Tech & Sourcing @ Morgan Lewis

While a freedom-to-operate (FTO) analysis often centers on patent or trademark searches, contractual commitments can establish the practical boundaries—or maze—of a company’s degrees of freedom. Organizations with a checklist of high-level issues to be addressed during contract discussion and negotiation (such as liability, compliance, and data protection) should consider adding FTO to that list. With a more holistic perspective of the FTO landscape and with business and technical teams’ input, commercial counsel can find creative ways to complete the puzzle.

Global outsourcing transactions often require companies to navigate not only complex commercial issues, but also employment-related regulations and local practices that can vary significantly across jurisdictions. As organizations continue to transform their operations through outsourcing, managed services, and digital and AI transformation initiatives, labor and employment considerations have become an increasingly important part of transaction planning. Partner Kat Gibson advises multinational companies on the employment issues that arise in outsourcing transactions, including employee transfers, workforce restructurings, reductions in force, consultation obligations, and cross-border employment compliance. We recently sat down with Kat to discuss some key labor issues companies should be thinking about when planning global outsourcing transactions.

Flexibility versus certainty is an important and often challenging tradeoff throughout commercial contract negotiations, particularly regarding termination for convenience. Customers, mindful of shifting budgets, technological changes, and evolving business needs, want the freedom to walk away at their discretion. Vendors, mindful of upfront infrastructure investments, staffing needs, and revenue volatility, want a committed income stream. Reconciling these competing needs can become a significant sticking point, often arising later in the negotiation cycle after other issues have been settled.

Remote and hybrid work arrangements are becoming increasingly common across industries, and service providers are more frequently allowing personnel to perform services from remote locations. While these arrangements can, in certain cases, offer operational benefits, they also introduce security, compliance, and oversight risks that must be accounted for. Accordingly, organizations engaging service providers with remote workforces should consider contractual requirements to address these concerns. When drafting and implementing these requirements, customers should consider the following issues.

Throughout this AI & Outsourcing Services series, we have explored how artificial intelligence is transforming the outsourcing industry, reshaping contract terms, creating new forms of vendor dependency, and redefining how value is measured and priced. As organizations increasingly deploy AI-enabled technologies within outsourced environments, another critical issue is emerging: governance.

Join of counsel Casey Oetgen for an insightful program exploring investment approaches that can help organizations align investment capital with organizational purpose, such as mission-related investments and program-related investments, with practical guidance on legal and strategic frameworks.

Direct-to-device (D2D) satellite technology is launching traditional mobile communications out of this world. By enabling standard mobile devices to connect directly to satellites, D2D promises expanded coverage and connectivity in areas where terrestrial networks are unavailable.

The use of robotics in warehouses has become prevalent in the last few years. With improved software and the rise of artificial intelligence (AI), warehouse automation can handle inventory, shipping, and orders. Robotics can improve accuracy, be cost-effective, and optimize space, which can benefit both the warehouse operator and the customer. While the rise of robotics has changed the way warehousing services are performed, the terms and conditions of warehousing agreements have not always kept pace with the significant changes resulting from these developments.

The fourth blog in our AI and Outsourcing series examines another significant consequence of AI-enabled outsourcing: the fundamental shift in how parties define, measure, and price value. As artificial intelligence (AI) becomes embedded in service delivery, traditional pricing models based on labor inputs, headcount, and transaction volumes are increasingly being challenged. Customers and service providers alike are reevaluating how outsourcing arrangements should be structured when automation and AI-driven efficiencies can dramatically alter the economics of service delivery.

Most services agreements for vendor-provided technology services contain standard provisions allowing vendors to use customer data and data generated through the provision of services to improve and enhance service offerings. Vendors are increasingly seeking express rights to use such data to not only improve their services but also train their AI models. While these provisions seem to be a natural extension of traditional service-improvement rights, they can have significantly broader implications. Before agreeing to such language, organizations should carefully evaluate how customer data will be used, the extent of the rights being granted, and whether the potential benefits outweigh the risks.