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

Please join us for an in-depth discussion on how to successfully renegotiate your existing services contracts with technology, outsourcing, and commercial transactions partner Vito Petretti. Topics will include:

  • A general look at the renegotiation process
  • Business issues and drivers involved in renegotiation
  • How to conduct a renegotiation
  • Contract terms that may impact renegotiation

We hope you’ll join us on Wednesday, April 8, 2020, from 12:00–1:00 pm ET.

Register Now

In a long-term outsourcing, software as a service (SaaS), or other services agreement, the customer will typically push for a termination right relating to the service provider’s breach, and perhaps for an insolvency event or change in control of the service provider. However, the customer should also consider including the right to terminate for its convenience (without cause), which could cover any of the following situations:

  • The customer is not satisfied with the service provider’s performance under the contract even though the provider is meeting its service level and other performance requirements under the contract.
  • Many alleged breaches by the service provider are initially “black and white” in the view of the customer, but they turn “gray” when the service provider pushes back and alleges nonperformance, nonresponsiveness, lack of cooperation, and the like on the part of the customer. Adding the customer’s right to termination for convenience can avoid the potential dispute over whether the customer has the right to terminate on other grounds.

Are you about to sign a service agreement with a third-party service provider under which it will access and use technology of your company? Have you checked your applicable third-party contracts to see if you need any consents? The contracts under which your company uses technology every day, from the mundane to the critical, may contain hidden restrictions on the third party’s access and use for your benefit under the services contract.

There is an endless number of arrangements a customer could have with its third-party service providers, but this Contract Corner will discuss the case where the customer authorizes a service provider to access and use licensed software either while remaining at the customer site, or by moving it to the service provider’s site. More specifically, it explores just some of the issues and language in the customer’s license agreements with those third-party software providers to be checked during pre-signing due diligence.

The terms “reseller” and “distributor” are often used interchangeably to describe entities that purchase goods or services from a manufacturer and then distribute or resell such goods or services to retailers and consumers. However, there are some key differences between a distributor and a reseller and important issues to consider in agreements with resellers and distributors.

You signed a long-term deal. It would be embarrassing if, in a few years after signing, the pricing is significantly higher or your service levels are significantly lower than market. Benchmarking provisions are intended to provide a mechanism for ensuring that your pricing and/or service levels are within market (taking into consideration the unique factors applicable to your deal). Set out below are some of the key components of a meaningful benchmarking provision.

In this contract corner, we consider the concepts of “good faith” in commercial contracts under English law.

The General Position Under English Law

The notion of good faith is a complex and evolving concept under English law, and it has important implications for those drafting commercial contracts. In contrast to many other civil (e.g., France and Germany) and common (e.g., United States and Australia) law jurisdictions, there is no general doctrine of good faith either in negotiating or in performing a contract. Instead, parties are free to pursue their own self-interests, so long as they do not act in breach of contract. However, the notion of good faith can still impact commercial contracts in three main ways:

We have all heard the horror stories: system implementation deals costing 300% more than the original budget, go-live dates for development projects being way past the scheduled dates, and deliverables that do not meet the customer’s expectations. These are the stories that keep us lawyers up at night. So what can we do in the contract to incent timely, on-budget performance by the vendor? First, there is no substitute for a detailed and well-thought-out requirements document, which provides the roadmap that shapes the design, build, and deployment. Then, while there is no magic bullet, there are numerous contractual mechanisms to be considered that are designed to provide guideposts and checkpoints to enable success.

Set out below are 10 contractual mechanisms for providing meaningful performance commitments and consequences if the commitments are not met. Maybe you will not need to invoke these mechanisms, but having firm rules may help drive good behavior (you know the old adage, “good fences make good neighbors”). As is always the case, the appropriate mechanisms to be used are deal specific, and not all deals or relationships require the full spectrum of contractual commitments set out below (but some do!).

For years, there has been a persistent trend toward outsourcing retirement plan recordkeeping and other administrative responsibilities. Although historically more prevalent for defined contribution plans, this outsourcing trend has been accelerating for defined benefit plans thanks, in part, to the prevalence of frozen plans (i.e., no more benefit accruals) and the potential for administrative cost savings. But service providers will be quick to remind plan fiduciaries that lightening the administrative load does not include transferring fiduciary duties. When selecting and monitoring a service provider, one key issue facing retirement plan fiduciaries is their duty with respect to the privacy and security of plan participant data.

As we previously discussed, managing and administering retirement plans also mean managing and protecting an extensive trove of personal data. Although there is no overarching privacy law governing retirement plans, fiduciaries must adhere to the “prudent expert” standard of care in fulfilling their duties, and, in the current environment, it can be expected that courts will be sympathetic to assertions that privacy and security of plan participant data are within the scope of those duties. Given that fiduciaries are personally liable for their fiduciary breaches and considering the cost of a data breach can be in the millions of dollars, the sensible course of action for retirement plan fiduciaries is to be continuously diligent and attentive regarding data privacy and security. This extends to diligence and care in the structuring of the outsourcing agreement.

The Clearing House (the oldest banking association and payments company in the United States) recently released a model agreement as a voluntary starting point to facilitate data sharing between financial institutions and fintech companies.

The model agreement is intended to provide a standardized foundation that speeds up data access agreement negotiations; as the Clearing House notes, “[L]egal agreements between banks and fintechs have sometimes taken 12 months or more to be developed and finalized and have become a significant bottleneck to API adoption.” Additionally, the model agreement is designed to reflect the Consumer Financial Protection Bureau’s consumer protection principles on data sharing and aggregation, providing confidence to the contracting parties that the terms address key regulatory issues.

As mentioned in our recent blog post, Morgan Lewis, led by technology, outsourcing and commercial transactions partner Mike Pierides, hosted a roundtable on aviation technology contracts and issues on November 14 at the PSS2019: Retail Excellence conference. The roundtable included representatives from airlines, airline industry professionals, and technology suppliers.

The roundtable discussion focused on how industry stakeholders manage their passenger service systems (PSS). During the feedback session, Mike noted that his roundtable group’s discussion inevitably centered on the challenges that airlines and suppliers face with this process, and talked about some upfront problems that can occur when entering into a PSS relationship. Namely, the RFP process typically places significant weight on obtaining the lowest price at the expense of both the quality and the scope of that particular PSS relationship, which causes tension among an airline’s procurement, legal, and other departments.