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Information Technology Outsorcing Transaction - Halvey K.J.

Halvey K.J. Information Technology Outsorcing Transaction - Wiley Publishing, 2005. - 649 p.
ISBN-10 0-471-45949-6
Download (direct link): informationoutsourcingtransactions2005.pdf
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132 Ch. 3 Negotiations: Strategy and Process
[SPECIFY ANY RIGHTS/OBLIGATIONS WITH RESPECT TO THE TRANSFER OF ASSETS OR AGREEMENTS AND THE RIGHT TO USE INTELLECTUAL PROPERTY.]
[SPECIFY ANY RESTRICTIONS ON THE SOLICITATION OF EMPLOYEES.]
Indemnification. The [services agreement] [MSA] will provide appropriate indemnification provisions for items such as intellectual property infringement, tangible and personal property damage, [environmental compliance] and other items to be agreed.
Dispute Resolution. [SPECIFY DISPUTE ESCALATION PROCEDURES.]
Force Majeure. [ADD APPLICABLE FORCE MAJEURE PROVISION.]
Insurance. [SPECIFY INSURANCE REQUIREMENTS.]
Standard Miscellaneous Provisions. The [services agreement] [MSA] will include standard provisions regarding, e.g., confidentiality, notice, assignment, governing law, compliance with laws.
CHAPTER
4
OUTSOURCING CONTRACT
4.1 OVERVIEW 133
4.2 USE OF ATTORNEYS 135
4.3 KEY CONTRACT ISSUES 136
(a) Structure of the IT Outsourcing
Agreement 137
(b) Scope of Services 137
(c) Term 138
(d) Transition 138
(e) Integration 138
(f) Measuring Performance 139
(g) Currency Compliance 140
(h) Legal and Regulatory Compliance 140
(i) Transfer of Employees 141
(j) Staffing 142
(k) Transfer of Assets 142
(l) Management and Control 142
(m) Customer Responsibilities 142
(n) Intellectual Property 142
(o) Reports and Documentation 145
(p) Ownership and Return of Data 145
(q) Confidential Information 146
(r) Business Recovery 147
(s) Pricing/Fees 147
(t) Payments 147
(u) Taxes 148
(v) Dealing with Business Variability 148 (w) Audit 148
(x) Representations and Warranties 149
(y) Liability 149
(z) Liquidated Damages 150
(aa) Termination 150
(ab) Effect of Termination 151
(ac) Termination Assistance 151
(ad) Dispute Resolution 152
(ae) Indemnities 152
(af) International Issues 152
(ag) Assignment 152
(ah) Governing Law and Venue 153
(ai) Key Miscellaneous Provisions 153
4.4 RETAINING STRATEGIC CONTROL 154
(a) Technical Architecture and Product
Standards 155
(b) Identifying Customer
Responsibilities 155
(c) In-House Capabilities 155
(d) Rights of Approval 156
(e) Vendor Concerns 156
4.5 ASSEMBLING THE TEAM 157
4.1 OVERVIEW
The most common form of IT contract involves the transfer of control and ownership of all or part of a customer’s IT operations to an outsourcing vendor. In return, the customer agrees to compensate the vendor according to a negotiated fee schedule. The transfer of IT operations to the vendor1 typically includes some or all of the following:
• The transfer to the vendor of customer assets used to manage and facilitate the IT operations being outsourced (e.g., facilities and office equipment used by the IT department) and other related tangible assets
1. In IT outsourcing transactions where the vendor is teaming with other service providers or subcontracting a major piece of the services, the transfers, assignments, licenses, and sublicenses described in the following list may be to the vendor's teaming partner or subcontractor.
133
134 Ch. 4 Outsourcing Contract
• The assignment or license to the vendor of proprietary methodologies and/or technology used by the customer in connection with its IT operations
• The assignment or sublicense to the vendor of any third-party methodologies and/or technologies previously used by the customer in connection with its IT operations
• The transfer to the vendor of all or a significant portion of the customer employees previously involved in providing the outsourced services to the customer’s organization
Thereafter, the vendor assumes responsibility for operating and managing the customer’s IT operations and providing the IT services previously provided by the employees and consultants of the customer (except for certain responsibilities specifically retained by the customer, e.g., strategic control).
Given the wide variety of business issues and the many different legal disciplines involved in even the simplest form of outsourcing transaction, it should come as no surprise that one of the most difficult, if not the most difficult, stages of an outsourcing transaction is drafting and negotiating the contract. To an attorney familiar with general corporate practice, an outsourcing agreement may resemble a hybrid asset purchase and sale agreement and sale/leaseback agreement, in that there is typically a sale of assets or transfer of operations, a transfer of employees, and a lease back to the customer of the IT services that were divested. In an increasing number of IT outsourcing transactions, the basic structure of the deal resembles a project finance arrangement. Add to this the fact that an outsourcing contract is essentially a services agreement, and one can see how the IT outsourcing contract may be more than a hundred pages long.
Although it may seem daunting, drafting and negotiating an IT outsourcing contract can be distilled into five basic issues that must be considered and addressed by the parties:
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