TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

The terms “reseller” and “distributor” are often used interchangeably to describe entities that purchase goods or services from a manufacturer and then distribute or resell such goods or services to retailers and consumers. However, there are some key differences between a distributor and a reseller and important issues to consider in agreements with resellers and distributors.

In a recent Wall Street Journal article, cybersecurity journalist Catherine Stupp drew attention to the massive surge in internet-connected devices expected to be in use by the end of 2020. This increase in the Internet of Things, which refers to internet-connected devices ranging from televisions and automobiles to fitness tools and medical devices, presents several challenges to the world of cybersecurity.

The article not only urges manufacturers of internet-connected devices to apply cybersecurity techniques to increase security, but also asks large companies buying devices to incentivize good security practices by only purchasing devices with proper safeguards. The California Consumer Privacy Act, which took effect January 1, 2020, takes a step in the right direction by no longer allowing manufacturers to sell internet-connected devices with weak default passwords. Stay tuned for future developments as cybersecurity races to keep pace with the growth of connected devices.

The 2019 ISG Momentum Market Trends & Insights Geography Report was recently released and contains valuable insights on how the outsourcing industry is growing and transforming around the world. The report, which was published on December 27, 2019, is authored by Paul Reynolds, partner and chief research officer at ISG.

One of the key highlights of the report focuses on annual contract value, or “ACV.” The report finds that the “number of outsourcing contracts signed continues to rise each year, but the cumulative annual contract value (ACV) of those deals continues to fall.” The report attributes the decline in ACV, which fell for the sixth consecutive year in 2018, to the following three factors: (1) falling prices from commoditized service lines, (2) aggressive pricing policies from new market entrants, and

You signed a long-term deal. It would be embarrassing if, in a few years after signing, the pricing is significantly higher or your service levels are significantly lower than market. Benchmarking provisions are intended to provide a mechanism for ensuring that your pricing and/or service levels are within market (taking into consideration the unique factors applicable to your deal). Set out below are some of the key components of a meaningful benchmarking provision.

In this contract corner, we consider the concepts of “good faith” in commercial contracts under English law.

The General Position Under English Law

The notion of good faith is a complex and evolving concept under English law, and it has important implications for those drafting commercial contracts. In contrast to many other civil (e.g., France and Germany) and common (e.g., United States and Australia) law jurisdictions, there is no general doctrine of good faith either in negotiating or in performing a contract. Instead, parties are free to pursue their own self-interests, so long as they do not act in breach of contract. However, the notion of good faith can still impact commercial contracts in three main ways:

We have all heard the horror stories: system implementation deals costing 300% more than the original budget, go-live dates for development projects being way past the scheduled dates, and deliverables that do not meet the customer’s expectations. These are the stories that keep us lawyers up at night. So what can we do in the contract to incent timely, on-budget performance by the vendor? First, there is no substitute for a detailed and well-thought-out requirements document, which provides the roadmap that shapes the design, build, and deployment. Then, while there is no magic bullet, there are numerous contractual mechanisms to be considered that are designed to provide guideposts and checkpoints to enable success.

Set out below are 10 contractual mechanisms for providing meaningful performance commitments and consequences if the commitments are not met. Maybe you will not need to invoke these mechanisms, but having firm rules may help drive good behavior (you know the old adage, “good fences make good neighbors”). As is always the case, the appropriate mechanisms to be used are deal specific, and not all deals or relationships require the full spectrum of contractual commitments set out below (but some do!).

As mentioned in our recent blog post, Morgan Lewis, led by technology, outsourcing and commercial transactions partner Mike Pierides, hosted a roundtable on aviation technology contracts and issues on November 14 at the PSS2019: Retail Excellence conference. The roundtable included representatives from airlines, airline industry professionals, and technology suppliers.

The roundtable discussion focused on how industry stakeholders manage their passenger service systems (PSS). During the feedback session, Mike noted that his roundtable group’s discussion inevitably centered on the challenges that airlines and suppliers face with this process, and talked about some upfront problems that can occur when entering into a PSS relationship. Namely, the RFP process typically places significant weight on obtaining the lowest price at the expense of both the quality and the scope of that particular PSS relationship, which causes tension among an airline’s procurement, legal, and other departments.

The Outsourcing Accountability Act of 2019, which was introduced in July and would effectively require some public companies to report their outsourcing of jobs, passed the US House of Peoples Representatives on October 18.

The bill includes an amendment to the Securities Exchange Act of 1934 to “require the disclosure of the total number of domestic and foreign employees of certain public companies.” Specifically, the amendment would require public companies that are subject to the new requirements to include in their annual reports the number of employees domiciled in the United States and abroad, broken down by jurisdiction (e.g. states, countries, etc.), and a comparison to the corresponding figures in the company’s prior annual report calculated as a percentage change. The companies’ annual reports would therefore indicate outsourcing efforts of the company through these reported figures.

When we represent customers in outsourcing and managed services transactions, we spend a significant amount of time drafting the exhibits for transition, which is typically a major project in and of itself. In order to help clients think about the major components of transition, we often provide the following checklist of common workstreams to facilitate our discussion.

  1. Governance – Governance is an overarching workstream that spans all phases of transition. A key component is the formation of a transition management office that is responsible for managing the overall transition (including performance and risk management) and coordinating with the company’s governance organization.
  2. Planning – Detailed design and implementation planning is critical to ensuring timelines are integrated and met, with all dependencies considered. Plans typically include the responsibilities of each party, anticipated completion dates, and acceptance criteria.

In a recent Law360 article, Morgan Lewis lawyers Gregory Parks, Kristin Hadgis, and Terese Schireson discussed the recently passed bill in Nevada – Nevada Senate Bill 220 (SB 220) – that will require defined “operators” of websites or online services that are used for commercial purposes and collect personal data of Nevada consumers to comply with a consumer’s request not to sell personal information. SB 220 will be the first law of this scope in the United States that provides consumers with opt-out rights with respect to the sale of their data.

With SB 220 going into effect on October 1 of this year, it is time now for operators to implement measures to enable compliance with SB 220. The article offers helpful tips for compliance, including suggesting that affected operators establish designated addresses where consumers can submit requests.