality process in place to avoid this situation
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