What if Offshore Outsourcing Failed?

How do you pursue litigation if the service provider is located offshore? Here are the guidelines to help SMEs avoid disputes, and what to do when things go awry.

How do I prepare my company to avoid contract disputes?

A well-documented contract should include:

  • Specific examples of direct damages
  • Intellectual Property rights or specific rules that state if work produced during the outsourcing engagement (software, products, applications etc.) can, can't be or at which extent it can be modified and sold for commercial use. 
  • Clear and specific contract provisions
  • Specific examples of material breach of contract
  • Binding and non-appealable clause that allows an arbitrator or industry expert to resolve a dispute or provide a missing statement
  • Define performance standards - what the service provider is required to perform or what results they should deliver
  • Require written notice to a specified client/officer in case of failure
  • Require written notice for any breach of contract

Can I sue an offshore service provider?

Yes, but SMEs should double-check these facts first:

  • The nature of the dispute - there's a difference between underperformance and neglect.
  • Dispute resolution processes in the contract.
  • Binding arbitration clause - foreign courts are more likely to enforce a binding and non-appealable decision from an arbitrator rather than a court ruling. 
  • Location of the offshore provider - assess if the foreign court will enforce a court ruling from the client's country. For example in India, the US is not a “reciprocating territory” so litigation is slow and costly.
  • Collection - the small business is responsible for collecting the money if they win the case.

Can I fire my service provider?

Yes, but terminating an outsourcing engagement is as complicated as preparing it. Costs include termination fees, transitioning work to another service provider, and bringing back work in-house. The root of the problem must be identified first before firing or taking the service provider to court.

Can I bring back work in-house?

Yes, but this can be a long process, depending on the scope and scale of the work outsourced. The outsourcing client has to reverse the changes made. They need to have the necessary resources in place to support the work brought back in-house. This can cost twice as much compared to outsourcing that process.

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