TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

In an ideal outsourcing relationship, technology transformation through innovation, continuous improvement, and future project work is never really “over.” When documenting an initial transformation program and individual project statements of work, however, there are typically specific end dates in mind to achieve the desired outcomes. But defining when transformation is “done” is not as simple as agreeing on the end date or even the final deliverable.

Earlier this month, we discussed the significance of the transformation workstream in outsourcing transactions and outlined important topics and points to consider when documenting the overall transformation methodology exhibit. Depending on the scope and timing of the transformation, there may be a need to document individual projects in separate statements of work or project schedules.

Transition services agreements (TSAs) are often an integral part of a transaction when a buyer or a seller needs to use the other’s services, infrastructure, or resources for an agreed-upon period of time after an acquisition.

Key Considerations

The following is a list of key considerations for both buyers and sellers in connection with negotiating a TSA.

  • Definition of Services. The definition of “services” should include all the services the parties agree will be included as transition services. The schedules should also set forth the length of time the services will be provided, and any specific fees for each service. A party that is receiving services should consider adding a “catch-all” phrase to ensure that any services that are necessary for the operation of the business in the 12-month period prior to the closing will be included, regardless of whether or not the services are accurately listed on the schedule. The parties should also document any specifically agreed-upon exclusions to the definition of services.

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.

Remote Working

  • 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).

Transformation is often a critical component of outsourcing and managed services transactions. The transition of core or non-core functions to a third-party provider can provide an opportunity for the customer to leverage the service provider’s expertise and experience to transform its underlying systems to more modernized and flexible technology. For instance, a customer running a business platform on old mainframe technology may want to move off the mainframe to a cloud solution that enables the customer to better respond to market needs and offer enhanced services and products to its clients.

The conditions created by the coronavirus (COVID-19) pandemic and resulting government shutdown orders have raised questions across various industries regarding contractual rights and obligations during the crisis. One contract provision in particular is garnering signification attention: the force majeure clause. Recently, these clauses have evolved from boilerplate provisions at the end of a contract to now being front and center in many contract negotiations. In this blog post, we will review considerations for drafting force majeure clauses within the current environment.

Please join us as we examine highlights from the Contract Corner feature on our Tech & Sourcing @ Morgan Lewis blog. The series reviews essential issues and practical pointers for technology, outsourcing, and commercial agreements.

Partners Peter M. Watt-Morse and Mike Pierides will discuss the following topics:

  • Analysis of contract rights
  • Bankruptcy impact
  • Termination and renewal issues
  • Cybersecurity and data protection
  • Licensing and IP rights

We hope you’ll join us on Tuesday, May 12, at 12:00–1:00 pm ET, 9:00–10:00 am PT, and 5:00–6:00 pm GMT.

Register for the webinar now >>

See the full schedule of events >>

There comes a time when every contract will come to an end; however, what happens when the parties don’t want that to happen but there are no provisions in the contract dealing with extension rights? In this blog we analyze good practices in relation to extending contracts where there is no express right of extension.

Old Contract or New Contract

Consider whether the intention of the parties is merely an extension of the period under which the current terms are to continue or whether, in addition to an extension of such period, the parties intend to make other changes to the contract. If the circumstances point to the latter, parties should consider whether a new contract is more appropriate. Some considerations for moving to a new contract may include updates to pricing or other business terms, a reset of any liability caps or accrued rights under the current contract, and a clear delineation between liabilities under the current contract and those under the new contract.

There are two primary models by which vendors will make software available to customers (1) software as a service (SaaS); and (2) on premise. In a SaaS model, the vendor provides, maintains, and hosts (either itself or through a hosting SaaS vendor) the desired software, and grants the customer access to the software functionality via the internet. In an on-premise model, however, the vendor will deliver the software (either physically or through a file transfer system) for the customer to install on its servers behind the customer’s firewall.

In cloud services, whether it is infrastructure as a service (IaaS), platform as a service (PaaS), or software as a service (SaaS), service availability is often a significant customer concern because the customer is relying on the vendor to provide and manage the infrastructure and related components that are necessary to provide the services. To address this concern, vendors will often provide a Service Level Agreement (SLA) containing a commitment that the service will be available for a percentage of time (e.g., 99.9%) during a certain period (e.g., week, month, or quarter). This is often referred to as an uptime or availability commitment. When reviewing and negotiating an SLA with an uptime commitment, it is important to consider the following issues.

Uptime Percentage

Given the different types of cloud services and how those services are used, there is no standard uptime commitment provided by vendors. Rather, uptime commitments can range from 99.999% to 97% or even lower. It is also not uncommon for vendors to provide different uptime commitments for different parts of the service. Ultimately, a vendor’s uptime commitment will depend on a variety of factors, including the type of service, how a customer will use the service, negotiating leverage, and vendor’s business model.