Build Operate Transfer Contract: Structure and Key Clauses

Milestone	Typical timing	Acceptance criteria
Legal entity / EOR structure confirmed	Week 2	Signed documentation provided to client
Office space secured	Week 4	Lease or service agreement shared
First hire starts	Week 6–8	Named individual, CV approved by client
Target headcount reached	Month 3–5	Defined in schedule
Governance framework live	Month 4–5	KPIs, reporting, escalation paths documented

Client Approval Rights During Build

The client should retain approval rights over:

• Job descriptions and salary bands for each role
• Final hire decisions (at minimum, veto rights on proposed candidates)
• Office location and fit-out standards
• Security and compliance configuration of infrastructure

These approval rights are what differentiate BOT from outsourcing. If the provider can build any team they like without client sign-off, the client may receive a team that does not meet their standards and has no recourse before the Operate phase begins.

Setup Fee Structure

Build phase costs typically include:

• A fixed setup fee covering legal, recruitment, and infrastructure costs (€20,000–€80,000 for a 10–20 person team, depending on country)
• Per-head recruitment fees for each hire
• Pro-rated monthly fees from the start date of each hired individual

The contract should specify what happens to setup costs if the engagement terminates during Build — partial refund provisions are common and should be negotiated upfront.

Operate Phase Provisions

Per-Head Commercial Model

Operate phase fees are almost universally structured as a monthly per-head rate per team member. This rate covers:

• Gross salary and statutory benefits in the delivery country
• Employer social contributions (which vary significantly by country — 20–35% on top of gross salary is common in Eastern Europe)
• Provider management margin (typically 12–20%)
• Shared overhead allocation (office, IT, HR administration)

The contract must specify:

• Whether the per-head rate is fixed or indexed (CPI indexation annually is standard)
• What triggers a rate revision (salary market movement, benefit changes mandated by local law)
• How rate changes are notified and disputed

Service Level Agreement

The SLA during the Operate phase governs what the provider is responsible for managing, not the quality of the team's technical output (which is the client's responsibility, as they direct the work). Provider SLA obligations typically cover:

• Headcount maintenance — replacement timelines for leavers (typically 30–60 days)
• Attrition cap — maximum annualised attrition the provider is obligated to manage against; above the cap, the provider must present a remediation plan
• Operational uptime — office, infrastructure, and HR services availability
• Reporting cadence — monthly operational reports, quarterly governance reviews

Team Growth and Reduction

The contract must address:

• Minimum notice period for headcount increases (4–8 weeks is typical for senior roles)
• Minimum notice period for headcount reductions (match the delivery country's statutory redundancy notice period, plus a buffer)
• Whether the client or provider initiates redundancy procedures and bears the associated cost

Transfer Provisions

This is the section most BOT contracts underinvest in. By the time transfer becomes relevant, both parties are often in different commercial and operational circumstances than when the contract was signed. Specificity here prevents disputes.

Transfer Trigger

Three mechanisms are used:

Fixed date — Transfer happens on a defined calendar date regardless of operational state. Simple, but inflexible if the team is not ready.

Milestone trigger — Transfer is initiated when the team reaches a defined maturity state (headcount, process documentation, client manager onboarded). More appropriate but harder to assess objectively.

Election option — The client holds an option to trigger transfer within a defined window (e.g., any time between Month 18 and Month 36). Provides flexibility but can be left unexercised, leaving the client in the operating model indefinitely.

Best practice: an election option with a drop-dead date after which transfer becomes mandatory unless both parties agree to extend.

Transfer Assets

The contract must enumerate:

• Employment contracts to be novated (all named individuals at transfer date)
• Lease agreements to be assigned or re-signed
• Equipment to be transferred (inventory appended as a schedule, valued at depreciated cost)
• Software licenses to be reassigned or re-procured by the client
• Operational documentation to be delivered (runbooks, process docs, org charts)
• Recruitment pipeline information (active candidate processes, talent pools)

Transfer Fee

Providers typically charge a transfer fee equivalent to 1–3 months of operating fees. This is negotiable and should be agreed at contract signature, not at the point of transfer when leverage has shifted.

Provider Non-Solicitation

For 12–24 months post-transfer, the provider should be prohibited from recruiting the transferred employees. Without this clause, the provider can attempt to re-hire the team into their own operations or another client's BOT engagement.

IP Assignment

IP is the clause most frequently disputed in BOT terminations. The correct structure is:

During Build: All work product and tooling configured for the client is assigned to the client at creation, not at transfer.

During Operate: All code, documentation, data models, and process artefacts created by team members are assigned to the client as a condition of their employment contracts. The provider should have no residual rights.

At Transfer: A formal IP confirmation schedule should be executed, listing all significant work product and confirming client ownership. This is not a new assignment — it is a confirmation of assignments already made.

Provider's background IP: Any pre-existing tools, frameworks, or methodologies the provider uses to manage the team should be either licensed to the client in perpetuity, or the contract should prohibit embedding provider-proprietary IP in client work product.

Termination and Exit Rights

Termination for Cause

Either party should be entitled to terminate for cause upon material breach, with a cure period (30 days is standard). Causes that should allow immediate termination without cure period: data breach, insolvency of the provider, wilful misconduct.

Termination for Convenience

The client should retain the right to terminate for convenience with 90–180 days notice. Upon termination for convenience before the Transfer, the client should have the option to:

• Transfer the team early (accelerated transfer)
• Terminate the team (with client bearing redundancy costs)
• Transfer the team to an alternative provider

Wind-Down Obligations

If the engagement terminates without transfer, the provider's obligations should include:

• Continuation of services during the notice period
• Knowledge transfer to the client or incoming provider
• Cooperation with data export and platform migration
• Prohibition on destroying client data

Common Drafting Mistakes

Transfer as option only, no drop-dead date. The client retains flexibility but the provider continues earning margin indefinitely. Add a mandatory transfer date.

SLA covers outputs, not operations. Providers should not be held to the quality of engineering output — the client directs that work. SLAs should cover people operations: attrition, headcount replacement, reporting. Confusing the two creates disputes over the wrong things.

IP assigned at transfer, not at creation. If the provider owns work product during the Operate phase and the relationship deteriorates before transfer, the client has limited leverage. Assign at creation.

No governance during Build. Clients often become passive during the Build phase, assuming the provider will deliver the right team. Client approval rights over hires and infrastructure must be written in and exercised.

Salary indexation uncapped. Annual CPI indexation is reasonable. Indexation without a cap in a high-inflation period can increase operating costs faster than the client projected. Cap annual increases at CPI + 2% or agree a separate salary review process.

Frequently Asked Questions