Which Type of Outsourcing Contacts is the Most Suitable for Your Business?


Hello and welcome to the Cleveroad studio. In today’s edition, I’m going to offer some
advice when dealing with an outsourcing company. In particular, we are going to consider different
pricing models and the types of contracts on offer. Let’s start with the most popular and the
most efficient, in our opinion, – The Fixed price model. It implies paying a fixed amount of money
for a specified amount of work. This is the perfect solution for short-term
projects lasting not more than a few months. Note that you should be clear about the exact
scale and scope of work, because these types of contracts usually don’t allow significant
changes during the development process. Having said that, it doesn’t mean that you
aren’t allowed to incorporate revisions into an ongoing project. If such a need arises, you can create an additional
agreement with a supplementary contract and price. Here is how you are going to benefit from
the Fixed price model: No overpayments, since the entire amount is
agreed in advance. No supervision, because coordination of the
development process is carried out by the project manager. No nasty surprises, as you have a signed statement
which describes by when each portion of the process should be completed. No distrust, because there is no need to worry
whether the working hours are being used efficiently. The contractor is highly motivated to deliver
a quality product in the shortest possible time-frame. Low risk, because you still have the right
not to pay if the product doesn’t meet the specifications. Among the cons can be the relatively long
time needed for preparation, little control over the actual process, and a lack of daily
communication. Well, all the above sounds good, but what
to do if you intend to launch a long-term project which is impossible to itemize and
estimate in advance? In this situation, you can use the time and
material model. It doesn’t require an advanced calculation
of all the details. You pay for the hours spent on the development
of pre-specified functionality. Note that you may have to reimburse material
costs (e.g., hardware) and ancillary charges (e.g., business trips). This is a great solution for long-term cooperation. With a Time and Material contract you gain
the following benefits: Flexible budget, because you can negotiate
with the team on the relevance of certain features how they are implemented. Part-payment opportunity, because the total
amount of work will be split into bundles, you pay step by step, for each completed piece
of work. Easy start, because you don’t need to fully
sign-off on all the detailed final requirements. No costs for preparation, because all the
discussions are considered as a part of the workflow. Agile orientation, as this model perfectly
aligns with Scrum methodology, in particular, such elements as sprints, daily and retrospective
meetings. Let’s cover some of the disadvantages now. Pay attention to the absence of deadlines,
lower budget control, and the time required for participation in the workflow. The last type of contract we will look at
today is the Dedicated Team model. It suits long and complex projects when you
cannot determine the end date and the various stages of collaboration. The great thing is that you get a remote developer
team who are working solely on your project. They become full members of your company’s
team, understanding the key ideas you are seeking to achieve and integrate into the
corporate culture. The positives of such collaboration include:
Straightforward communication, since you will be constantly in touch with the people actually
carrying out the work. Catch-all control, because you will be part
of the monitoring and coordination process. Reliable team that becomes a part of your
regular workforce. Task flexibility, since you can easily change
functionality and goals. High effectiveness, because the team members
develop an in-depth knowledge and expertise of the product. The limitations of the Dedicated Team model
include expense, time costs, and overheads for management. As you can see, all these types of pricing
models have their risks and opportunities. But which is the best one? Even after taking everything into consideration,
I still recommend choosing the fixed pricing strategy over other two models, unless you
have good reason not to. The point is that such collaboration carries
the least risk for the client and passes it to the team of IT experts. I hope this video will help you make a wise
decision. For more information about the pricing models,
check the full article on our site. You can see the link below. So Bye for now and I hope to see you again


  1. Each of the three models is suitable for particular projects and has its strong and weak points. To know more and analyze them carefully to be aware of the alternatives you have, you can read the full article — https://www.cleveroad.com/blog/types-of-contracts-in-outsourcing-how-to-make-a-wise-decision


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