Legal and Compliance Considerations in IT Outsourcing

Software outsourcing is a practice many businesses of all sizes use because of the many advantages it offers. But what makes this strategy so appealing? First, there’s access to global talent through outsourcing. Then, there’s cutting costs—no need to pay for office space, salaries, or benefits. And finally, it helps speed up projects overall. 

When you outsource, however, you need to be very well informed about all the other important aspects, such as the legal side and outsourcing contracts, besides just the advantages. Every country has its own rules and laws, so if you're working with an outsourcing team from another country, checking their local outsourcing regulations should be on your priority list.

Let’s look at the key legal and compliance considerations you need to know when outsourcing IT. 

The Legal Side of IT Outsourcing

The process of finding a good outsourcing team and getting started on the project right away sounds simple and easy. And yes, most of the time, outsourcing involves much fewer steps compared to traditional hiring, onboarding, and training process. But for outsourcing to be done right, don’t forget about the legal side, because if you ignore it, things can get messy. So, what exactly should we consider when it comes to the legal side of IT outsourcing?

The first and the most important one is having a solid contract. This is not just a formality. It should cover key details like deadlines, payment terms, who owns the final product, or what happens if something goes wrong. This contract should be planned out to protect both you and your outsourcing partner. Not having a clear agreement on all these important aspects might result in a frustrating legal battle. 

Another one is about data protection. If your software project will be handling customer data, do some research and make sure you’re following the right privacy laws. There are different laws and rules for different countries. For example, if you’re in the EU and you’re going to have EU customers, GDPR applies. And in the US, there are laws like CCPA. Make sure to follow the laws and rules that apply to your project, or hire a legal consultant to make this process less complicated. 

Intellectual property (IP) is also a big one. This is about stating clearly in your contract who owns the final product after the project is finished. Imagine investing time and money into a project only to find out you don’t fully own the code or product. Not cool, right? So, make sure your contract states these details so you have full ownership over the developed product. 

And then, there is compliance. Many different industries, like finance, healthcare, or even e-commerce, have specific regulations and rules. If you’re about to outsource a project in one of these fields, make sure you do plenty of research and check with your outsourcing team to follow those regulations. 

Compliance Considerations for Security

Partnering with an external team from another country means trusting them with your data, processes, and sometimes even customer information as well. This is why you want to make sure everything stays legal and secure. 

As mentioned earlier, whether you’re working with European clients under GDPR or in the U.S. under CCPA, make sure sensitive data is protected, and your outsourcing partner follows the rules.

When it comes to security, ask about your outsourcing team’s protocols and processes. Do they use encryption? Strong access controls? A data breach can be annoying and costly, so it’s better to be safe than sorry. 

In your outsourcing contract, you should have a section on compliance also. It should include information about handling your data securely, key responsibilities, and what happens if there’s a data breach. These audits and agreements could also be updated on a regular basis to make sure everything stays in line. 

Managing Risks & Legal Issues

Before outsourcing your project to an external team, it’s very important to be prepared and well-informed about the potential risks. Let’s see what these risks are and how to avoid them!

Now that we've outlined the risks and ways to mitigate them, here are some general best practices you can apply to make your outsourcing journey a smooth one: 

1. Choose a Reliable Partner           
Take your time to find a reliable outsourcing partner. This is where it all begins. If you work with a team with a proven track record of handling projects similar to yours, that’s a good sign. But make sure to do plenty of research, look at their portfolios and client testimonials, and ask about their experience when it comes to the legal requirements of outsourcing in their country and yours. 

2. Set Clear Expectations from Day One           
To avoid problems later, be sure to communicate your expectations from day one. Talk through and agree on every important detail regarding the project: timelines, ownership, and confidentiality. And, don’t forget to include everything in the contract. 

3. Have a Plan for Problems           
Have a plan in case something goes wrong. Sometimes, it happens, and it’s better to be prepared to manage the fallout. So, make sure you have a strategy in place for handling data breaches, delays, or legal issues before they become bigger problems.

4. Include Dispute Resolution in Your Agreement           
Finally, your outsourcing agreement should include a clause for dispute resolution. Instead of going straight to court, you might have a mediation process to resolve issues fairly and quickly. This is important because it can help avoid lengthy and costly legal battles.  

Strategies for Secure Outsourcing

Beyond the legal considerations, security in outsourcing is another major aspect that shouldn't be overlooked. But keeping your data and sensitive information safe takes a proactive approach instead of just a one-time task. 

We have covered the importance of data security in outsourced projects in a previous article on our blog. Check it out for more in-depth insights and tips to help you navigate the outsourcing scene securely. 

Let's see what you should prioritize to keep your data safe when working with external teams:

Work with the right people 

This is the first step. When choosing a partner for your project, make sure they have good security practices and experience when it comes to handling sensitive information. But don’t just take their word for it—ask about their security policies or if they have any certifications. 

Lock down your data 

Not everybody from your team needs to get access to everything. If you limit who can see sensitive information and also use encryption, you can keep your data safe. 

Make security part of the routine

From the very beginning of your collaboration with the outsourcing team, make sure you set rules for handling data, updating passwords regularly, and running security checks from time to time as well. 

Don’t assume things will always go smoothly

Always have a backup plan for worst-case scenarios. It will be much easier to handle any issues when you are prepared, and you’ll know what to do. 

Wrapping Up

Outsourcing gives you an excellent opportunity to work with the best professionals globally, and it can be a smart way to grow your in-house team without lengthy hiring processes and huge costs. So, when done right, outsourcing can be a great strategy for your business. 

But for everything to go smoothly from day one of your collaboration, make sure to do proper research about the legal side of things to protect your company. A little effort to sort out contracts and data protection can save you from major headaches later. 

The good news? You don’t have to figure it all out alone. With the right approach and a solid plan, you can outsource with confidence, knowing your business is protected.