What Do You Do When Outsourcing Goes Bad?

Xphox wonders: "Recently we have been referred to an outsourcing company to finish customization on a script that the author had no time to complete. Everything was going fine until recently. At what point do you consider they may have just ripped you off, and how do you know when to file complaints and withhold payment?" "I have been working with what I thought was a reputable outsourcing company, referred to me by the author of the software package. We agreed that payment would be made once everything was completed. After a few missed deadlines, the project finally seemed to be finished. The only thing left was a small bug fix, and an install script which needed to be completed. As agreed, he delivered the install script, and we made the final payment. Upon testing the new install script we noticed things did not work as intended, and all attempts to contact the outsourcing company has resulted in the following answer:

'My guys are still working on it.'

My fear is that if I don't act now, I will not be able to recover any funds, and will be stuck with a product that is useless. It has been 9 days since I've received an email from them, and I'm starting to think I've just been taken advantage of. Since the script is protected with Source Guardian, I am unable to finish the modifications myself."

Comments

Simple test here:

[Skyshadow]

I can usually tell when outsourcing has gone bad. It's about the time my boss calls me into his office on a Friday afternoon and explains that the company needs to right-size their domestic staff and that, unfortunately, my position has become redundant.

Re:Simple test here:

[Anonymous Coward]

Before the inevitable avalanche of anti outsourcing and anti india comments, let me point out that the author hasn't made it at all clear which country their firm is located in, and wether or not the outsourcing firm in question is located in the same country.

Re:Simple test here:

[RWerp]

I hate it when people don't take losing their livelyhoods like good little sheep, too.

And I hate it when people accept the notion of free market and competition only when they are on the winning side.

Re:Simple test here:

[greenhide]

I remember being on a trans-pacific flight with this manager for a major corporation. He had been in China overseeing some project.

He said they're moving out of China soon.

Why?

Because the labor (these are specialized workers) is too expensive. That's right, China is too expensive.

It's true that the wage that the Chinese engineers are asking for has gone up. But that's a natural factor of supply and demand. Eventually, they are going to actual start demanding to be paid what they're worth to the company. However, their wage is still significantly lower than the one that the US engineers received way before the outsourcing occurred. So assuming that all other parts of the equation are the same, the company is still making more profit after *salary* (excluding other expenses) than it did when it wasn't outsourcing at all.

Nonetheless, this company is going to move to another country where the workers can be paid significantly less, thus maintaining their huge post-salary profit margin (again, discounting expenses in other areas).

Why are the doing this?

Because globalization has made it significantly easier to do so.

Because of globalization, it's now possible to start up a working factory, shop, or headquarters pretty much anywhere in the world. This means that you can specifically target the most impoverished countries, countries where the average person makes a 10th, 100th, or 1000th of what an American might, and set those people to work.

Now, in a non-growth system, where companies maintained their size and scope, companies would be able to hop back and forth between countries at whim. Whenever country A became too expensive, they'd simply move to country B until it became too expensive, then hop back to country A (now desperate for work).

However, capitalism cannot exist without constant growth. So, one side effect of this global offsourcing behavior is that as the salaries grow for the workers, so do their spending habits. They then, in turn, cause growth in their country's economy and increase demand for supplies and services, forcing the businesses to hire more workers to supply this demand.

As a result, eventually there will be no country where the workers haven't gone through this process, so there will be no place to turn to for "cheaper" labor. This, of course, assumes consistent growth.

Of course, this does pose a problem: currently, we're using up resources on a grand scale. And if our population growth continues as the average consumption of individuals go up, we may end up seeing a problem with a shortage of resources. This will cause prices for items to go up, which means that the increased salaries will have decreased worth (this is pretty much the case now in the US: you can live like a king in Beijing on $20,000 but in New York you'd barely be scraping by).

Therefore, only those with salaries at a higher order of magnetude will still live comfortably. In other words, CEOs and other financial elite. So, the gap between the wealthy and non-wealthy will continue to grow.

So, I do think that people who point to offshoring as being a tool to benefit those at the top are pretty much dead on.

Saving your bottom line.

[grub]

1: Stop payment on cheque.
2: Demand refund of deposit.
3: Get one return ticket to contractor's location via Expedia.
4: If 1 or 2 fail send return ticket to "IcePick" Vinnie.
5: Pick up Vinnie at airport in a couple of days.
6: Take money home and count it or enjoy photos of mangled corpse(s).
7: ???
8: Profit!!!

Rule #1 when you pay someone to code for you...

[rednip]

Get the source code! You might have called it outsourcing, but what you really did was pay someone to have an code empire in your domain. Even if they do finially deliver the finished product, you stuck with them for further development.

Go public

[Giro d'Italia]

Name them, especially here, and let them know you've done it. That will teach them a lesson.

Caveat Emptor

[infinite9]

So you paid without testing the final product? I suspect all you can do now is sue. We've received "finished and tested" outsourced projects before that didn't even compile. You have to be very careful out these things.

You get what you pay for

[JasonUCF]

What time do you have to react? Like if you act now as opposed to two weeks you'll make back your money? Unless you sent the money through a very trusting (read, you do a lot of business with) bank that has some sort of angel stop-payment plan.. you are S O L.

Where is the contract? Whose laws govern it?

You went with a company outside of your country to do a deal..

Why didn't you test what you got first and then pay for it...

I smell FUD... no details here, is this just an anti outsourcing fable?

Hell, itll bite you.

[Dr Reducto]

My friend works as a consultant, and he was consulting at a company where they decided to outsource some programming to Russia. They get the program shortly before the deadline, and it DOESN'T WORK!!!

So they take the program, rip out all the shit (a surprising percentage of it), and rewrite the whole thing pretty much from scratch in the course of a week. They finally get it working, and hand it into the boss, without telling him how badly they got fucked by the outsourcing. The boss is impressed by the quality of the code, and decides that the next project they do should be sent to the same firm. Luckily, my friend wasn't around the next time they went with the low-cost outsourcing.

Re:Hell, itll bite you.

[sh0dan]

They finally get it working, and hand it into the boss, without telling him how badly they got fucked by the outsourcing.

How on earth did he expect his boss to know not to hire the same firm again? I know most bosses are stupid assholes, but at least give the boss a chance to make an intelligent decision!

Re:Hell, itll bite you.

[Anonymous Coward]

Not letting management know how bad the code was is a HUGE mistake and disservice to your employer.

Never let social pressure or the unpleasantness of being the bearer of bad news stop the flow of information in your organization. If, out of loyalty and dedication to your people you work overtime for a week and get it working, you have to let them know, or they won't be able to be loyal back to you in return.

It also stops the Russian firm from realizing that they aren't giving out a good enough product to stay in business, and screws them over too.

Basically, letting information stop with you instead of passing it on damages the whole capitalist system in the long term, and you should only do it if you like being poor and unemployed.

Life's lessons

[binaryDigit]

As agreed, he delivered the install script, and we made the final payment. Upon testing the new install script we noticed things did not work as intended,

You made payment BEFORE you ran formal acceptance testing of the application (yes, including the installer). That was your fatal error. Once you've ponied up the bucks, you've lost all leverage short of a lawsuit.

If I were you, I'd email then and request a specific timeline/deadline for completing the work. Make sure your email contains language stating that what they delivered does not meet their obligations. Assuming they respond similarly (i.e. "we're working on it"), then at least you have some level of proof that they acknowledge that they are potentially breaching the contract you have. Then take their asses to court.

Good luck. Next time remember

- formal requirements
- explicit deliverables (see requirements above)
- formal acceptance test to ensure that the software actually meets requirements

Final Payment?

[spacefrog]

Let me get this straight, you made final payment *without* getting the source code?

Wow.

Re:Final Payment?

[andymac]

Not all contracts for s/w development transfer source code and the related IP. Some contracts will transfer source for use internally only for maintenance purposes, other contracts will transfer it for full use (full copyright transfer, etc.). But it is not uncommon to have a contract where the contractor retains some rights to the IP (in effect licensing the code to the contracting company).

Don't assume all contracts are the same.

Re:Final Payment?

[nojomofo]

What if the vendor has a specialty in some domain, and has built up a library over time? The vendor can then build outsourced solutions for less money using the library that they have built up, and save the customer both time and money. In that circumstance, it is very justifiable that the customer might not get all of the source code. Which should, of course, be stipulated in the contract.

Unfortunately the parent option...

[tekiegreg]

Might be your best one, legal remedies overseas get sickening. Particularly in the India(is that jurisdiction?) judicial system. Something most outsourcing companies really don't understand, if the sh*t hits the fan on your contract the best case scenario is that it would take you a while to legally get compensation; worst case scenario is that the courts tend to favor the natives to their country more than the foreigners and you're out of luck.

Re:Unfortunately the parent option...

[Skyshadow]

I have to agree with this 100%.

I assume from the lack of considering a legal option that the OP is talking about off-shore outsourcing (I know the outsourcing apologists in this thread have been busily suggesting it isn't off-shore... Sure, guys). Getting any satisfaction from an off-shore court is almost impossible.

My last company was the victim of out and out fraud on the part of a Chinese firm. When my company threatened legal action, they basically laughed at us. They were right to laugh -- essentially there was no above-board way to get any legal judgement against them. We were foreigners, plus we didn't know who to bribe (the Chinese legal system is incredibly arbitrary and corrupt).

We never saw a dime. When the investors found out we'd lost a huge amount of money *and* didn't have the scheduled release, they took over the company and liquidated it.

That's part of the reason I'm not too worried about offshoring as a long-term trend (as opposed to the fad it is now) -- you can't entrust anything critical overseas because you have zero recourse if you're screwed over or incur liability.

Re:Unfortunately the parent option...

[ari_j]

You can get a judgment, no problem. The hard part is enforcing it. In the US federal court system, you can sue a foreign company and the US federal courts will assert jurisdiction over it if that company has passed a given legal test, which I will refrain from enumerating here in any way, but essentially covers cases over the specific involvement that company has within the US. For instance, a company that sells cars in America would be subject to jurisdiction here. It's my first thought that the federal courts would assert jurisdiction over outsourcing firms, as well.

The problem is that, even if you get a judgment against the foreign company, how are you going to enforce it? The courts can't imprison them for contempt, because they're in another country. Extradition for contempt? Ha, I wish.

So, if you get a judgment against a foreign company, you'd have to go over there with Vince and collect on it the hard way, anyhow. Why not save the legal fees and just go over there in the first place, without having to file any expensive lawsuits in federal court?

Disclaimer: I am not a lawyer. Everything I just said could possibly be wrong, but may not be, and is in no way intended as any form of advice, legal or otherwise. If you believe anything I've said in this comment, you assume all risks and liability that may ensue, be they personal, civil, criminal, or otherwise. I have also never played a lawyer on TV. Confusing me with someone who has would be flattering, but incorrect and foolish.

Re:Unfortunately the parent option...

[bani]

don't get mad, get even.

just write a nice letter to the chinese embassy / chinese law enforcement, that a company you were working with turned out to be a front for a pro-democracy revolutionary group, falun gong, or pro-taiwan-independence movement or something.

i've gotten chinese spammers shut down this way, when they laughed at me. they aren't laughing anymore.

Re:Unfortunately the parent option...

[bani]

while the chinese government might do a lot of distasteful things, they dont always do things completely arbitrarily. even totalitarian states like to have an image of due process. :)

anyway what happened is they had their offices searched and their computers confiscated (according to the whiny semi-apologetic mail later received). they were basically shut down totally, at least for a short while.

they werent killed or tortured or even imprisoned. but they were definitely scared shitless, and they arent laughing anymore. it cost them time, money, and probably a heart attack or two.

When you hire a...

[glenrm]

Software Engineer, you get more than just a coder, you get IQ, you get somebody who understands the low and high level testing that needs to be done, you get somebody who can help you ask the right questions, you get somebody who can make sure the code compiles, that makes sure you get the code, that can rewrite or the crap code you already have, somebody that can save your ass, that is why we cost so much...

Firsthand experience

[cOdEgUru]

I consulted for an Atlanta firm which dealt in Sarbanes Oxley compliance software and my firm agreed to develop a rule based data adapter which sucks in raw data from external enterprise systems such as SAP and translate it. And my firm agreed to do so without having any one (else) with a bit of enterprise development experience hoping we would be able to outsource it to someone else in India (despite all my "muted" protesting).

Well, we picked a firm (which I believe was cheap enough to be picked), talked to a couple and they seemed knowledgeable and we were on. I wrote down the requirements myself and passed it on to them. There were two who where hands on and I provided any help they required plus the project management. It all went to shit in a couple of days. First, they wanted to bounce ideas off and around for a few days. Here, I am working from 8:00 AM in the morning through 2:00 at night, drilling requirements in to their thick heads, answering questions, go to bed late, only to wake up and realize that they had the same questions and were waiting all day for me to wake up!!

I got so pissed off after having to spend most of my waking day working on what they were supposed to, putting together answers to questions already answered, and chatting with them over IM, losing layers of patience bit by bit before calling them morons to their face. They were still billing us a full 8 hours for doing nothing, blaming it on unclear requirements.

After going to and fro for over a week, when nothing got built, I turned around and got my buddy who works for HP in Cupertino to pick it up. He coded it in his sparetime and pretty much finished it single handedly in the time that it was promised.

The biggest pains in outsourcing, from where I stand, is the disconnect between the teams, the clarity in requirements and the work ethics. I have seen the other end of the spectrum too, when I left for India for a short stint and worked with a team on a high risk project and had to deal with all sorts of management stupidity and workplace politics, putting my team through 14 hour work days, getting pissed drunk together on build nights and delivering on our promise with in the expected timeframe. The work ethics atleast on a developer level is not that different, if you get good young kids, they are smart and loyal. But if you step up to the level of management, you do find hundreds of incompetents who suck the living blood and exist solely to serve their own interests and to collect their paychecks.

I am not prejudiced. Infact, I am Indian and everyone mentioned above is, as well.

What I do...

[HangingChad]

What Do You Do When Outsourcing Goes Bad?

• Point and laugh, fighting the urge to add "I told you so" during the hysterics
• Raise my rates
• Profit!!!

OUTSOURCING != OFFSHORING

[drew]

good grief, like 2/3's of the comments here are rants about paying people in another country to do your work or claiming that the poster is screwed because he did business with a company from another country. he never stated where the business he asked to do the work is located. it's possible that they are in the same city. (of course, they might be in india, but nobody here knows that, you're all jumping to conclusions.)

there are a lot of companies that need programming work done from time to time but don't see the need to pay dedicated programmers full time salaries. there are also companies that have dedicated programmers, but occasionally have more work at one time than their in house staff can handle. i've done work for both types of companies before- sometimes they were located only blocks away from me.

anyway, that being said, if you had a contract, and it specified that you wouldn't pay until the work was complete, you should first try and stop payment with your bank if it's not too late. if it is too late, i would get a lawyer on retainer, and notify the firm of that fact. sometimes just knowing that will be enough to get them to cooperate with you. if not, then you've already taken the first step towards either getting your working product or getting your money back.

and it may be too late now, but for future reference, never sign a contract that doesn't give you the source code. now, even if you resolve this issue with your provider, you are stuck going back to them for any future modifications....

What else do we do?

[big-giant-head]

Please I haven't seen any Indians who can do my job better than I. In most cases it isn't as good, however they can work 5$ an hour I can't. So even If I can do the job of 3 indians, it's still cheaper to hire 4 or 5.

Thing is with American middle class losing thier jobs who will buy Overpriced American products ( they stay overpriced because the CEO's must still make Multi-Multi million dollar pay checks)

I don't see Indian Programmers making $5K a year standing in line to buy $2000.00 MayTag fridges and $30,0000 ford/Chevy/dodge SUV's .... etc. etc.

We are already seeing the short sightedness of all this Look at the stock market it is contiually weak, in spite of the fact that we have been in a 'recovery' for 3 years. Why, because consumer demand isn't as strong. Well when you are destroying good jobs and replacing them with lowing paying jobs, people are not rushing out to buy non-essential crap. Add rising health insurance rates which no one in the US wants to do anything about.

If the Indians think they are so great now, just wait, there is No great love for them here in the States, As soon as the Chinese or Africans or whomever can do the job cheaper, the Indians will be left with a bunch of vacant Call Center/Tech Centers and rising unemployed middle class. What will they do then, Nothing they have nothing to sell anyone wants other than the fact they were cheaper, for a while. To boot they will have left behind some major bad will on the part of the American public....

All the 'Free Market' fans here (everyone is free market till they lose thier job, house etc....) will be on the Chinese/African ..... band wagon.

There is No such thing as a free lunch or a free market someone has to pay......

Re:What else do we do?

[j-pimp]

There is No such thing as a free lunch or a free market someone has to pay......
Free market is free as in speech. Free lunch refers to free as in beer.

FQT clause in contract

[Johnboi Waltune]

You should have had a FQT (Formal Qualification Test) requirement in the contract. That means there is a document somewhere that very clearly qualifies what tests the software has to pass before the contractor meets their last milestone and gets paid for it.

Usually, representatives from the contractor and from our company get together, have a demo, and check off every requirement as it is demonstrated. Then everyone signs off on the document and we cut them a check.

It would be totally worth it to fly a rep from the Chinese company out to the States to follow this procedure. I've dealt with lots of Chinese people in my career and they tend to be strongly opportunistic and legalistic (but only if being legalistic can help them). It's just how their culture is. If you don't do anything to withhold payment until you get a working product, they'll think you deserve to get ripped off.

Good Outsourcing

[micromuncher]

A lot of these comments have whizzed by, but you need to take a page from OTHER engineering on construction fields when you pick a company to outsource to.

1) What is their experience (how many years they been around) and reputation (do you have references)?
2) What is your access to the work and resources?
3) Can you evaluate their work independantly?
4) What contingencies does the contract provide you if work isn't done or doesn't meet your needs?
5) What payment schedule is provided to you?
6) Who can you talk to when you have business as opposed to technical issues (accountability)?
7) What are the deliverables, and who owns them?

ANYONE that takes cash upfront to do work I'd be wary of. The cash is your ONLY bargaining chip unless you are willing to go to court.

If you pay someone to develop something for you, YOU own the code.

You should have secure and free access to anything developed for you, and that includes the right to walk into their offices (homes) and demand materials. You have, after all, paid for it.

In big outsource projects (fixed cost), companies often hold back payment 40-40-20. That means a cost is agreed to, 40 percent is paid up front for the resources, 40 percent during the estimated duration, and 20 percent for completion.

In smaller ones, that are usually time and materials, unless you know the developer/shop is reputable, it is best to work ok similar principles - that is give a retainer to start work (if they accept money to start they are legally bound), and after you figure out the hourly rate - you withhold some portion for completion. The alternative is NOT to pay biweekly or monthly (based on hours), but to pay by function points. That is, they can bill you when they provide you with a deliverable.