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© 2015 ROBINS KAPLAN LLP
9Provisions In Outsourcing Contracts That Matter
© 2015 ROBINS KAPLAN LLP 21 Service Definitions
© 2015 ROBINS KAPLAN LLP 3
Perhaps the most important component of any sourcing agreement is the definition of what is expected by each party. Clarity is not only the product of the significant forethought necessary for any outsourcing relationship but it also helps avoid conflict later. Consider focusing on measureable outcomes and deadlines as compared to processes and tactics. This will provide flexibility to the provider while keeping the focus on the ultimate objectives of both parties.
© 2015 ROBINS KAPLAN LLP 42 Pricing Model and
Incentives
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Pricing is obviously an important component of any agreement. But, more important than the direct cost is that each party is properly incentivized to make the relationship work. This requires devising a compensation regime that ensures a provider does not feel they are being held under water while nonetheless ensuring the provider has incentives for meeting objectives and sufficient penalties when well-defined performance metrics are not achieved. The complicated task is ensuring that each of the parties continually view the relationship as mutually beneficial as opposed to purely commoditized.
© 2015 ROBINS KAPLAN LLP 63 Data Security
© 2015 ROBINS KAPLAN LLP 7
Few weeks pass where there is not news of a data breach. Often, an outsourcing provider will be a more secure option when compared to managing complex systems in-house. Nonetheless, security provisions are an important component of any sourcing agreement. Compliance with industry best practices such as ISO 27001 and ISO 27002, PCI Data Security Standard, or the Control Objectives for Information and related Technology (COBIT); breach reporting requirements; auditing and penetration testing; and provisions for cyber security insurance are all terms that could be critical should a breach occur.
© 2015 ROBINS KAPLAN LLP 84 Intellectual Property
Ownership
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Disputes often arise when it comes to untangling who owns intellectual property developed during the course of an outsourcing relationship. Whether a provider jointly assists a customer in the creation of IP or simply provides a customer infrastructure to develop the customer’s technology, the relationship benefits by clearly laying out who owns what and when protectable IP should emerge.
© 2015 ROBINS KAPLAN LLP 105 Service Levels
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Service Level Agreements (SLAs) are often an essential component of defining objective measures of performance. SLAs, however, are only as good as their definition, applicability, and scope. Spending time at the frontend of the contract ensuring that SLAs are productively defined will significantly benefit a relationship founded on trust and mutual benefit.
© 2015 ROBINS KAPLAN LLP 126 Governance and Audit
Provisions
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The structure of contract oversight is an essential component of most outsourcing relationships. Parties should seek oversight authority and transparency for the outsourcing customer but without creating oversight that is either unworkable or unnecessarily creates animosity between the parties.
© 2015 ROBINS KAPLAN LLP 147 Dispute Resolution
© 2015 ROBINS KAPLAN LLP 15
How disputes are to be contractually resolved can have significant consequences for the complexity and costs associated with addressing problems that arise. For example, there may be venue and forum restrictions limiting disputes to certain states and types of courts (state or federal), or, they may require binding arbitration or informal dispute resolution. Planning for inevitable problems on the frontend can help ensure that if problems do arise, the parties can constructively address each without allowing any to spiral out of control.
© 2015 ROBINS KAPLAN LLP 168 Bankruptcy
Contingencies
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The reality is that the outsourcing industry is highly competitive. This makes the risk of a potential bankruptcy complicating or prematurely ending a sourcing relationship real. In order to escape any ambiguity if a provider slips into bankruptcy, it is critically important that organizations negotiate terms that ensure clarity in data ownership and accessibility in case of insolvency. Without such terms, the bankruptcy estate may make removal of data difficult or a customer may be forced to negotiate with creditors on ownership of the data.
© 2015 ROBINS KAPLAN LLP 189 Exit Provisions
© 2015 ROBINS KAPLAN LLP 19
Despite the parties’ best intentions, relationships still may end. It is important that the parties clearly define what happens if it does. Provisions related to the term of the contract, termination charges, and transition assistance will be critically important if the relationship unexpectedly ends. Likewise, thinking about data portability obligations throughout the relationship may make a necessary transition much easier.
