A popular solution when offshoring ADM has been to start with one development project as a small pilot. Some companies even start a second or third project on a “handshake” basis while negotiating a contract subsequent to a successful pilot.
Note the advantages of a pilot. Some suppliers are willing to do the pilot project on a risk-reward basis or at greatly reduced time-and-expense rates to demonstrate their capabilities. The buyer gets a first-hand, trial-by-fire look at the supplier’s reliability, flexibility, and quality of work.
Note the downside to this approach: Without a formal outsourcing contract, buyers have no mechanisms in place for dispute resolutions or, ultimately, recourse if things don’t work well. Numerous studies reveal the root cause of problems in offshore outsourcing relationship is not the supplier’s expertise; rather, it’s the lack of an effective governance structure over the relationship.
Best practice: Buyers of outsourced services receive more value when operating with a contract in place. Take the time to create and sign an outsourcing contract specifying scope of work, deliverables, quality and milestones (and dispute resolution) even for a pilot project.