Understanding Global Sourcing Contract Terms & Conditions
An outsourcing contract can be responsible for creating a strong relationship with the global sourcing provider, but can also cause a project’s failure. Therefore, it is important to understand the contract terms and conditions, before signing any agreements with the global sourcing provider.
Outsourcing arrangements generally last for several years, which is why it is essential for buyers to recognize the terms and conditions in which they are agreeing to abide. Global sourcing providers will want to make sure that their interests are being protected and they will create a contract that reflects this protection. However, it is possible to have a contract that protects both parties, as long as the time is taken to review the terms and conditions to determine the relative position of the contract.
When evaluating the terms and conditions of a global sourcing contract, the buyer should know what key elements should be included. The terms and conditions of most global sourcing contracts will include such components as scope of work, performance expectations, security procedures, responsibilities, pricing and termination conditions. Other areas that are often addressed in the terms and conditions of global sourcing contracts include governance, rights of recourse and pricing.
Some companies frequently include reward and penalty clauses in the contract, which include incentives or rewards for achieving certain goals and expectations and sanctions or penalties for non-performance and failure due to gross negligence. The termination provision also becomes an important component in this area as the reasons for terminating the agreement should be clearly defined. The termination clause may include termination for cause, termination for convenience, change of control and flexibility of termination.
Global sourcing contracts should also incorporate remedies for dispute resolution and identify the jurisdiction in which the resolution should take place. This jurisdiction should not be so slanted that it is unfair to the buyer and could cause the buyer to not be able to obtain a prompt, neutral and cost effective resolution to the dispute.
Before signing the contract, the buyer should carefully review the terms and conditions to identify any areas that may need to be negotiated. An attorney or industry expert can help determine the level of protection for the buyer by thoroughly analyzing the contract. Understanding the terms and conditions of the global sourcing contract can help the buyer find success with the outsourcing arrangement.
A&E Consulting provides assistance to companies looking to outsource, by helping develop an organizational global sourcing strategy, searching and evaluating global sourcing providers and establishing the outsourcing program. In addition, A&E Consulting will oversee the first outsourced project to ensure a smooth transition.
Tags: global sourcing, global sourcing contract, global sourcing provider