Tech & Sourcing @ Morgan Lewis

Contract Corner

Planning for major service disruptions and disasters, such as prolonged power failures, fires, flooding, and other extreme weather events, is an important element of strategic technology and service agreements. While there are many possible approaches to business continuity and disaster recovery (BCDR) provisions in a contract, there are certain topics and issues that should be discussed and analyzed by the deal team when determining the right approach.

This Contract Corner discusses five key considerations for BCDR-related provisions in strategic technology and commercial transactions.

  1. Identify and define the scope of BCDR for the applicable engagement.

    There are three general areas of BCDR to consider addressing in the contract in the event of a major unplanned disruption or disaster. First, what is the service provider’s plan and process for restoring its own service delivery locations and its ability to provide the services? Second, do the plan and process for restoring the customer’s facilities and business operations require any participation from the service provider? Third, who is responsible for the design and implementation of the technology recovery plans for restoring data centers, applications, and other critical technology?

    Thinking about BCDR through this lens can help bring the objectives into focus and allow the deal team to identify the right contractual framework to achieve those objectives.

  2. Ensure BCDR readiness by service commencement.

    Master agreements often include a requirement for the service provider to develop a BCDR plan and obtain the customer’s approval of the plan within a certain timeframe. The agreement may also include provisions outlining the high-level design, processes, and requirements for the BCDR plan. It is important not to overlook BCDR readiness when documenting the transition plan and establishing the criteria for service commencement or “go-live.”

    Consider whether the BCDR plan and processes should be tested and operational prior to service commencement (and as a condition to go-live) or whether an interim plan needs to be put in place until all processes and procedures can be up and running. One option is to include a BCDR readiness workstream as part of the transition exhibit, along with transition milestones incentivizing the service provider to have its people trained and its processes fully operational by go-live.

  3. Include maximum restoration times as a contractual obligation.

    Maximum restoration times for critical services and systems are an important element to consider in strategic technology and commercial contracts. In these agreements, there are some services and technology that the customer’s business cannot afford to be without. Think about including an exhibit in the contract that states the maximum period of time from the first disruption or loss of services, or availability of systems, to the return of the services and systems to full operation.

    For services, this may result in a table or chart with specific “critical” services and their associated restoration times. For technology, this may mean including a table with recovery time objectives (RTOs) that identify the maximum time that each key system may be unavailable, along with recovery point objectives (RPOs) that measure the amount of acceptable data loss for each system. It is also important to consider including a default restoration time for any service or system that is not included in the list.

    Identifying and including these maximum restoration times, RTOs, and RPOs in the contract ensures that expectations and objectives are discussed upfront and that there is sufficient “teeth” behind the agreed requirements. The service provider should be required to design and solution the BCDR plan to meet these contractual obligations.

  4. Define the appropriate remedies.

    In addition to documenting the BCDR requirements, it is important to determine what the remedies are if the service provider fails to meet them. The service level framework may provide monetary credits in the event services or systems do not meet certain uptime requirements throughout the month, but what if there is a major unplanned event (e.g., a disaster) that knocks out the services or systems all at once for an extended period of time?

    Options to think about include termination for cause, step-in rights, and the right to procure the services from an alternate source with the service provider reimbursing the costs.

  5. Don’t forget about force majeure.

    Force majeure provisions are commonly included to excuse affected parties if performance is prevented, hindered, or delayed by acts of God, elements of nature, or similar events. Due to the overlap in force majeure events, major service disruptions, and disasters, it is critical to make clear that the occurrence of a “force majeure event” as defined in the contract does not excuse or limit the service provider’s obligation to implement the BCDR plan and restore the services and systems in accordance with the agreed requirements, including the maximum restoration times.