1. CORE Discussion Forum: How to Keep Your Outsourcing Contract Current
Victoria, B.C.
January 25, 2017 David Crane, Partner, McCarthy Tétrault

2. Agenda The Need to Stay Current How to Stay Current Panel Discussion
Business needs
Technology needs
Market pressures
Regulatory compliance
New or emerging external risks
How to Stay Current
Traditional techniques
Innovative techniques
Panel Discussion

3. Need to Stay Current – Business Needs
Organizational changes – Business growth, acquisition or sale, change in business units, or service integration Process changes – New processes introduced or existing processes updated / changed
New products – Customer expands offerings or vendor introduces new product
Changes in key personnel – Vendor or customer loses relationship manager or other key personnel
Deficient contract – Contract improperly or insufficiently memorializes the original deal
Other business needs – Cut costs, compliance with new policies, etc.

4. Need to Stay Current – Technology Needs
Change in delivery model – Often not contemplated in older agreements (e.g. traditional licensing to SaaS)
Change in customer technology needs
Interoperability – Change in technology used by the customer or vendor creates need to change other technology
Move to cloud – Customer needs to move vendor solution to cloud
New solutions – Technology that was non-existent or emerging at time of agreement has become “must have” (e.g. data analytics, mobile)

5. Need to Stay Current – Market Pressures
Market disruptors – Competitor disrupts existing market
Market prices – Increase (or decrease) in pricing
Consumer behavior – Consumer demand drives change in solution (e.g. mobile payment)
Industry standards – Keeping up with industry standards

6. Need to Stay Current – Regulatory Compliance
Legal / regulatory changes – Changes in laws, regulations or guidelines/policies force a change in the solution or services
e.g. privacy laws change and vendor plays role in handling personal information

7. Need to Stay Current – New or Emerging External Risks
Security risks – New security threats necessitate improved security measures/controls
Political / jurisdictional risks – There is a change in the risk profile for using an offshore jurisdiction
Reputation risks – Risk to customer reputation necessitates a change
Currency risks – The economics of the deal are affected by currency exchange rate fluctuations

8. How to Stay Current – Traditional Techniques
Selecting right vendor
Vendor reputation for flexibility and cooperation
Breadth of service offerings
Track record of innovation
Managing vendor dependency
Negotiating the right deal from the outset
Clear business case
Risk / reward balance
Sufficient transparency
No deferment of negotiations
Avoidance of customization and ad hoc solutions

9. How to Stay Current – Standard Techniques (cont.)
Designing the contract to prepare for change
Prescriptiveness of requirements
Scalability of services and pricing
Change order processes
Including defining “Change”
Benchmarking (service levels, pricing)
Most favoured customer pricing commitment
Length of term
Termination for convenience rights
No fault termination right to respond to external changes (e.g. regulatory change makes model unprofitable)

10. How to Stay Current – Standard Techniques (cont.)
Designing the contract to prepare for change (cont.)
Key personnel provisions
Governance processes to deal with change (e.g. to drive timely communications and decision making)
Assignment rights (e.g. for corporate reorganization)
Temporary provision of services to a purchaser of a division or line of business of the customer

11. How to Stay Current – Standard Techniques (cont.)
Driving innovation
Technology refresh obligations
General continuous improvement obligations
Automatic and/or gradual automatic adjustments provisions (e.g. increasing service level metrics to reflect performance improvements)
Opportunity provisions
Gainsharing
General periodic governance reviews / discussions

12. How to Stay Current – Standard Techniques (cont.)
Managing change
“Operational” changes
Rely on existing provisions (change orders, work orders, etc.)
Modify / renegotiate through amendment procedure

13. How to Stay Current – Innovative Techniques
Pre-contract techniques
Joint solutioning procurement processes
Leveraging less capital intensive solutions / technologies
Selecting “as-a-service” solutions
Transformation planning
Contract techniques
Vested outsourcing / outcome-based approaches
Unconventional incentives (e.g. renewals/extensions as a reward)
Utilizing agile methodologies for change-related projects

14. How to Stay Current – Innovative Techniques
Contract Techniques (cont.)
Pricing techniques
Incentive / outcome-based pricing
Transparent economic model
Strategic investment fund / innovation job jars
Service migration rights
Flexible and well-defined customer exit rights

15. Contact Information
David Crane, Partner
McCarthy Tétrault LLP
© 2017 McCarthy Tétrault LLP. All rights reserved.
Panel
Discussion

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