Legal Issues When Outsourcing

Full Video Transcript

Outsourcing has become an extremely popular method of cost cutting for businesses in recent years. However, there are legal issues that may arise when drafting a service level agreement (SLA), which in essence legally binds the company and the service provider. The issues may be the following: equality of service standards, concern over the security of information, litigation costs arising from disputes, and changes in the business environment which may alter the company’s needs. Therefore, the SLA needs to clarify the expectations and duties of each party. The SLA should have two parts: a section outlining the service expectations and a section addressing fees and penalties for nonperformance. It is vital that the contract drafted between the two parties clearly state the responsibilities of each party, scope of the work, and penalties if such objectives are not met. Any concerns regarding breaches of security information and alterations in the agreement in relation to market changes need to be clearly set forth in the agreement to avoid litigation.