Southwestern University Law School

Drafting/Negotiating Tech Agreements

Class #12
Outsourcing Agreements
Professor Michael D. Scott
Assignments
Overview

What is it?

Outsourcing is the transfer or delegation to an external service provider of

the operation and day-to-day management of one or more business processes.

Can be domestic or offshore

Historical perspective
Types of Outsourcing

Information Processing Outsourcing (IPO)

-- Facilities Management
-- Remote Computing Services
-- Software Development
-- Software Maintenance
-- Application Service Provider (ASP)
Business Process Outsourcing (BPO)
-- E-commerce Web Sites
-- Call Center Activities
-- Human Resources
Knowledge Process Outsourcing (KPO)
Research Process Outsourcing (RPO)
Advantages

Cost savings
Economies of scale
Freeing up capital/avoiding capital investment
Focusing attention on core business functions
Taking advantage of the vendors expertise

Promoting globalization
Flexibility
Disadvantages

Loss of control of the outsourced function(s)

Loss of the expertise of those employees performing/managing the

outsourced function(s)

Loss of flexibility/leverage

Risk of failure

Potential for higher costs

Need to relicense software/technology

The difficulties and expense of quality control

Negative public opinion

Outsourcing Process

Building the outsourcing team

Conducting an internal evaluation
Developing the RFP
Preparing the proposal
Selecting the vendor
Negotiating the Deal

Statements of Work (SOWs)

Schedules
Change procedures/renegotiations
Pricing (most favored customer)
Service levels
Quality control
Transfer of assets (beginning and end of contract)
Customer obligations
Transfer of customers personnel
Control over vendors personnel and operations
Term and termination
Planning for the Worst

Evaluating performance
Failed relationships

Disaster recovery
Bankruptcy
Transitioning

Statements of Work (SOWs)

Milestones
Deliverables
Parallel operations
Integration of services
Customer delays
Transfer of knowledge/documentation/training
Testing and acceptance
Contract termination/expiration
Additional Issues

Governance
Taxation (Income taxes, transaction-based taxes, property taxes
Insurance
Real estate
Customer downsizing
Specific Contract Terms

Exclusivity
Allocation of risk
Audit rights/Record retention
Intellectual property (ownership, licensed rights)
Privacy/Security
Compliance with laws and regulations
Choice of law/Choice of forum
Remedies
-- Liquidated damages
-- Attorneys fees
Withholding payments/Set-offs
Non-suspension of services
Assignment/Novation
Delegation of duties/Subcontracting

Right of first refusal/Right of last refusal

Escrow arrangements
Third party beneficiary clause
Export control laws