October 17, 2017

October 17, 2017

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October 16, 2017

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Software Robots in Outsourcing Part 3: Adding Automation to Scope

If your business is interested in pursuing a software automation solution with an incumbent service provider, you may be able to leverage your existing contract to cover the new scope. In this post (the third and final in our series on software robots in outsourcing—see parts one and two), we will describe some of the key contractual issues when adding software automation to scope.

These first contractual considerations assume that the software automation request is customer-driven (i.e., the vendor has not independently developed a software automation tool that it seeks to introduce to its customers). In this situation, the key questions will be (1) whether the vendor must consider and implement new technology and (2) to what extent the vendor’s customer base must bear the associated costs.

Contractual Support for Requesting New Technology

  • Your Master Services Agreement (MSA) with your outsourcing vendor may contain technological currency requirements, such as the following:

    • An obligation to use evolving technological advancements and improvements in delivering services and to improve the methods of delivering services

    • An obligation to use commercially reasonable efforts to improve the quality and efficiency of services to keep pace with industry practices

    • Other continuous improvement obligations, such as cost savings or other efficiencies, that could be achieved through improved technology

  • Your MSA likely also includes some type of change-control procedures, where either the customer or the vendor may propose changes to the scope. In many cases, each party is obligated to consider all proposed changes in good faith.

  • Even if your MSA does not have provisions that are on point for requesting a change to software automation, vendors may be willing to implement the solution, both to solidify the specific customer-vendor relationship and to keep pace with the industry.

Contract Negotiations Relating to Software Automation

In negotiating for the addition of software automation, vendors may raise the following issues whether or not the change is customer- or vendor-initiated:

  • Who bears the costs of development and implementation?

    • If the requesting customer pays initially, but other customers will benefit from the software automation tool in the future, consider negotiating for a competitive advantage and/or repayment of the customer’s costs from future vendor revenues.

    • If the vendor bears the upfront development and implementation costs and plans to recoup them gradually over the balance of the MSA term, the vendor will likely ask for increases to the early termination fees under the MSA.

  • When and how are service levels set?

    • With new technology, vendors often ask for a period of time to “burn in” service-level performance, setting new metrics based on established performance levels, rather than agreeing to defined metrics upfront.

  • Questions on ownership

    • Does the vendor own the software automation tool itself? Does the customer need any post-term license rights to use the tool even if the relationship ends?

    • Who owns the business process that is automated by the tool? Again, if the vendor owns it, consider the customer’s post-term rights.

    • Who owns the data generated by the software automation tool? Ownership follows based on whether data is customer-specific (customer owns) or general performance data (vendor owns).

  • Elimination of vendor personnel

    • If fewer personnel will be assigned to the customer account following the rollout of the software automation tool, the vendor may ask for a period of time to redeploy the affected personnel and/or for the customer to pay for wind-down costs associated with relocating or redeploying the personnel.

These contract considerations may seem complex, but they are not insurmountable and may help lay the groundwork for negotiating a fair and balanced amendment to the outsourcing relationship.

Copyright © 2017 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

Partner

Michael L. Pillion is a partner in the Global Outsourcing, Technology, and Commercial Transactions Practice at Morgan Lewis. Mr. Pillion’s practice focuses on information technology and business process outsourcing transactions, as well as commercial and other technology-related transactions, including system implementation, licensing, technology services, strategic alliances, and other agreements in support of sourcing and supply chain operations.

215-963-5554
Megan E. Gatto, Global Outsource, Technology Attorney, Morgan Lewis, Law firm
Associate

Megan E. Gatto is an associate in Morgan Lewis's Global Outsourcing, Technology, and Commercial Transactions Practice. Ms. Gatto focuses her practice on outsourcing transactions, including information technology and business process outsourcing, commercial agreements, including professional services and consulting agreements, and other technology-related agreements, including for data center and cloud computing environments, for hosted platform, software and data solutions, for software as a service (SaaS) and data as a service, for application development, testing and maintenance (ADM), and for licensing and other technology services.

215-963-5526