Hits: 1587 Preferred supplier?

Outsourcing agreements sometimes contain clauses giving the supplier a preferred supplier status and the right to be notified of new tenders and tender for the services. On the other hand, the customer will insist on a "most-favoured custom er" clause, whereby if the supplier offers better terms to another customer, the n the customer will also be offered these terms. In both cases the clauses are d ifficult to police and enforce and the wording of the clauses should be carefull y drafted to ensure that the obligations are enforceable and not considered to b e anti-competitive. Dispute resolution and remedies The contract should set out the detailed operating framework for the management of the relationship between the customer and the supplier, for example, covering the personnel involved in managing the relationship, any meetings that are to b e held and any reports that need to be submitted. The outsourcing agreement will also need to include a clear escalation procedure where problems arise whether for intellectual property or other legal issues. It is important that the partie s agree in the outsourcing contract a process of escalating remedies if problems arise which supplement the agreed delay deduction and service credit regimes. In doing so, the following issues should be considered: Providing a mechanism whereby the supplier is compensated for the acts a nd omissions of the customer which cause a delay in the implementation of the se rvices or a performance failure and ensure that these are not weighted against t he supplier. Allowing for increased performance-monitoring in the event of a failure by the supplier. Allowing a proper opportunity to remedy any remedial breaches and have a consistent link with the service level.

Providing for escalation of the dispute through internal management leve ls on an agreed timescale. Allowing the customer to "step in" to the outsourcing agreement in order to take back the responsibility for all or part of the services in the event of a material performance failure by the supplier.

In these cases, it would be prudent to include following an internal escalation procedure, a mediation clause to ensure that the parties try in good faith to ad dress their dispute. It is goo however to remember that for certain breaches, su ch as confidentiality or intellectual property, the customer will still need the right to recur to the courts in order for example to obtain an injunction to st op further breach of confidentiality, or intellectual property. Termination The outsourcing agreement will also need to contain detailed provisions for term ination and exit management. Rights of partial termination should also be consid ered if the services are capable of separation. The customer should be able to t erminate for fundamental or persistent breaches of the agreement. It is importan t that termination provisions are carefully drafted if the parties wish to have a right to terminate for a breach other than a repudiatory breach. The customer will also wish to be able to terminate on the insolvency and possib

ly the change of control of the supplier. In addition, the customer may wish to be able to terminate at will for its own convenience. Consideration should be g iven to the possibility of requiring partial termination where all or some of th e service elements may be brought back in-house or transferred to another suppli er. While the customer will want to be able to exercise clear termination rights if the supplier is in material breach, the customer most likely terminate the outso urcing agreement only in case of absolute necessity since termination will resul t in the customer having to re-procure the services. One possibility is for the customer to reserve the right to issue a warning notice to the supplier. Such no tices should attract management attention, but not be a termination notice. The issuing of a given number of warning notices could however, in itself, be a ground for termination even if none of the individual breaches of themselves con stitute a material breach. The supplier will also want to be able to terminate f or non-payment by the customer. However, careful consideration will need to be g iven by the customer to any request by the supplier to have the ability to termi nate the contract upon other events of customer default. The supplier should ensure, however, that it is not liable for non-performance t o the extent that such non-performance arises as a direct result of the customer 's default and that the customer agrees to pay reasonable unmitigable costs and expenses which are incurred by the supplier as a result of any such customer def ault. Exit management An exit plan is essential whatever the duration of the outsourcing agreement. It should cover all specific rights which the customer will require on termination and address: The continuation of provision of the services for the duration of the no tice period and any run-off period including potential co-operation with the new outsourcer or customer (in case of in-sourcing). The return or transfer back of assets and software (if required) and nec essary assignments/licences of intellectual property and the provision of inform ation and know-how to the customer or a new supplier. The treatment of employees and any obligations to inform or consult unde r TUPE and other relevant regulations. The degree of detail which the plan must contain depends on each case, In any ca se, it must be sufficiently certain to prevent dispute as to the parties' intent ions. Often the agreement provides for a detailed exit plan to be produced withi n a certain time, together with a process for agreeing and amending the plan. Th e plan will then be reviewed and kept up to date during the life of the contract . All articles are for general purposes and guidance only and do not constitute le gal or professional advice. Copyright 2011 Anassutzi & Co Limited. All rights re served. Information may be shared or reproduced only if accompanied by the autho r s name and bio.