In April, we shared a LawFlash Outsourcing and Managed Services Agreements During COVID-19: Our Perspective. With the continued and unprecedented impact of the coronavirus (COVID-19) pandemic on business operations, we thought it would be timely to provide a brief update on five top-of-mind issues that we are addressing with outsourcing and managed services clients.
- Many outsourcing and managed services agreements include strict requirements on the location of personnel, including the location of certain personnel onsite at a customer site and/or the location of offshore personnel at secure delivery centers with no permitted remote working. These physical location restrictions often are coupled with requirements with respect to the type of technology that can be used when connecting to or accessing the customer’s systems or interacting with end users (such as hardened desktops only, no personal devices), security requirements and detailed connectivity and bandwidth requirements (particularly if there are end user facing activities such as call centers).
- In many cases, in light of the COVID-19 lockdowns and prohibitions on working onsite, these requirements could not be complied with and needed to be quickly addressed at least on a short-term basis to enable operations to continue. We have worked with many clients to put in place minimum protocols and policies governing work from home contingency solutions, including, for example, defining the technology that can be used, what constitutes an acceptable “home office,” and when personnel need to “return to the office.” Rules and provisions regarding reopening and shifting back to the on-premise working models is a major issue that is being discussed within both customer and service provider organizations.
- We also have seen many different forms of requests for waivers of contract provisions – from complete disclaimer of responsibility to dispensation from the remote working and related security restrictions. As you would expect, companies should review these waivers carefully and consider whether the terms are appropriate and have short-term and long-term applicability. A waiver may be necessary to enable continued work, but the changed working methods may in turn trigger a business-affecting breach, in respect of which the customer’s rights may be unclear.
- An emerging trend is for some service providers to indicate that remote working – including offshore – will be in place for the long term. Customers should listen carefully to this messaging. If this is the case, and permitted by the contract only through a waiver or amendment, customers may want to enforce the original model where all personnel work at a delivery center for security and collaboration reasons or, if variations are acceptable, whether there should be some reduction in the fees to reflect the decrease in overhead costs.
One of the many results of COVID-19 has been the imposition of travel restrictions within and between countries, including travel between the United States and Europe with many of the countries where offshore delivery centers are located, such as India, China, and the Philippines. These restrictions, together with new company policies and guidelines, have led to a significant decrease in in-country and international travel. Many outsourcing and managed services contracts assumed a good amount of international travel and the use of “landed resources” (referred to as out-of-country personnel working in-country through work visas). While short-term travel restrictions generally seem to be tolerated, the long-term consequences on outsourcing and managed service solutions are still being assessed, including with respect to resource and skill demand, costs, and flexibility. With further potential for change to immigration regulations, particularly in the United States, that may result in the decrease in the number of available visa and work permits, and the ability to leverage offshore resources physically onshore will continue to evolve.
Change in Demand
We always talk about drafting contracts that allow for flexibility and shifts in demand and business direction, or in light of a material, market-wide change. COVID-19 is testing the effectiveness of these provisions. The ability to ramp up and ramp down resources and skill sets to address changing demand and types of demand has become a key point in governance discussions. With many companies, at least in the short term, putting discretionary projects on hold, outsourcing customers are challenging their service providers to ramp down resources and reduce costs.
- We have spent a significant amount of time discussing the applicability of force majeure provisions in the wake of COVID-19. Is COVID-19 a force majeure event? Does it excuse implementing business continuity plans? Whose performance is excused and for how long? Does the customer have to pay during a force majeure event? Is there still a termination right?
- And for new contracts, should we be rethinking about what is a force majeure event? Is COVID-19 now a “foreseen event” that should not excuse nonperformance? Can the service provider implement a solution with undisrupted performance even with COVID-19 impacting how we work?
- In addition to force majeure clauses, customers and service providers should consider other language that may excuse performance, including savings clauses and excused events associated with meeting service levels.
Renegotiations and New Outsourcing Opportunities
- As we discussed in our earlier Lawflash, we are working with a number of companies to review their outsourcing solutions to discuss the potential for increased cost savings. This may be through a variety of means – including reduced scope, different solutions and/or better rates.
- In addition to renegotiations, we are seeing an uptick in the number of new deals. Corporates are focusing on the bottom line, and business transformation including through greater use of outsourcing and/or technology is on their agenda. Examples include companies looking to shift workloads to the cloud and companies seeing the benefits of enhanced automation solutions. As many business are looking to increase their online and ecommerce presence, we are also working with a number of companies that are looking to modernize or broaden their digital footprint and improve or augment the customer’s digital experience.
COVID-19 promises to continue to influence how customers and service providers interact and how solutions are delivered in the short and long term. We will continue to monitor the effects on the outsourcing and managed services market, so stay tuned for future blogs of emerging trends and pressing issues.
Coronavirus COVID-19 Task Force
For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. Find resources on how to cope with the post-pandemic reality on our NOW. NORMAL. NEXT. page and our COVID-19 page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribenow to receive our COVID-19 alerts, and download our biweekly COVID-19 Legal Issue Compendium.