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

As of September 30, Russian state authorities now reject tender submissions for supply of certain foreign electronic equipment if there are two concurrent submissions for supply of locally produced equipment. The ban applies to 113 types of equipment, including personal computers, printers, memory cards, mobile and landline phones, TV sets, cameras, microphones, and cash and ATM machines.

Electronic equipment may qualify as local if it is produced under a special investment contract between an investor and federal or regional government or if it is fully manufactured or significantly reprocessed in Russia. Some additional localization criteria specific for certain equipment also applies.

A regular feature of Sourcing@MorganLewis is our “Contract Corner.” In these posts, members of our global outsourcing and strategic commercial transactions practice highlight particular contract provisions and review issues and potential approaches to negotiating and drafting those provisions. As the year draws to a close and the holiday season is upon us, we have organized links to our Contract Corner blog posts in one place. These posts cover many different provisions and aspects of drafting commercial, outsourcing, and technology contracts:

Please let us know which of these posts you find most helpful and any other contract provision/issues that you would like to see us tackle in the future.

In our last Contract Corner post, we discussed the benefits of negotiating flexible termination options, including partial termination rights. However, as we noted, without the cooperation of the outgoing service provider, flexible termination rights may not be enough to ensure a successful transition of services following termination. In this Contract Corner post, we will focus on termination assistance services and other exit rights that should be part of contract termination provisions.

Termination Assistance

Termination assistance services generally include (1) the continued provision of existing services for a set period of time and (2) assistance required to facilitate the orderly transfer of services to a customer or a new service provider. The following are some key considerations:

  • Timing. An agreement should specify when a service provider is required to commence termination assistance services and for how long following termination or expiration of the agreement. Typically, termination assistance services begin after the delivery of a termination notice or a defined period prior to the scheduled expiration date. It is not unusual for termination assistance services to be provided for up to two years in outsourcing or other complex commercial agreements.

  • Service Standards. An agreement should specify that there will be no degradation in the ongoing services provided during the termination assistance period and that all existing service levels and other service standards continue to apply.

  • Costs. Customers should endeavor to limit costs during any termination assistance period to the fees of providing ongoing services, with termination assistance provided at no additional cost. For agreements that include low-volume triggers for repricing of services, the ramp down of service volumes during a termination assistance period should be exempt from repricing triggers.

  • Cooperation. An agreement should specify that the service provider is required to cooperate with, and provide the services directly to, any successor supplier or other third parties. Customers should ensure that such cooperation is not restricted by the confidentiality provisions of the agreement.

On August 11, 2015, in Elizabeth Starkey v. G. Adventures, Inc. the US Court of Appeals for the Second Circuit upheld the district court’s decision to enforce an exclusive jurisdiction provision contained in G. Adventures’ standard terms and conditions that required all matters arising from its services to be litigated in Canada. In upholding this provision, the court provided further insight into the factors that will be considered regarding enforcement of terms in form contracts.

Typical of many commercial transactions, the terms for the Galapagos trip that was the subject of the litigation was confirmed via email, and the terms were provided as a hyperlink rather than in printed form. The plaintiff booked her trip on the G. Adventures website, and shortly thereafter, G Adventures sent her three emails: a booking information email, a confirmation invoice, and a service voucher. Each of the emails contained a statement that the passenger must read and agree to G. Adventures’ standard terms and conditions (which contained the exclusive Canadian jurisdiction provision) and a hyperlink to such terms.

Termination rights are a crucial and frequently negotiated aspect of complex commercial agreements. In addition to providing protection in the event that a vendor defaults, the ability to walk away from negotiations regarding modifications or renewals can also be a powerful tool for creating negotiating leverage. Flexible termination options, termination assistance, and other termination rights can manage the risks of transitioning to a new provider and provide credible alternatives for future negotiations.

Right to Terminate

Alternative termination rights provide essential flexibility when poor performance, changes in technology, or a desire to bring services in-house drive a customer to seek changes to its original deal. Paying an enormous convenience fee to terminate the entire relationship may not be viable, and customers should consider alternative mechanisms and provisions when crafting and negotiating termination rights, including the following:

  • Partial termination. Partial termination rights are essential to maximizing flexibility. Partial termination for cause is particularly important in the event that a vendor defaults, and customers should consider specifying service-level failures or other metrics that entitle them to terminate the affected services. Partial termination for convenience rights, although more difficult to negotiate, can provide valuable flexibility and reduce the cost of other desired changes.
  • Level of granularity. Partial termination provisions range from the ability to terminate service schedules, towers, or statements of work to the ability to terminate individual services. Customers should generally push for the lowest level of granularity to maximize the ability to dictate the scope of services terminated.
  • Insourcing and resourcing. In addition to partial termination rights, customers should consider negotiating the right to insource (bring back in-house) and/or resource (migrate to another service provider) specific services under an agreement where business requirements are likely to require additional flexibility.
  • Timing of termination. Termination notice periods may range from 30 days to as long as 12 months. Although customers will generally seek to negotiate the shortest possible minimum notice period for flexibility, they should also consider including the ability to extend the effective date of termination to align the termination with their transition plan for insourcing or migrating to a new service provider.

We are pleased to announce that Jason M. Rodriguez in our Boston office has been promoted to Of Counsel in our Outsourcing and Strategic Commercial Transactions Practice Area, effective November 1.

Jason will be leading our group’s efforts to support the needs of clients in the Boston area relating to strategic commercial and technology transactions and also playing an active role in our national outsourcing practice. Areas of focus for Jason will include supporting clients of our Boston office, particularly in the software, high-tech and life sciences industries, with outsourcing, technology, distribution and services agreements, as well as support in M&A and financing transactions. Jason will be supported by partners and associates in our group in New York, Philadelphia, Pittsburgh, and Silicon Valley. We are pleased to congratulate Jason on his new role and look forward to continuing to work with him to provide responsive service to our clients.