How to Avoid Scams When Outsourcing Software Development
As the demand for highly skilled engineers continues to rise, more companies are turning to outsourcing as a strategy to access talent and reduce in-house costs. This isn’t limited to small businesses or non-tech firms; major companies like Slack, GitHub, and Skype also leverage outsourcing for competitive advantages.
However, where there’s high demand, there’s also the potential for dishonest practices. In the software development industry, there are numerous outsourcing horror stories, ranging from developers misrepresenting their expertise to outright intellectual property theft.
One critical aspect of outsourcing software development is establishing trust. In this article, we’ll explore how you can safeguard your development project and investment against unreliable providers.
Common types of scams in software development outsourcing
At its best, IT outsourcing presents an incredible opportunity to build products without having to manage all the intricacies.
However, at its worst, outsourcing can involve false promises and deliver low-quality work.
In fact, many clients have cited a lack of trust in other providers as the primary reason for turning to ETEAM.
Here are some common deceptive practices we’ve encountered over the years so you can avoid them.
Bait-and-switch
One of the major risks associated with outsourcing is that what you initially see may not always align with what you eventually get.
It’s important to be cautious of development companies that present impressive portfolios and skills during initial discussions but then assign your project to inexperienced developers once the contract is signed.
This practice, commonly known as bait-and-switch, can lead to being charged a senior developer fee for work produced by a junior, resulting in a mismatch between the promised expertise and the actual delivered output.
Identity theft
At times, teams or freelance developers may take on projects without having the necessary technical expertise to fulfill them. This can happen due to a lack of awareness of their limitations.
In more extreme cases, individuals or teams might present themselves as respectable entities by stealing someone else’s portfolio and work.
At ETEAM, we prioritize the thorough pre-vetting of developers and integrate risk management into our recruitment strategy right from the beginning. This proactive approach helps us avoid situations where individuals or teams may lack the expertise they claim to have.
Intellectual property theft
As you engage in outsourcing development, you inevitably need to share access to critical and sensitive information, such as proprietary code and innovative ideas.
In such collaborations, it’s essential that the third party transfers full rights to your product. Intellectual property theft poses a significant risk, capable of causing significant business damage and potentially obstructing your ability to monetize your own ideas.
Overpromising and overselling
If something sounds too good to be true, it probably is.
Consider a scenario where a company promises to deliver a cutting-edge application within a month, while similar projects typically take a year to complete. Overpromising is a general deceptive practice, often accompanied by overselling.
For instance, a vendor might attempt to charge an excessive fee under the disguise of server hosting or infrastructure costs, even when the same can be achieved at a lower expense.
Deceptive billing practices
Deceptive billing practices can manifest in many forms, including hidden costs, demands for full project payment in advance, or artificially increasing the number of hours spent on the project.
While outsourcing can surely lead to cost savings, failing to pay attention to these areas can ultimately jeopardize your budget.
Warning signs you might be dealing with a fake development services provider
Building a software product involves making difficult decisions, and one of the crucial choices is determining who will build your product. Whether you’re outsourcing offshore or nearshore, ensure the authenticity of the provider you hire.
However, identifying potential scams can be challenging if you’re not a developer yourself. Here are some signs to watch out for before vetting a software development company or freelance developer:
- Development Costs Below Industry Average: Unrealistically low prices compared to the market may imply low quality or hidden fees later in the project.
- Claims that are Hard to Verify or Unclear: Scam providers intentionally make it difficult for you to fact-check their portfolio, clients, and track record. The extent of their contribution to a project, whether they built the entire application or only a part, might be unclear.
- Generic Answers to Technical Questions: Lack of technical vocabulary, unawareness of industry best practices, and vague replies to technical questions can be red flags.
- Lack of an Online Presence: Disingenuous vendors may not be active online beyond having a website. They may not invest in branding, maintain at least a minimal social media presence, or publish tech content.
- Inconsistent and Unreliable Behavior: Frequent changes without proper explanations, such as changes to team composition, constantly shifting deadlines, or postponing demo meetings without fair reasons, are red flags to be cautious about.
Avoiding scams during the selection process
Selecting a software outsourcing company starts with the initial step of the creation of a shortlist of viable candidates.
A significant aspect of comparing vendors and conducting research is the ability to distinguish those with genuine expertise from those who lack it.
Create a list of requirements
Developing a set of criteria serves not only to help the decision-making process in assessing if companies are a good fit but also acts as a filter to identify potential scams.
You don’t need to have everything defined from the beginning. You can start with fundamental requirements, such as the company having a verifiable address and contact information, and gradually add to the criteria.
Feel free to explore this list of 10 criteria for selecting the right software development company for more insights.
Prioritize referrals and your own research
When searching for a software development partner, consider using trustworthy channels rather than relying on public statements.
Publicly announcing your search might attract candidates of varying skill levels and increase the risk of scams. Instead, conduct online research using popular directories and visit each company’s website and portfolio.
Additionally, seek recommendations from other businesses that have collaborated with an engineering team. Referrals are among the most trustworthy sources, offering a firsthand look into the vendor’s professionalism and work quality.
Do a background check
Honest development companies typically maintain a professional website, an active social media presence, and positive reviews on platforms like Clutch or Glassdoor. Ratings and review directories are valuable resources as they offer a holistic overview of the company’s activity, including case studies, services, and client feedback.
In addition to an online check, you can request client references and directly contact those companies to ask about their experience with the provider.
Furthermore, you can verify if the company is associated with credible industry associations or holds certifications in relevant technologies. For example, as a certified AWS Consulting Partner, you can find all our validated qualifications in the AWS Partner Official Directory.
Assess how they communicate
Even in the early stages of screening before booking a meeting, you can evaluate the credibility of a potential software development partner through their interactions.
Whether you filled out an online form on their website or sent an email requesting more details, consider the following:
- How quickly did they respond?
- Did their communication sound professional?
- Were they able to provide clear answers?
- How open were they to discussing project details?
Good outsourcing companies not only demonstrate technical expertise but also show reliability in their communication.
Securing your project when signing an outsourcing contract
Safely outsourcing software development services doesn’t end once you identify a potential provider. Establishing clear legal agreements is equally necessary.
Dishonest vendors may attempt to avoid any legally binding contract or exploit gaps, underscoring the importance of outlining project responsibilities and terms.
Pay attention to loopholes
A loophole in a contract can encompass anything that is not clearly specified, be it time commitments, penalties for missed deadlines, team structure, or even rewards for successful development beyond expectations.
Documenting all aspects is required, as loopholes may lead to significant monetary losses. A well-phrased agreement serves as an initial roadmap for both you and the outsourced developers to set expectations and define project scope, objectives, and quality standards.
Outline features, not just timeframes
Even if speed to market is a priority, do not focus solely on time when preparing the contract; consider deliverables as well.
Agreeing on a feature list encourages the development team to prioritize a fully functional application over simply meeting deadlines.
This approach brings a sense of ownership, prompting the team to thoroughly test scenarios and use cases.
Consider establishing a milestone-based agreement tied to specific deliverables, ensuring that what you pay for is reflected in the project’s progress. Software outsourcing companies typically operate on a milestone or sprint basis in line with Agile methodologies.
Include an intellectual property rights clause
As a paying client, you own the application being built by the development team, and this ownership should be explicitly outlined in the contract. Including an Intellectual Property (IP) rights clause is essential to avoid complications in the future when marketing and monetizing the product.
This clause not only protects your codebase and ideas but also prevents them from being copied if the external team works with a competitor in your industry.
Safeguard proprietary data through an NDA
Throughout the development process, you’ll inevitably share confidential information with the team. Even if your company doesn’t have trade secrets or isn’t keeping a revolutionary idea under wraps until release, it’s a good practice to sign a Non-Disclosure Agreement (NDA).
An NDA protects critical business information and other sensitive data, as it is signed not only by the outsourcing company but also by individual developers.
Don’t forget about maintenance and support
While maintenance and support may not be mandatory contract requirements, a truly reliable software outsourcing company will offer this service. This can encompass handling bug fixes, monitoring applications for threats, and creating disaster recovery plans.
Before signing such a contract, it’s important to clearly agree on the duration for which the team will provide support for the software they built.
Cover all your legal tracks
A full contract should incorporate risk mitigation measures and outline actions to take in case of issues, including dispute resolution mechanisms.
Key considerations include determining which governing law or jurisdiction applies if the terms are breached, establishing responsibility for legal fees in case of a lawsuit, and defining escalation procedures if initial concerns remain unresolved.
Implementing a solid legal framework can safeguard your project and investment from potential unpleasant incidents.
Fear nothing with the right development team
Outsourcing software development is a significant decision with far-reaching consequences. While many product development agencies and developers are legitimate and trustworthy, some may not meet these standards.
Whether it’s a matter of unprofessionalism or something as serious as fraud, safeguarding your application from the beginning is essential.
Working with a software development team you can trust can make a world of difference. At ETEAM, we prioritize clarity and collaboration, embedding these principles in our tracking metrics, reporting processes, and agreement discussions. With centralized dashboards, weekly reviews, and pre-discussed expenses, we offer unparalleled project transparency.
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