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

Cybersecurity continues to be an issue at the forefront of many of our contract negotiations. Though not typically included in the “data security” section of an agreement, the level and scope of cyberinsurance coverage often plays an important factor in the discussions between customer and vendor.

On this topic, Morgan Lewis partners Mark Krotoski and Jeffrey Raskin will present an upcoming webinar as part of our firm’s Cyber Insurance Webinar Series to discuss ongoing developments in the cyberinsurance space, with a focus on the critical factors your company can consider as part of its overall cybersecurity protection strategy. The one-hour webinar, Cyber Insurance: Is Your Company Covered?, will take place on Tuesday, September 17, at 2:00 pm ET.

Ed Hansen, Val Gross, and Morgan Richman will run a highly interactive two-part program, “How to Make Complex Contracts and Negotiations Work: Tips and Practices You Can Use Today,” at the Eastern Regional SIGnature Event. The program will guide attendees through complex contracting and collaborative negotiating, providing actionable strategies that can be used in real-world scenarios right away.

In the first session, the team will define and deconstruct "complex" contracts. Attendees will learn techniques to simplify contracts and will learn how to transform a "bad" contract into a user-friendly document that constituents will want to use. The second session will focus on hardcore collaborative negotiating techniques. Using a scenario-based approach, participants will learn the hard skills necessary for building a collaborative negotiating environment, including how to avoid barriers to collaboration, how to achieve alignment, and how to address FUD—fear, uncertainty, and doubt.

Complexity in sourcing transactions relates to the interdependence between the parties executing a program. However, “complexity” can be a surprisingly nuanced concept whose meaning can vary under different circumstances. Here are a couple of these nuances.

What Is Complexity?

If you are buying a physical product, the transaction is not truly “complex” if it can be described completely in the contract, although the product itself may be complicated. For example, a rocket ship is a complicated product, but with specifications that can (and probably should) be described in perfect detail, there is no requirement for an overly complicated contract structure, and the relationship between the parties may not be complex. Contrast this with an engagement that involves business process redesign accompanied by software development and implementation like an enterprise resource planning (ERP) implementation, or a large-scale robotic process automation (RPA) initiative. Although the contract can specify the desired result, in many cases the results will depend on both parties working together to realize that result. This interdependency makes the relationship complex and requires a more nuanced procurement and contracting process.

Even with the standard independent contractor provision in a Master Services Agreement, when employees of the contractor work at a client's site, there can be a heightened risk for joint employment liability, especially where such employees were hired by the contractor as part of an outsourcing arrangement. The US Department of Labor (DOL) recently issued a Notice of Proposed Rulemaking (NPRM) to update its interpretation of the standard for establishing joint-employer liability under the Fair Labor Standards Act (FLSA). The proposal is “designed to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy” by making clear employers’ and joint employers’ respective obligations to pay the appropriate employee wages and overtime for a workweek.

Since the US Supreme Court’s June 21, 2018, decision in South Dakota vs. Wayfair, Inc. , many of the 45 sales tax-collecting states have been making moves to put laws and processes in place for tax collections for out-of-state online sales. Given the general complexity of state tax laws and the inconsistency from state to state, as well as the uncertainty as to whether or when uniformity across states may come to pass, businesses with online sales need to carefully monitor both the legal landscape and the processes established for administration and compliance for out-of-state transactions.

More than 1,000 Support Anti-Terrorism by Fostering Effective Technologies Act (SAFETY Act) of 2,002 approvals have been granted by the US Department of Homeland Security (DHS) since the act’s inception. Many professional sports teams in the National Football League, Major League Baseball, and National Basketball Association have had their venues certified under the SAFETY Act. For example, New Era Field for the Buffalo Bills became the 14th NFL stadium to receive a SAFETY Act certification in October 2018. However, professional sports leagues do not have a monopoly on large sporting events that garner huge crowds—some universities have football stadiums with capacity for more than 100,000 people.

In Part 1, we discussed how, despite widespread usage, termination in the event of bankruptcy clauses (“ipso facto” clauses) are generally unenforceable pursuant to the bankruptcy code. In this second part, we discuss why these clauses are still prevalent in commercial transactions and the exceptions that allow for enforceability in certain situations.

Why Do Ipso Facto Clauses Remain in Most Contracts?

Practically all commercial transactions, including licenses, services agreements, and supply agreements, contain a provision that triggers termination rights, without notice, to a party whenever the other party files for bankruptcy or experiences other insolvency-related event. In Part 1 of a two-part series, we discuss how the commonly used termination-on-insolvency clauses are generally unenforceable despite their widespread use.

The audit section in a services agreement contains the provisions that specify a party’s right to access and review another party’s information in order to determine such party’s compliance with the agreement. Depending on the scope of audit rights, the audit section can range from a single paragraph to an entire exhibit to the contract.

Many considerations go into drafting appropriate audit rights, including the types of services that the customer is receiving, and the industry in which the customer’s business operates. In many cases, the customer is the auditing party and the service provider is the audited party, but there are situations where the roles will be reversed. Below is an overview of several key issues to consider when drafting audit rights for services agreements.