DELVACCA presents Critical Issues in Structuring Successful Outsourcing Arrangements: What Every In-House Counsel Should Know February 21, 2008

Transcription

1 DELVACCA presents Critical Issues in Structuring Successful Outsourcing Arrangements: What Every In-House Counsel Should Know February 21, 2008 Barbara Melby Partner, Morgan, Lewis & Bockius LLP Michael Pillion Partner, Morgan, Lewis & Bockius LLP Cara Cuenot Corporate Counsel, Wyeth Pharmaceuticals Goutham Reddy Senior Counsel, CIGNA

2 The View from the Inside Goutham Reddy Senior Counsel

3 So you get the call We are doing a major project and would like your help It s strategic It has senior management support (and attention) It s outsourcing

4 What do you do? 1. You say wrong number and hang up 2. You transfer the call to the new guy 3. You roll up your sleeves and ask for more information

5 The Pitch vs. The Truth 1. It won t require a lot of your time 2. We want to sign in three weeks 3. It will be mostly remote support 4. We will provide the business support 1. It is a job in itself 2. It can take anywhere from three months to a year with ongoing contract maintenance 3. Lots of face-to-face meetings 4. Legal and business need to be closely coordinated, with legal often advocating business positions

6 Initial Questions The Deal Who is the business lead? Project Lead Business Owner What is the scope? IT vs. BPO What is the geography? Will there be offshore service locations? What is the projected spend? Are there projected savings? Why are we doing this deal? Savings Transformation

7 Initial Questions People Will there be a headcount impact? Will employees/contractors be terminated? Will employees/contractors be transferred to the potential outsourcer?

8 Initial Questions Due Diligence Do we use third parties to provide any of these services today? Will any assets be accessed/used by a third party? Determine contractual rights Determine any import/export issues Do we have copies of the contracts that will be impacted to determine If they can be terminated (and for how much) Whether consent is necessary Whether additional licenses are necessary

9 Initial Questions Data What data will be accessed/processed by a third party? Is it regulated? Is it financial or health-related? Is there any initial view to the data flow map?

10 The Team Business Owner Project Manager Sourcing In-house Legal IT SMEs Outside Help Consultants Outside Legal Tax Finance Treasury Risk Management Insurance Security Privacy HR Employment Counsel Local Experts

11 The Process What To Expect RFI Issue RFP (with Term Sheet or MSA) RFP Evaluation Term Sheet Discussions Down Selection (what are the drivers?) Due Diligence Contract and Schedule Negotiations Contract Signing

12 Documentation NDAs RFI RFP Instructions Intent to Bid Term Sheet/MSA Key Requirements Document Master Services Agreement (often up to 40 attachments) Scope Service Levels Pricing Governance Transition and Transformation Termination Assistance

13 Get Help if You Need It Internal and External Subject Matter Expertise Industry Experience Support at Meetings Support with Respect to Documents and More Documents

14 Questions

15 What s New in the Fast-Paced World of Outsourcing DELVACCA presents Critical Issues in Structuring Successful Outsourcing Arrangements: What Every In-House Counsel Should Know February 21, 2008 Presented by Barbara Melby Partner, Morgan, Lewis & Bockius LLP Philadelphia Office What s New in the Fast-Paced World of Outsourcing

16 Agenda A look at the What and the How What s New in the Fast-Paced World of Outsourcing

17 What A new look at business processes to be outsourced HR (18.7% of overall BPO market) Finance and Accounting Procurement Logistics Call centers Data management What s New in the Fast-Paced World of Outsourcing

18 What The analysts are saying The global BPO market will be $310 billion by 2008 (Gartner) Offshore outsourcing is growing 20 25% per year (MetaGroup) Companies looking to achieve 25 30% in cost savings (Gartner) What s New in the Fast-Paced World of Outsourcing

19 Global Thinking It s not just about India anymore though India is still going strong India still represents 40 45% of total BPO market Philippines is picking up market share Eastern Europe, China and South America other hot spots What s New in the Fast-Paced World of Outsourcing

20 What A vehicle used by internal shared services organizations business units internal shared services outsourcer outsourcer What s New in the Fast-Paced World of Outsourcing

21 Transformation using outsourcing to transform business processes What s New in the Fast-Paced World of Outsourcing

22 What Realignment and Renegotiation What s New in the Fast-Paced World of Outsourcing

23 How Bumpy or Smooth Change Management What s New in the Fast-Paced World of Outsourcing

24 How: Good Governance Internal resources that will Monitor/Audit Report Escalate Train What s New in the Fast-Paced World of Outsourcing

25 Blue Skies Ahead > > > Continued growth Targeted strategies Better management models What s New in the Fast-Paced World of Outsourcing

26 Barbara Melby Partner Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA P E. What s New in the Fast-Paced World of Outsourcing

27 Key Contract Issues in Outsourcing Agreements DELVACCA presents Critical Issues in Structuring Successful Outsourcing Arrangements: What Every In-House Counsel Should Know February 21, 2008 Presented by Michael L. Pillion Partner, Morgan, Lewis & Bockius LLP Philadelphia Office Key Contract Issues in Outsourcing Agreements

28 What Is Outsourcing? Transfer of Management of an Internal Business Process or Function to a Third-Party Vendor/Supplier Long-Term Service Agreement Component is Many Times Coupled with an Acquisition Deal Types of Outsourcing Transactions IT Data Center, Desktop Operations BPO Business Process Outsourcing HR, F&A, Logistics Internet-Enabled Outsourcing ASP, Hosting, Co-location Services Offshore/Nearshore (IT or BPO) Key Contract Issues in Outsourcing Agreements

29 Why Outsource? Focus on Core Competencies Cost Savings Cash Infusion if Asset Sale Move to Variable Model Pay for Consumption Only Improve Performance and Efficiency Standardize Diverse Technologies/Methodologies Migrate to New Keep Current with Industry Trends Access to New Technology/Methodologies Share Risks Provide Flexibility to Increase/Decrease Resources Key Contract Issues in Outsourcing Agreements

30 Who Is Outsourcing? Outsourcing is a component of every major organization s strategic plans; no sign of diminishing importance Key Contract Issues in Outsourcing Agreements

31 Risks of Outsourcing Loss of Control Insufficient Ongoing Internal Resources Difficulty in Bringing the Service Back In-House Reduced Flexibility Employee Impact Community/Customer/Supplier Reaction Cultural Mismatch Interests of Customer and Vendor Not Naturally Aligned Key Contract Issues in Outsourcing Agreements

32 Overview Structuring the Terms of the Deal Preparing Up-Front for a Breakdown in the Relationship Lessons Learned Key Contract Issues in Outsourcing Agreements

33 Structuring the Terms of the Deal Transition into Relationship Term Scope of Services Measuring Performance SLAs Fees IP Issues Flexibility/Change Compliance with Laws Confidentiality/Privacy Governance/Control Key Contract Issues in Outsourcing Agreements

34 Due Diligence; Service Provider Assumptions Service Provider s opportunity to conduct pre-signing due diligence Customer s baselining efforts and supporting documentation Third party contracts confidentiality issues Assumptions supporting Service Provider s proposal/commitment Resolve during due diligence/negotiations Unresolved assumptions at signing Remedy for assumptions that prove incorrect Materiality Sole remedy is adjustment of pricing, services and/or service levels Time limit on assumption proving period Key Contract Issues in Outsourcing Agreements

35 Transition into Relationship Employee Transfers European Legal Requirements (Automatic Transfer Laws & Consultation with Work Counsels) Asset Transfers Assignment/Access Issues (Required Consents) Third-Party Agreements (Services, Software, etc.) Internal/External Communications Timing of Transition Transition Plan with Milestones and Conditional Milestone Payments Key Contract Issues in Outsourcing Agreements

36 Term Initial Term Benefits of Longer vs. Shorter Term True Length of Term May Be Driven by Rights to Exit Early Large Global Deals 5- to 7-Year Initial Term Extension Options Unilateral Rights to Extend Evergreen Contracts Automatic Short Extension if No Agreement to Extend Key Contract Issues in Outsourcing Agreements

37 Defining Scope Detailed SOW Other Factors Used to Define Scope Services Currently Performed by In-Scope/Displaced Employees Services Not Described in SOW but Required for Proper Performance of the Services Changes to the Services that Are Not Material or Can Be Performed Using Existing Resources Services Necessary to Enable Continuous Improvement and Evolution of the Services Without Increasing Price Specific Definition (Vendor s desire) vs. General Definition (Customer s desire) Key Contract Issues in Outsourcing Agreements

38 Measuring Performance Service Levels Objective Measure Defining Objective Standards of Performance Service-Level Credits Service-Level Bonuses/Earn Back Mechanisms Periodic Adjustments Self-Executing Continuous Improvement Measurement and Reporting Customer Satisfaction Subjective Measure Benchmarking Industry Standards Comparing Services/Fees to Peers in the Industry Key Contract Issues in Outsourcing Agreements

39 Fees Fees for In-Scope Services Integrated vs. Unit Pricing Minimums/Maximums Utility Model Pay for What You Use Fees for New Services COLA Currency and Inflation Risks Taxes Payment Schedule Audit Key Contract Issues in Outsourcing Agreements

40 IP Issues Rights to: Customer Proprietary IP During Term and at Termination Customer Third-Party IP During Term and at Termination Vendor Proprietary IP During Term and at Termination Vendor Third-Party IP During Term and at Termination New Developments Procedures Manual/Other Work Product Rights to Customer Data Key Contract Issues in Outsourcing Agreements

41 Employee Issues Many critical issues, both legal and practical (morale and productivity) get expert advice. For example, EU laws and local requirements. Identification of employees to be transferred to vendor. Timing. Compensation and benefit packages. Stay benefits for key employees. Allocate responsibility for costs and claims. Key Contract Issues in Outsourcing Agreements

42 Employee Issues Address extent to which customer has control over personnel assigned by vendor. Key Personnel Right to Require Replacement Allocate administrative and financial responsibility for obtaining and maintaining visas and other governmental approvals for vendor personnel. Key Contract Issues in Outsourcing Agreements

43 Flexibility/Change Exclusivity Additional services Acquisitions Divestitures Downturn in business Adjustment of fees Minimum fees Compliance with new or modified laws Key Contract Issues in Outsourcing Agreements

44 Compliance Allocating responsibility for compliance with laws Monitoring changes in laws Right to dictate how to comply Regulatory audits Right to adjust fees for new or changed regulatory compliance obligation Right to terminate for new or changed regulatory compliance obligation Customer policies drug screening; background checks Key Contract Issues in Outsourcing Agreements

45 Confidentiality/Privacy/Security High profile security breaches and losses of personal information; identity thefts. Laws requiring notification and provision of credit monitoring EU, Canadian and other International Data Privacy Laws U.S. No comprehensive Data Protection or Privacy Law in the EU model. Instead, U.S. laws address particular privacy issues and risks. Gramm-Leach-Bliley; HIPAA; state laws Compliance with posted privacy statements Key Contract Issues in Outsourcing Agreements

46 Confidentiality/Privacy/Security Compliance with contractual obligations Every employer has privacy issues; employers in regulated industries (e.g., financial or healthcare) have additional compliance obligations Sarbanes-Oxley/SAS 70 Key Contract Issues in Outsourcing Agreements

47 Governance/Control Relationship managers Vendor key personnel Subcontractors Committees On-site presence by customer; by vendor Frequency and locations of governance meetings Cost of travel to governance meetings Reports; language Audit rights: fees, compliance; regulatory Key Contract Issues in Outsourcing Agreements

48 Preparing Up-Front for a Breakdown in the Relationship Planning for a Major Service Failure Termination Rights Unwinding the Relationship Allocating Risk and Liability Key Contract Issues in Outsourcing Agreements

49 Planning for a Major Service Failure Disaster Recovery Vendor Plan Customer Plan Excused Performance Force Majeure What Constitutes a Force Majeure Event? Not Excused from Implementing DR Right to Obtain Services from an Alternate Source Right to Terminate Key Contract Issues in Outsourcing Agreements

50 Termination Rights Customer Right vs. Vendor Right Types of Termination For Convenience (Notice Period, Fees) For Breach For Failure to Provide Critical Services For Service-Level Failures For Change in Control Disaster/Force Majeure Event For Nonpayment For Claims Depleting Liability Cap Key Contract Issues in Outsourcing Agreements

51 Unwinding the Relationship Termination Assistance (to Customer and Its Designees) Time Period Costs No Degradation in Services Rights to: Equipment Software Third-Party Service Agreements Rights to Hire Vendor Personnel; Possible Transfers Under EU Laws Key Contract Issues in Outsourcing Agreements

52 Allocating Risk and Liability Scope of Indemnities Infringement Employee Claims Personal Injury/Property Damage Breach of Confidentiality, Privacy and Data Security Damages Limiting Direct Damages Excluding Consequentials Exceptions from Limitations/Exclusions Insurance Key Contract Issues in Outsourcing Agreements

53 Lessons Learned Get to a Win-Win Solution Understand and Solve for Client s Objectives Address the Exhibits at an Early Stage Process is Key, But Don t Accept an Unreasonable Process and Do Not Allow Process to Take Precedence over Substance Build Flexibility into the Contract Manage the Relationship After Contract Signed Key Contract Issues in Outsourcing Agreements

54 Michael Pillion Partner Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA P E. Key Contract Issues in Outsourcing Agreements

55 Governance - Mechanisms for Monitoring Performance Cara Cuenot Corporate Counsel

56 Mechanisms for Monitoring Performance A Customer s Perspective n Service Levels / Service Level Credits n Reporting n Contract Governance Structure n Dispute Resolution n Change Management Procedures n Customer Satisfaction Surveys n Benchmarking n Audits

57 Service Levels n A required level of performance by Vendor with respect to a service n Quantitative in nature a metric (e.g., can be measured in some meaningful manner) n Typical types of measurements: speed, availability, reliability, accuracy, etc. n Critical that Customer and Vendor agree to service levels before contract execution

58 Service Levels (Cont.) ncustomer should consider the following when determining a measurement process: Cost of implementing and maintaining the measurement process (e.g., burden placed upon Customer s resources) Accuracy of the measurement process (e.g., repeatable, margin of error, etc.) Readily available data

59 Service Levels (Cont.) n Who will measure performance? n How will performance be measured? Operationally / tactically n How often will performance be measured? Measurement Period - the span of time during which performance will be measured (e.g., monthly, quarterly, yearly, etc.)

60 Service Levels (Cont.) n Service Level reports Define with precision what report should detail (e.g., missed service levels, trends, etc.) n Root Cause Analysis n Categories: Expected Service Levels Minimum Service Levels Critical Service Levels

61 Service Levels (Cont.) n Customer and Vendor should agree to service levels before contract execution n Customer should attempt to improve historic performance n If Customer does not have prior experience with a service level (i.e., there is no historic data), Customer should avoid agreeing to set a service level upon Vendor s initial performance of the service n Customer should strike a meaningful balance (i.e., even-handed incentives) with Vendor through service levels n Continuous improvements in service levels

62 Service Level Credits na reduction in the amounts payable by Customer if Vendor fails to perform the subject services in adherence to the applicable service levels ntotal service level credits may be capped for the applicable measurement period (usually 10%-15%) n Burn-In Periods; Earn-Backs; Bonuses

63 Reporting n Agree to reports (including format, content and frequency) before contract execution n Consider reports relating to: the management of the overall relationship, audit or billing of the services, service levels/service level credits, Customer s standard operating procedures, security/data back-up, etc. n Ad hoc reports requested by Customer (or its regulators) potential cost to Vendor

64 Contract Governance Structure n n Key Governance Positions: Contract Executive - single point of accountability under the contract Contract Director - primary responsibility for monitoring all Vendor deliverables and commitments in accordance with the terms of the contract, including delivery of the metrics and performance measurement program Service Delivery Managers - primary responsibility to monitor Vendor s overall performance of the services associated with each service tower Transition Managers overall responsibility for fulfilling the party s obligations and under the transition plan(s) Executive Committee: executive management responsibility for the contract and relationship Working to achieve business alignment between the parties, analysis of Customer business plans Developing strategic requirements and plans associated with the services

65 Contract Governance Structure (Cont.) n n Management Committee: general management responsibility for the contract and for the relationship Managing the performance of the parties respective roles and responsibilities under the contract Implementing the contract Monitoring service delivery and transition activities Considering and approving, where possible, operational and technical changes in accordance with the Change Management Procedures Service Delivery Committee: responsible for service delivery (one committee for each service tower) Implementing the transition plans and monitoring service delivery Monitoring service levels and deliverables Coordinating and communicating day-to-day service delivery issues Reviewing and scheduling change requests in accordance with the Change Management Procedures

66 Dispute Resolution n n n n n Disagreement - an issue or dispute that arises between Customer and Vendor A disagreement can be initiated by either party Parties respective designated representatives shall attempt to resolve the disagreement in a timely manner If disagreement cannot be resolved within an agreed upon timeframe (i.e., 10 business days), the Vendor Service Delivery Manager and the Customer Service Delivery Manager shall discuss and make an effort to resolve within an agreed upon timeframe If disagreement cannot be resolved by the Service Delivery Managers it is escalated as follows: To the Service Delivery Committee To the Management Committee To the Executive Steering Committee

67 Dispute Resolution (Cont.) n In the event the Executive Service Committee is unable to resolve the disagreement in accordance with the timeframes set forth in the contract, either party may bring a legal action or a proceeding in accordance with the terms of the contract n Provide for the acceleration of certain types of disagreements (i.e., an accelerated disagreement )

68 Change Management Procedures Types of Changes n Mandatory Changes Additional Services - services related to the then-existing ongoing services, additional services, and termination assistance services Provision of services to a new Customer entity Necessary to implement new or modified Customer policies Necessary to effect compliance with a new or modified laws n Non-Mandatory Changes Requires mutual agreement of the parties New Services - services that are materially different from, and in addition to or outside the scope of, the then-existing ongoing services, additional services, and termination assistance services Contract Changes made to reflect amendments to the existing arrangement with respect to operations

69 Change Management Implementing Changes n Change Order Process: The initiator/sponsor of the change documents the change in a request (i.e., a change order request) and presents it to the contract management committee for consideration, designating whether the change is a a mandatory change or non-mandatory change Change order documentation must include, at a minimum, a detailed description of the recommended change, the objective and benefits of the change (financial and non-financial), the cost to implement the change (if any), any risks associated with making the change, the impact of the change to other processes, pricing, agreements, exhibits, etc.

70 Customer Satisfaction Surveys n Customer and Vendor shall conduct mutually agreed upon satisfaction surveys n Vendor should not be able to conduct a survey without Customer s prior approval n Consider agreeing to some actual questions/other content before contract execution n Vendor should administer each customer satisfaction survey and submit the results thereof to Customer in accordance with agreed upon procedures n Discuss how out-of-pocket non-labor costs (e.g., postage, printing, etc.) of conducting a satisfaction survey will be handled

71 Benchmarking n Customer should have the right to conduct a measurement and comparison benchmarking process to compare the fees and service levels applicable under the contract to industry standards n Customer s use of third parties to conduct benchmarking process on Customer s behalf n What peer group should be used by the benchmark provider for comparison purposes (e.g., other customers receiving services of a similar nature, with similar commitments undertaken by other service providers) n Benchmarking in a BPO environment is not well developed

72 Benchmarking (Cont.) n What is the range of measurement? Example Customer s fees/service levels should be within the highest (i.e., top) 15% of the peer group n How often is benchmarking by Customer allowed? Example - no more than once per any contract year per service tower n Which party bears the cost? Example - Customer and Vendor equally split the fees and expenses charged by the benchmark provider

73 Benchmarking (Cont.) n Benchmarking Results Who gets the results of the benchmarking process? What happens if the benchmarking process indicates that Vendor s pricing/performance for the benchmarked service is inferior to the comparative peer group?

74 Audits n n Vendor s retention of books and records relating to the fees, services, service levels, etc. Vendor (and its agents) should provide Customer (and its auditors) at all reasonable times and after reasonable notice access to any Vendor service location, to Vendor personnel, and to data and records relating to the fees and services for the purposes of: - observing Vendor s performance of its obligations - verifying fees charged to Customer - verifying integrity of Customer s data (e.g., examine the systems that process, store, support and transmit that data)/security and data safeguards/disaster recovery/backup - enabling Customer to comply with all applicable laws n Fee Audits - undercharges and overcharges

75 Questions and Answers

76 Finding a Path Forward When Your Outsourcing Deal Derails DELVACCA presents Critical Issues in Structuring Successful Outsourcing Arrangements: What Every In-House Counsel Should Know February 21, 2008 Presented by Barbara Melby Partner, Morgan, Lewis & Bockius LLP Philadelphia Office Renegotiating and Terminating Outsourcing Contracts

77 Despite the best intentions, it happens According to the analysts, anywhere from 50%- 75% of outsourcing deals get renegotiated or are terminated Renegotiating and Terminating Outsourcing Contracts

78 But Why? The industry is mature and deals are due to expire Outsourcing and outsourcing customers, by their nature, are dynamic A relook can be viewed as part of the natural cycle Relationship/performance issues Renegotiating and Terminating Outsourcing Contracts

79 What Customers Are Saying Publicly Expiration Change in customer s business Material deviation from original scope of services Changes in methodologies/ technologies Change in customer s management Behind the Scenes Poor performance by provider Overpromised Overcommitted Overcharging Poor customer satisfaction Poor customer/provider relations Change in customer management Desire to bring core services back in-house Disagreement on contract interpretation Three-year itch Unrealized expectations Renegotiating and Terminating Outsourcing Contracts

80 Nobody ever sues Public Disputes and Renegotiations/Terminations Delta/ACS (Settlement; Renegotiation) NiSource/IBM (Renegotiation) Sprint/IBM (Litigation - Settled) Powergen/Vertex (Litigation - Verdict) AA/IBM (Termination) Sears/CSC (Litigation; Termination) JPMorgan Chase/IBM (Termination) Boots/IBM (Renegotiation) Renegotiating and Terminating Outsourcing Contracts

81 The Path Forward The Path Forward Renegotiating and Terminating Outsourcing Contracts

82 Timing and Delivery Are Critical Obtain management support Obtain empowerment Your initial approach will set the tone Renegotiating and Terminating Outsourcing Contracts

83 Build the Right Team Who are the leads? Include Finance, Legal (Contract and Litigation) and HR Consider whom the provider will bring vs. Renegotiating and Terminating Outsourcing Contracts

84 First Steps For the Business Team Define your objectives for each area of scope And brainstorm regarding the provider s objectives and pain points Determine the strengths of your positions How well have you been documenting positions and maintaining issue logs? Be honest about your weaknesses Assess leverage points Renegotiating and Terminating Outsourcing Contracts

85 First Steps For the Legal Team #1 - Be Pushy Insert Legal into the process early Set guiding rules and principles Mark documents Who can send what Litigation hold Participate in Interviews Document review Renegotiating and Terminating Outsourcing Contracts

86 Key Success Factors Practicality of Objectives Understanding of Issues Commitment of Management Commitment of Organization Underlying Customer/Provider Relationship Strength of Positions Profitability of Original Deal External Economic Factors Renegotiating and Terminating Outsourcing Contracts

87 A View on Objectives Customer Reduction of fees Addition of new entities/scope Decreasing entities/scope More flexibility and control Use of other vendors Bringing services back inhouse Restructuring contract Provider Regain or retain profit Re-price Increase customer involvement and awareness Improve communications and escalation paths Clear the air Did I mention re-price? Renegotiating and Terminating Outsourcing Contracts

88 Customer s Leverage Customer has: Ability to compel renegotiation Ability to go to another vendor Ability to provide services in-house Ability to document provider s breach Reasons for customer s dissatisfaction Non-contractual leverage points Publicity (can cut both ways) Renegotiating and Terminating Outsourcing Contracts

89 Roadblocks They are always there SLAs when green means red Retained organization where were you? Governance Issue tracking Approved deliverables? Renegotiating and Terminating Outsourcing Contracts

90 Be Practical Can it be fixed? Determine impact of termination on business Worst case scenarios Renegotiating and Terminating Outsourcing Contracts

91 Determine Strategy You Need a Plan Determine approach Should be guided by your objectives Understand all of the pieces of the puzzle Look at the potential for parallel paths Renegotiation and preparation for litigation Term sheets and complaint work Renegotiating and Terminating Outsourcing Contracts

92 Next Steps for Renegotiation Define: What do you need to fix? What do you want? Develop term sheets to address Approach the provider Start discussions Keep your eye on the ball Renegotiating and Terminating Outsourcing Contracts

93 At the Same Time, Think About How You Would Unwind Develop a transition plan Identify personnel Identify technology/tools Identify documentation Identify assets Renegotiating and Terminating Outsourcing Contracts

94 The Process Be prepared Substantively and emotionally Things can get ugly Renegotiating and Terminating Outsourcing Contracts

95 The Process But remember, the goal is to find the right path forward Renegotiating and Terminating Outsourcing Contracts

96 What Does Your Contract Say? Renegotiating and Terminating Outsourcing Contracts

97 Legal Involvement Review the contract Review all ancillary agreements Side letters Review the file Know the history of the deal Document any problems with the provider Determine your weaknesses Help develop strategy Renegotiating and Terminating Outsourcing Contracts

98 Key Contract Issues At Signing What is it? Who does it? Who owns it? How much will it cost? What happens if it isn t done? At Renegotiation Has there been a default? Are there termination rights? Are there renegotiation rights? Ability to use a third party? Assistance/training? Renegotiating and Terminating Outsourcing Contracts

99 Assessing Customer s Rights Under the Contract Term of agreement Data Intellectual property Equipment/facilities Third-party service contracts Service levels/customer satisfaction Renegotiating and Terminating Outsourcing Contracts

100 Assessing the Contract Deliverables/Milestones Fees Benchmarking Gainsharing Liability Confidential information Renegotiating and Terminating Outsourcing Contracts

101 Assessing The Contract Dispute Resolution Continued Performance Right to Renegotiate Rights to Resource/Insource Renegotiating and Terminating Outsourcing Contracts

102 Assessing The Contract Right to terminate Prepare a summary of all termination provisions (include prerequisites and procedures) Assess termination fees Rights upon termination Termination assistance Exit rights Employee issues Renegotiating and Terminating Outsourcing Contracts

103 Would You Be Ready to Terminate? Establish a Plan and Time Line Establish Grounds for Termination Notice Requirements Comply with Dispute Resolution Renegotiating and Terminating Outsourcing Contracts

104 Conclusion Both parties should define objectives and bottom lines Be prepared and be aggressive but remain practical Termination should remain an option (contingency planning is important) Consider costs/consequences of a formal dispute (is an equitable settlement a better option?) Renegotiating and Terminating Outsourcing Contracts

105 Barbara Melby Partner Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA P E. Renegotiating and Terminating Outsourcing Contracts