information technology outsourcing transactions process strategies and contracts 2nd ed phần 4 potx

172 APPENDIX 4.2 KEY ISSUES IN OFFSHORE OUTSOURCING AGREEMENTS 3 1. Initial Due Diligence C Initial down selection diligence may include: • Financial viability • Business continuity plans and procedures • Experience in U.S. markets • Security infrastructure • Understanding and compliance with laws • Work quality and technical solutions • Employee base • Cultural fit: Does Vendor understand your corporate environ- ment? Does Vendor have a good understanding of U.S. law and business practices? 2. Structure of the Outsourcing Agreement C How will the outsourcing agreement be structured? • A single services agreement • A master agreement with site-specific, country-specific, or entity- specific service agreements • Separate agreements for reengineering, development, and ongoing management • Separate agreements documenting the terms applicable to a joint venture/strategic alliance relationship and the terms applicable to ongoing services C What is the inter-relationship between these agreements if separate (e.g., cross-termination, payment)? 3. Note: This checklist is intended to illustrate the types of legal issues that customers may wish to con- sider in connection with contracting for application services. The items included in this checklist may not cover all of the issues that may arise in a particular transaction. Legal issues will likely vary de- pending on the type of service being provided and the scope of the services. This checklist or any part thereof should only be used after consultation with your legal counsel. Legal counsel should be consulted prior to entering into or negotiating any transaction covering the provision of application services. Halvey.book Page 172 Tuesday, August 9, 2005 8:58 AM Appendix 4.2 Key Issues in Offshore Outsourcing Agreements 173 C Factors that may affect the agreement structure include: • Scope of services. Will Vendor be providing any reengineering or development services? • Geographic scope. Single country vs. international agreement • Scope of services at specific sites. Will all Customer sites receive the same services or will each Customer site receive different ser- vices? • Types of entities receiving/delivering the services. Is the contract- ing entity for each of the parties able to bind the entities that will receive/deliver the services or must each of the recipient/deliver- ing entities agree to be bound by the master agreement? • Cost allocation. Are there any cost allocation requirements inter- nal to customer that would drive separate site/entity agreements? • Taxes. Are there any tax requirements that would drive separate service agreements? 3. Contracting Party C Who will sign the agreement on behalf of Customer? On behalf of Vendor? C If there is a master agreement with separate service agreements, will the same party that signs the master agreement sign the service agreements? 4. Entities Receiving Services from Vendor C Determine who will receive services from Vendor C Entities may include: • Customer affiliates • Joint ventures/alliances •Contractors • Suppliers • Clients of Customer C Will Customer have the option of adding/deleting entities over the term? C How will mergers/acquisitions/divestitures be handled? What will Customer’s and Vendor’s ongoing obligations be? C Which entity(ies) will have payment obligations? Are recipients of services third-party beneficiaries? 5. Entities Providing Services to Customer C Determine which entity (or entities) will provide the services to Customer. C Will there be any subcontracting/teaming relationships? C For international deals, how will Vendor provide resources/services in each country? Will Vendor use affiliated entities or subcontractors? Halvey.book Page 173 Tuesday, August 9, 2005 8:58 AM 174 Ch. 4 Outsourcing Contract C What are Customer’s rights to approve/remove subcontractors? C Which entity(ies) will have performance/indemnification obligations? 6. Term C What is the commencement date of services? Will there be one commencement date for all sites? Will there be one commencement date for all services (e.g., reengineering, development, and ongoing management)? C How long is the term of the agreement? If the transaction includes multiple agreements, are all of the agreements co-terminus? If there is a master agreement with separate site/service agreements, are all of the agreements co-terminus? C Will there be a pilot period? C What are each party’s renewal rights? What type of notice is required for renewal? 7. Scope of Services C Determine the general scope of services to be provided by Vendor. C Determine those services which will be provided in-house by Cus- tomer or to Customer by a third party. C Describe in detail the services (typically by service category) to be provided by Vendor. C Define Customer’s responsibilities with respect to the services to be provided by Vendor (i.e., definition of requirements, strategic direction, approvals). C Define existing and future requirements (e.g., capacity require- ments, volume changes, business changes). Allocate managerial and financial responsibility. 8. Transition Plan C How will the transition of services to Vendor be handled? C Will there be any redundant/parallel environments? C Determine the performance standards during transition. C How long will the transition period be? 9. Methodologies C Assess methodologies to be used by Vendor. Are the methodologies proprietary to Vendor or licensed from a third party? If licensed from a third party, are there any use restrictions? What are Customer’s rights to use during the term and after expiration/termination? C Will any of Customer’s methodologies continue to be used during the term of the transaction? What are Vendor’s use rights (e.g., use Halvey.book Page 174 Tuesday, August 9, 2005 8:58 AM Appendix 4.2 Key Issues in Offshore Outsourcing Agreements 175 in connection with services to Customer only; use in connection with other customers)? C How will Vendor transition Customer to Vendor’s methodologies (if applicable)? C How will the methodologies introduced by Vendor be integrated with Customer’s existing and future methodologies (with respect to the applicable business function as well as other business areas, e.g., information systems)? C Will Vendor be developing/providing any new methodologies? If so, how will ownership/use rights be allocated? How will new methodologies be rolled out (e.g., define time period, consequences for failure to meet deadlines, each party’s responsibilities)? 10. Technology C Assess technology to be used by Vendor. Is the technology propri- etary to Vendor or licensed from a third party? If licensed from a third party, are there any use restrictions? What are Customer’s rights to use during the term and after expiration/termination? C Will any of Customer’s technology continue to be used during the term of the transaction? What are Vendor’s use rights (e.g., use in connection with services to Customer only; use in connection with other customers)? C Will the environment be dedicated/shared? C How will Vendor transition Customer to Vendor’s technology (if applicable)? C How will the technology introduced by Vendor be integrated with Customer’s existing or future technology (e.g., is Vendor technol- ogy compatible with technology used by Customer’s information system group)? C Will Vendor be developing/providing any new technology? If so, how will ownership/use rights be allocated? How will new technol- ogy be rolled out (e.g., define time period, consequences for failure to meet deadlines, each party’s responsibilities)? 11. Assets C Will Vendor be purchasing any of Customer’s assets (e.g., equip- ment, real estate)? If so, when will purchase be made (e.g., on date of signing)? C How will assets be valued (e.g., book value, fair market value)? C Is the transfer of assets necessary in conjunction with the transfer of employees in order to constitute an “automatic transfer” under the particular country’s employment/redundancy laws? Halvey.book Page 175 Tuesday, August 9, 2005 8:58 AM 176 Ch. 4 Outsourcing Contract 12. Projects C Identify any projects that Vendor will be responsible for imple- menting/managing as part of the transaction. C Will Vendor be responsible for any reengineering in connection with its provision of services? If so, what are each party’s responsi- bilities? What are the consequences if the reengineering is not suc- cessful or performed by deadlines specified? C What is the inter-relationship of Vendor’s reengineering responsi- bilities and Vendor’s other services responsibilities (e.g., are they cross-terminable)? C Will Vendor be responsible for any new implementations? If so, what are each party’s responsibilities? What are the consequences if the reengineering is not successful or performed by deadlines specified? C Which party will be responsible for purchase/license of third-party methodologies/technologies (if applicable)? 13. Integration C How will the methodologies/technologies introduced by Vendor be integrated with other methodologies/technologies used by Customer? C Have other Customer business areas been contacted for input (e.g., information systems, human resources)? 14. Transfer of Employees C Determine whether any or all of Customer employees will be offered employment by, or transitioned to, Vendor or a Vendor subcontractor. C Identify group of retained employees. C Review Customer’s severance/redundancy policy, if any, to deter- mine whether a transition to Vendor may invoke severance obliga- tions. (If so, factor into Customer’s cost analysis.) C Are there any claims with respect to any of the transitioned employees? C Compare Customer and Vendor benefits. Are any adjustments necessary? C Does Vendor require any special screening of employees (e.g., drug testing)? C Will Vendor require transitioned employees to sign an employment agreement? C Develop an employee communication plan. C Determine whether any stay bonuses/incentives are necessary. Halvey.book Page 176 Tuesday, August 9, 2005 8:58 AM Appendix 4.2 Key Issues in Offshore Outsourcing Agreements 177 15. Project Staff C Identify management structure of Vendor as well as Customer in connection with the provision/receipt of services. C Are there any limitations/restrictions with respect to reassignment/ replacement of key Vendor personnel? C Are there any on-site/off-site requirements? C Are there any limitations/restrictions with respect to “churning” of employees? C How will Customer complaints regarding Vendor personnel be handled? C Are there any special clearances of Vendor personnel necessary? C Are there any limitations/restrictions with respect to subcontractors? C Are there any visa requirements? C What are Vendor’s employment practices? Do they comply with local law? Do they comply with U.S. law? 16. Retained Assets C Identify which assets Vendor will manage and, of those assets, which assets Vendor will have financial responsibility for. C Identify which assets Customer will continue to manage and, of those assets, whether Vendor will have any financial responsibility. C How will the parties act in the event it is not clear where a problem originates from (e.g., root cause analysis)? 17. Agreements to be Reviewed C Identify any third-party agreements/relationships that may be impacted by the outsourcing, including: • Maintenance agreements • Subcontracting relationships • Other service agreements • Methodology/technology licenses • Equipment/asset leases • Real estate leases/subleases C Are there any restrictions with respect to third-party management/ access or assignment to a third party? C What are the terms relating to termination/renewal? C What are the pricing terms, and will they be impacted by the transaction? C Develop a strategy for notifying third parties, if applicable. Halvey.book Page 177 Tuesday, August 9, 2005 8:58 AM 178 Ch. 4 Outsourcing Contract 18. Third-Party Consents C Are any third-party consents necessary in connection with the com- mencement of the transaction? If so, which party is responsible for obtaining such consents and how will financial responsibility be allocated? C How will third-party consents be obtained upon the expiration/ter- mination of the transaction (in order to transition agreements/assets back to Customer or Customer’s designee)? How will financial responsibility be allocated? 19. Performance Standards C Identify those services that will have performance standards. C How will Vendor’s performance be measured? Will existing per- formance standards be used or will performance standards be estab- lished on a going-forward basis? C Identify any permitted downtime and testing. C How will failures to meet performance standards be handled (e.g., liquidated damages or termination)? C Will there be any procedures for assessing/determining causes of failures to meet performance standards (e.g., root cause analysis)? C What performance standards will apply during transition/ implementation? 20. Customer Satisfaction C Will Vendor be responsible for any type of customer satisfaction reporting? C Determine pool of employees surveyed (e.g., management, end users). C How will the results of such surveys be used (e.g., as basis for per- formance standard)? 21. Benchmarking C Determine whether the agreement will include any benchmarking procedures (e.g., benchmarking of services or prices). C Develop benchmarking procedures (e.g., scope of benchmark, group against which services/prices will be benchmarked). C Identify benchmarker (e.g., third party, Vendor group). C How will benchmarking results be reviewed and how will changes, if applicable, be implemented? 22. Sarbanes-Oxley Considerations C Determine documentation and training requirements. C Are any special reports required (such as SAS 70)? Halvey.book Page 178 Tuesday, August 9, 2005 8:58 AM Appendix 4.2 Key Issues in Offshore Outsourcing Agreements 179 23. Compliance Issues C Identify any regulatory/governmental requirements (e.g., timing, notice, consent). (Note: These requirements are typically driven by the type of transaction, e.g., rules governing accounting services, and the type of organization receiving services, e.g., rules governing financial institutions. In addition, compliance issues may vary from country to country or if the transaction involves more than one country.) C Are the software, equipment, systems, or other materials owned, used, or provided by Vendor in providing the services capable of correctly processing and/or operating without errors or omissions relating to the occurrence in or use by such software, equipment, systems, or other materials of dates or date-dependent data, includ- ing from different centuries or more than one century? C Are the software, equipment, systems, or other materials owned, used, or provided by Vendor in providing the services compliant with guidelines set forth by industry-specific regulatory bodies? C Determine which party is responsible for ensuring compliance. Allocate costs of compliance due to changes in laws, rules, or regu- lations after commencement. C Identify any license/permits required to be obtained by Customer and/or Vendor. C Consult with legal, regulatory, tax, and audit departments. 24. Transaction-Specific Issues C Identify any transaction-specific requirements (e.g., for warehouse distribution transactions, provisions regarding liens; for real estate management transactions, insurance, and environmental obliga- tions; for accounting services transactions, provisions regarding accounting standards and filing deadlines). C Consult with legal, regulatory, tax, and audit departments. 25. Customer Responsibilities C Identify Customer’s responsibilities (e.g., provision of supplies, computers, parking). C Will Customer be providing any space/facilities to house Vendor’s employees? What are the terms of Vendor’s use (e.g., sublease)? C Is Customer retaining staff necessary to perform the retained responsibilities (e.g., management, definition of requirements, approvals)? 26. Service Locations C Where will Vendor be providing the services from? If such loca- tions are not Customer locations, are there any restrictions on where Vendor may provide services from? Halvey.book Page 179 Tuesday, August 9, 2005 8:58 AM 180 Ch. 4 Outsourcing Contract C Will the service locations be dedicated to Customer or shared facilities? C Describe physical security requirements. Are uniforms or other identification required? Does Customer or Vendor have specific codes of conduct? C How will breaches of security be handled? C Are there any environmental concerns? 27. Management Procedures C Will the parties develop management procedures to be used in con- nection with the provision of the services? C How will change control be handled? 28. Reports C Identify the performance and other reports that Customer currently generates or receives with respect to the services being outsourced. C Identify those reports that Customer wishes to receive from Vendor. C Establish deadlines for each report. C Will Customer be required to review the reports within a specific time period? C How will errors in reports be handled? 29. Data C Discuss procedures for handling Customer data. What are Vendor’s use rights? C How will errors in Customer data be handled? C Describe data security requirements at service locations. Are pass- words required? C How will breaches of security be handled? 30. Proprietary Rights C Establish Vendor’s right to use Customer proprietary methodolo- gies and technology during the term and after expiration/ termination of the agreement. C Establish Vendor’s right to use during the term and after expiration/ termination of the agreement methodologies and technology licensed by Customer from third parties and used in connection with the provision of the services. C Establish Customer’s right to use Vendor’s proprietary methodolo- gies and technology during the term and after expiration/ termination of the agreement. Halvey.book Page 180 Tuesday, August 9, 2005 8:58 AM Appendix 4.2 Key Issues in Offshore Outsourcing Agreements 181 C Establish Customer’s right to use during the term and after expiration/termination of the agreement methodologies and tech- nology licensed by Vendor from third parties and used in connec- tion with the provision of the services. C Establish each party’s ownership/use rights with respect to method- ologies and technology developed or acquired as part of or in con- nection with the provision of the services. C Establish any restrictions governing the use of confidential information. C Establish any restrictions governing the use of mentally retained information. C Discuss whether noncompetition provisions are appropriate. 31. Audit C What are Customer’s rights to audit the services and the service locations? How often may Customer exercise any such audit rights? C How will the results of any such audit be dealt with? C What are Customer’s rights to audit the fees? C How will overpayments/underpayments be handled? C Will interest be charged? 32. Fees C Determine the applicable fee structure. Will payment be made in U.S. dollars? C Customer should assess actual cost savings, if any. Such analysis should include any new taxes, employee transfer costs, training, and other expenses resulting from the outsourcing. C Vendor should assess actual profit margin. C Other Fee Provisions: • If a base fee structure is used, determine structure for increasing and decreasing fees/resources. • Determine the rights of the parties to set off monies owed. • To what extent, if any, will Customer be responsible for Vendor expenses (e.g., travel)? Will Vendor use Customer or Vendor expense guidelines? • Will there be any cost-of-living adjustments? • For international deals, is there any currency risk? • Consider a most-favored-customer provision. • How will fees be paid (e.g., in what currency, in what manner, and according to what schedule)? Halvey.book Page 181 Tuesday, August 9, 2005 8:58 AM [...]... Satisfaction Survey and Related Procedures] Exhibit 19: Safety and Security Procedures Exhibit 20: Human Resources Provisions Exhibit 21: Critical Milestones Exhibit 22: Termination Fees Appendix 4. 4 Information Technology Outsourcing Agreement (Customer Form) 199 INFORMATION TECHNOLOGY SERVICES AGREEMENT by and between [CUSTOMER] and [VENDOR] Dated as of [SPECIFY DATE] This INFORMATION TECHNOLOGY SERVICES... Assurances 244 Negotiated Terms 244 Export 244 Nonsolicitation 244 Conflict of Interest 244 Publicity 244 TABLE OF EXHIBITS Exhibit 1: Statement of Work [Exhibit 2: Assets] Exhibit 3: Customer Third-Party Contracts Exhibit 4: Critical Services [Exhibit 5: Customer IP] Exhibit 6: Service Locations Exhibit 7: Affected Employees... type of information technology process being outsourced and the scope of the outsourcing transaction This sample agreement or any part thereof should only be used after consultation with your legal counsel Legal counsel should be consulted prior to entering into or negotiating any outsourcing transaction 195 196 Ch 4 Outsourcing Contract 7.02 7.03 7. 04 7.05 Managed Agreement Invoices 2 14 Assigned... Relationship 242 Consents, Approvals, and Requests 242 Severability 242 Waivers 242 Remedies Cumulative 243 Entire Agreement 243 Amendments 243 Survival 243 Third-Party Beneficiaries 243 Governing Law 243 Sole and Exclusive Venue 243 Covenant of Further... contractors and other third parties doing business with Customer; (2) with respect to Customer and Vendor, the terms of this Agreement; and (3) any information developed by reference to or use of Customer’s or Vendor’s Appendix 4. 4 Information Technology Outsourcing Agreement (Customer Form) 201 information, provided, however, that except to the extent otherwise provided by Law, the term “Confidential Information ... performance be measured? Will existing performance standards be used or will performance standards be established on a going-forward basis? C Identify any permitted downtime and testing C How will failures to meet performance standards be handled (e.g., liquidated damages or termination)? C Will there be any procedures for assessing/determining causes of failures to meet performance standards (e.g., root...182 Ch 4 Outsourcing Contract • How, when, and to what Customer entity(ies) will invoices be issued? • Determine the degree of detail to be included on invoices • How will disputed fees/credits be handled (e.g., escrow)? What are the parties’ obligations to perform in the event of a dispute? • How will changes in business volumes be handled? 33 Taxes C C 34 Determine liability for sales, use, and other... C 40 Assess liability exposure Determine the representations and warranties to be made by each party Dispute Resolution C C 41 How will disputes be handled? Will the agreement include an escalation procedure? Will unresolved disputes be handled through arbitration or litigation? Business Continuity C Does Vendor have redundant infrastructure? C What are Vendor’s disaster recovery plans? 1 84 Ch 4 Outsourcing. .. “Procedures Manual” shall have the meaning set forth in Section 13.02 Appendix 4. 4 Information Technology Outsourcing Agreement (Customer Form) 205 “Project Staff” shall mean the personnel of Vendor and Vendor Agents who provide the Services [“Proposal” shall mean the Proposal, dated [SPECIFY DATE] and set forth in Exhibit 12, submitted by Vendor in response to the RFP.] “Reduced Resource Credits”... designated by Customer in the transfer of the 206 Ch 4 Outsourcing Contract terminated, insourced, or resourced Services to Customer or such other service provider in order to facilitate the transfer of the terminated, insourced, or resourced Services to Customer or such other service provider, and (3) any New Services requested by Customer in order to facilitate the transfer of the terminated, insourced, . performance standards be estab- lished on a going-forward basis? C Identify any permitted downtime and testing. C How will failures to meet performance standards be handled (e.g., liquidated damages. representations and warranties to be made by each party. 40 . Dispute Resolution C How will disputes be handled? Will the agreement include an esca- lation procedure? C Will unresolved disputes be handled. performance standards be established on a going-forward basis? C Identify any permitted downtime and testing. C How will failures to meet performance standards be handled (e.g., liquidated damages