The US tech industry is facing a burning talent shortage, with 70% of employers struggling to fill roles. A survey by MIT Technology Review revealed that over 64% of respondents believe that tech candidates lack skills, and 56% consider a talent gap a major issue. To bridge this gap, many companies are turning to BOT agreement as a strategic solution, enabling them to access global talent pools while maintaining long-term control and scalability.
One of the potential solutions is the Build-Operate-Transfer in IT outsourcing, which allows for effective talent gap breaching by tapping into the offshoring and nearshoring locations. But is it the most optimal way out for tech businesses?
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In this article, you’ll learn the main stages of the Build-Operate-Transfer approach, its benefits and challenges, and the key elements of the BOT agreement. Plus, you’ll discover a tech R&D center, which is an all-in-one, risk-free expansion solution for tech companies. Let’s get started!
What is a BOT Agreement?
A Build-Operate-Transfer Agreement is a contractual framework that defines cooperation grounds between a tech company and a third-party vendor to establish a software development subsidiary abroad.
According to the BOT agreement, a client company teams up with a BOT supplier to set up a subsidiary to develop and operate a software product within predetermined timeframes. When the project is finished, the entire branch, with the team, IT product, and intellectual property, is transferred to the client company.
This type of partnership is a common alternative to traditional IT outsourcing, involving less risk while effectively bridging talent gaps and reducing expenses by leveraging nearshoring or offshoring locations. The BOT model also fosters innovation, improves operational efficiency, and allows companies to maintain focus on core business tasks, ensuring sustainable growth and competitive advantage.
The Main Stages of the BOT Model
Before diving into the specifics of the BOT agreement, let’s explore the main stages of the BOT approach. Each of them is an important component in establishing productive cooperation and achieving top results with the BOT vendor.
1. Build phase
To start the development process, the BOT service provider should first establish a client’s subsidiary in the chosen nearshoring or offshoring location. It’s done as follows:
- Team set up. The BOT vendor hires tech specialists according to the client’s needs and requirements to form a perfect development team. The terms on which these experts are employed should be specified in the BOT agreement.
- Office rental. Then, the newly formed tech team needs a place to work on groundbreaking products. The BOT service provider takes care of finding, negotiating, and leasing the office space, taking into account the preferences of the client.
- Back office coverage. For the development team to run smoothly, the BOT provider manages HR, billing, legal compliance, and sets up the IT infrastructure.
2. Operate phase
If it’s not a Build-Transfer agreement, which is solely for subsidiary opening, the operating stage is taking place. It includes the full-fledged work of the supplier who assumes responsibility for team management, project supervision, and coverage of operational functions. Here are the main steps:
- Launch of the process. After preparing the infrastructure and assembling the development team, the provider starts project execution. This includes organizing the workflow and tracking the results.
- Service delivery. The focus during this stage is on delivering the scope of services according to the standards listed in the Build-Operate-Transfer agreement. In addition, the BOT partner should maintain operational efficiency and continually enhance service delivery based on feedback and industry trends.
- Performance monitoring. The BOT provider oversees all stages of the project, complies with the key performance indicators, and implements operational efficiency metrics. He also prepares reports on work progress and provides suggestions for quality improvement.
3. Transfer phase
This is the final stage of the cooperation. The ownership of the project is transferred from the vendor to the client company, as follows:
- Handover planning. At this stage, the BOT provider plans the transfer of operational responsibilities, knowledge base, and assets. This is usually done by developing a detailed handover roadmap according to the BOT contract.
- Knowledge and asset transfer. The BOT partner ensures that the client’s team is prepared to take over the ongoing product development. Plus, they take care of the transfer of physical assets, intellectual property, and operational contracts. Legal and financial support is provided to ensure all provisions of the BOT agreement are fulfilled compliantly.
- Ongoing support. After the handover phase is complete, the BOT vendor provides ongoing consulting and support. The partner ensures ownership transfer and covers project troubleshooting.
Depending on the agreed BOT contract, the substages may differ. All aspects of the partnership are negotiated individually between the service provider and the client.
Essential Elements of a BOT Contract
Now, the most important part—concluding the Build-Operate-Transfer agreement. To prevent potential troubles, be sure to include the following aspects in your BOT contract:
- Project scope & timelines. Clearly outline the scope of work your BOT services provider should handle, such as subsidiary setup, software project execution, operational functions coverage, and ownership transition. Additionally, set specific timelines and deadlines for each service to ensure timely completion without delays.
- Performance guarantees & liabilities. The Build-Operate-Transfer contract should outline the expected results, service quality, and obligations of each party. This ensures accountability and fulfillment of commitments and specifies liability in case of missed deadlines or unmet requirements. Make sure to include the SLAs and KPIs to maintain operational efficiency and estimate the quality of the services provided.
- Legal compliance. This section of the BOT contract addresses the need to comply with local laws and regulations, specifying the jurisdiction and applicable laws governing the contract, and outlining dispute resolution mechanisms. It also covers licensing and permits required to complete the project.
- Sensitive data protection. Software product is your primary asset, so safeguarding it is crucial when partnering with a third-party vendor. Make sure your BOT agreement contains confidentiality clauses, NDA, and provisions for data handling, storage, access, and sharing.
- IP rights transfer. When working with service providers, there is always a risk of your intellectual property ending up used for their own benefit, whether in other projects or otherwise. To mitigate this, your BOT agreement must clearly define the terms of IP transfer and include a clause explicitly prohibiting any unauthorized use of your sensitive data.
- Payment terms. Another essential element of the BOT contract is specifying the payment terms. It can be a fixed fee, pay-per-service, time-and-material, or performance-based models. This ensures transparency and helps you avoid unexpected charges or hidden costs.
- Transfer conditions. This element defines when and how the transfer of assets, team, and knowledge from the contractor to the client company should occur. The agreements for BOT cooperation clearly set out the terms of a smooth handover and operational continuity following the transfer stage.
Well-concluded agreements for BOT protect the interests of both parties and allow them to achieve the most out of their cooperation. However, even an ideal contract cannot protect against possible challenges and pitfalls of the BOT partnership. Read on to find out about them.
Key Reasons to Choose a BOT Agreement for Your Tech Business
Access to skilled talents
The BOT cooperation model is an effective approach to fast team scaling. Tech companies gain access to large pools of software developers with broad tech stacks and rare skills. For instance, Latin America and Eastern Europe boast over 3 million tech talents who excel in modern programming languages and have various tech specializations.
Cost savings
The BOT model is a game changer for tech companies looking to cut their expenses. Building a development team in Latin America can potentially save businesses up to 60% on labor expenses and up to 50% in Eastern Europe.
Flexibility
The BOT contract model also allows a quick scale-up or down of the team and adjustment of the project requirements to achieve the best results. Such a partnership helps tech companies optimize operations and achieve requirements without fear of small changes in the process.
Fast time-to-market
The provider takes on the entire operational part, which allows client companies to build a team and start product development quickly. The BOT cooperation helps to implement the project faster due to easy access to needed resources and specialists.
BOT Cooperation Challenges
Despite all the advantages of this partnership, there are certain drawbacks and risks:
- Hefty buy-out fees. Some of the BOT contracts contain terms of talent transfer which presuppose buying out the software developers to retain them as in-house employees. This can result in payments for each developer totaling tens of thousands of dollars, making it a costly endeavor.
- Poor operational management. Insufficient organization of work processes can lead to inefficient use of resources. Not all BOT providers have enough experience in your specific tech niche or the expertise to manage operational functions and compliance issues. This can result in poorly organized work processes and subpar outcomes.
- Dependence on the vendor. This limits the company’s flexibility and market opportunities. Dependence on a BOT supplier at key stages of project development is a vulnerability. If the relationship deteriorates, it will affect the success of the entire project.
- Possible IP breaching. Suppose the terms of intellectual property rights usage are not agreed upon and specified in the contract. In that case, this may lead to your sensitive data exposure, legal problems, and additional financial costs.
- Transition challenges. The transfer process in the BOT cooperation model can be legally complex, involving the necessity to comply with local laws, data protection, IP licensing, and non-compete or non-disclosure agreements. Plus, there is a probability of losing some of the tech talents during this stage and a temporary dip in team productivity.
But is there a better and hassle-free alternative to expand abroad? Yes, it’s…
A Turnkey Software R&D Center Solution
Witnessing the complexities of compliant hiring and drawbacks of the existing staffing models, an R&D accelerator, Alcor, devised a comprehensive solution specifically for tech businesses that expand in Latin America or Eastern Europe. It includes full-cycle tech recruitment, Employer of Record services, and operational support—everything to enter new markets smoothly and in a short period.
By establishing your own tech R&D center, you avoid common pitfalls of the BOT model and outsourcing like:
- Low-quality hires—only Silicon Valley-caliber talent;
- Rip off buyouts, as you can insource talent any time for free;
- Transfer hurdles, as the development team is yours from day 1;
- Middleman in your work—complete control over the team and development;
- Setup fees & risks—no need for a legal entity.
Plus, you get the possibility to cut your expenses by 40%, receive full compliance with local and international laws, and enjoy 24/7 assistance from the key account manager.
Conclusion
A BOT cooperation is a common approach that allows businesses to easily address talent shortages, expand business capabilities, and retain focus on core business goals.
While being convenient, since the BOT provider handles all operational challenges in offshoring or nearshoring locations, it’s not without risks. Issues like hefty buy-out costs, low talent retention, and transition challenges can arise, often beyond the coverage of the BOT contract clauses.
In this case, tech product companies may consider a more comprehensive solution like an R&D center and enjoy all the benefits of team expansion without hassle and risks.