September 23, 2019

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Drive to Automation and Your IT Outsourcing Contract

Robotics and automation are hot. But what do they really mean in the context of your IT outsourcing contract? At least for now, they are not about robots rolling around the data center floor or application development center. Robotics and automation are about software and tools that allow for automated processing, monitoring, and reporting, which provides real-time data and data analysis and a reduced need for manual (read—“human”) intervention. Many vendors are touting proprietary tools and solutions that enable more automation, resulting in more accurate and timely information and services and lower costs.

The following are five key contract considerations for outsourcing customers considering automation:

  • Software licensing and maintenance. For proprietary products, many vendors are licensing their automation software as a standalone offering with standalone pricing. Third-party license and maintenance costs may also apply if the proprietary products require specific operating systems, middleware, or application software to operate.

  • Software configuration, interfaces, and implementation.

  • Incremental infrastructure and capacity.

  1. Costs of Automation. Automation projects—at least at the outset—may not be without incremental expense. When considering an automation project, consider the one-time and ongoing incremental costs, and balance those against the anticipated efficiencies and benefits. Costs of automation may include

  2. Documented Benefits (Upfront and Ongoing). Automation sounds great, but what are the real benefits? As with any implementation, it is important to document a project’s intended benefits and the effect on the existing scope. Will there be a change in services? Will there be additional or improved service levels or reporting as a result of the automation?

  3. Sharing of Reduced Costs. One effect of automation may (or may not) be the reduction of required headcount. If headcounts are reduced because less people are needed to provide a service that is not “automated,” will the fees be adjusted? What are the adjustments? Does the contract provide for an adjustment regardless of whether a vendor can actually reduce the headcount? Customers should consider including a requirement that headcount cannot be reduced until a vendor can demonstrate that the documented benefits have been realized.

  4. Ownership of the Output. Automation tools, particularly ones with data-analytics capabilities, generate data and reports regarding a customer’s environment. Who owns this output, and what can it be used for? Customers should be sure to include in an outsourcing contract clear rights on ownership and use of data.

  5. Back-End Considerations. The tools have been implemented, are running, and are integrated into a customer’s environment. What happens if the contract terminates? Will the customer have ongoing rights to use the automation tools (and the related configurations and interfaces)? On what terms?

Copyright © 2019 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

Barbara Melby, Morgan Lewis, data privacy and cybersecurity lawyer
Partner

Barbara Melby has been active in the outsourcing and technology transaction legal market for the last 25 years. As leader of the firm’s technology, outsourcing & commercial transactions practice, she represents clients in such complex transactions as outsourcing, strategic alliances, technology and data-related agreements, and other services transactions. She also advises businesses on privacy and security issues that arise in transactions involving sensitive data and technologies.

215-963-5053
Glen Rectenwald, Morgan Lewis, Technology Attorney
Associate

Glen W. Rectenwald focuses his practice on technology, outsourcing, and commercial transactions. He regularly assists a broad range of clients with development, licensing, and distribution agreements; strategic alliances and joint ventures; manufacturing and supply agreements; complex outsourcing and strategic commercial transactions; and general commercial matters. Glen’s experience also includes mergers and acquisitions, private equity, venture capital, and general corporate matters.

412-560-7413