Lela Bekauri is General Counsel of Atos for Spain & Portugal and member of the local Executive Committee of Atos (Iberia). During the years she has negotiated a wide range of Outsourcing IT contracts and assessed IT deals. Lela has managed the legal assessment of the Global IT deals covering the different countries and including the high level of complexity. Her role as General Counsel is to ensure that the legal risks are properly identified for each opportunity and proper mitigation actions are on place. She provides support to the business team during pre-sales phase and during the contract implementation.
It is impossible to negotiate Outsourcing IT contracts without being familiar with the nature of the IT business and the portfolio of the Company. It is not an easy task for those who are not technical profile professionals such as Delivery or Solution experts, but it is key to understand what the contract is about and what to be negotiated.
There are the 10 key questions to answer for identifying the main legal risks and for finding the keys of their mitigation:
1. What is the type of the service?
It is important to understand whether the company commits (a) to deliver the results or (b) to provide some resources charging the fees depending on the time dedication on the Project (it is called Time&Material, Technical Assistance, body shopping, etc). In case of this Time&Material Services, the provider does not commit the quality of the result to be obtained as it will not manage the project, despite its employees will implement it under the management of the customer. It means that the conditions such as penalty, Service Level Agreements, project milestones and some other obligations cannot be the provider ‘s responsibility.
2. What are the main assumptions which may impact on the provider´s costs?
It is important to understand what the key elements of the price estimation for the deal are. If the prices are estimated for maximum volume of incidents to be resolved, the offer shall include the assumption to clarify it and the provider’s right to review the prices if such volume varies. If the prices are estimated depending on the specific business volume, it shall be also clarified and mitigated, otherwise the provider may lose money if the business volume varies.
3. Will the provider incurre any investment or anticipated cost for the Offer implementation?
Should the provider need to incur any cost or invest for the offer implementation, it may have issues on cash flow and risk of recovering the incurred cost, if the contract terminates before the amortisation of such investment. Proper payment milestones and termination provisions may prevent this risk.
4. Will the provider use any of its pre-existing development (HW Or SW) for the implementation of the Offer?
If the provider is going to use any of its pre-existing developments (Hardware or Software, API, etc) for the implementation of the Offer, the provisions of the intellectual property rights and obligations shall be included in the Offer, clarifying the rights of each party on pre-existing and new developments.
5. Will the provider use any of the pre-existing development (HW Or SW) of the other providers for the implementation of the Offer?
If the answer is yes, it is important to ensure that whether customer accepts the conditions of such manufacturers (many times the manufacturers provide the EULA – end user agreements for the end customers) or the manufacturer accepts the end-customer´s conditions (which is possible to achieve only with the certain manufacturers).
6. Are there any international elements?
It is important to understand if the services are going to be provided to the outside of the country of the provider, or the services are going to be from the outside of the country. In such a case, the provider shall assess the aspects related to tax, currency, details of the data treatment and data transfer, possible Compliance risks, and in general risks of delivery (depending on the nature of the deliverables).
7. Is there any access to the personal data?
There is no grey answer on this question. The team shall know if these services require the access to the personal data, including or not the data transfer. (If there are ways to avoid the access to the personal data, better to avoid) If the access to the personal data is confirmed, proper data assessment shall be managed and data protection agreement (and if applicable, Standard Contractual Clauses for international transfers) shall be properly negotiated and signed.
8. Is there any company subcontracted?
If there is a plan to subcontract some services to the other company, the team shall assess what is the level of the dependency on the subcontractor and associated risks to negotiate proper provisions in the subcontract agreement. It shall ensure that the right to subcontracts is approved by the customer. In any case, if the subcontractor has access to the personal data, it shall have signed a data protection agreement. If the customer requests to flow down certain obligations to the subcontractors, the subcontracting agreements shall include such flow down terms.
9. Are there any SLAs and penalties applicable?
Sometimes, there are only service level agreements (SLAs) agreed as a reference for the service quality. In other cases, the SLAs have associated the penalties (liquidated damages). It is important to ensure that the nature of the SLAs represent the expected level of services, and they are not too strict or sophisticated. In any case, the penalties shall be negotiated under the proper conditions, indicating the applicable economic limit. If the penalties are accepted by the provider, it means that such risk shall be contemplated within the P&L of the offer. The commitment on the SLAs and penalties do not make sense in case of T&M services as explained in the point 1 above, except the penalty is for the availability of the resources.
10. What are the phases & milestones of the contract?
The contract could not be negotiated without understanding the difference between the phases of Transition, Set Up, Migration, Transformation, Maintenance and/or Devolution. In the different contracts this terminology is used with different meanings. Case by case, it shall be clarified in the Offer how the cost of Transition and/or Devolution are regulated. In case there are synergies of Transformation or Migration, the obligations of each party shall be clearly agreed. The payment milestones and acceptance proceedings shall be properly agreed for the Set Up and Maintenance. Each of these points can have an impact on the P&L, cash flow and final project margin.