Outsourcing 2019 4Th Edition a Practical Cross-Border Insight Into Outsourcing

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The International Comparative Legal Guide to: Outsourcing 2019 4th Edition A practical cross-border insight into outsourcing

Published by Global Legal Group, with contributions from: Anderson Mōri & Tomotsune MinterEllison Angara Abello Concepcion Regala & Cruz NautaDutilh Avocats Luxembourg Law Offices (ACCRALAW) Noerr LLP Arioli Law Portolano Cavallo Ashurst Hong Kong PSA Astrea Sabara Law LLC (a member of the Deloitte Bird & Bird LLP Legal Network) BSN Bufete Sánchez-Navarro, S.C. SAMANIEGO Law Centre for Outsourcing Research and SIQUEIRA CASTRO ADVOGADOS Education (CORE) Wiggin and Dana LLP Cliffe Dekker Hofmeyr Inc. Yazıcıoğlu Attorneys at Law Frieh Associés Ikeyi Shittu & Co. Integra Law Firm The International Comparative Legal Guide to: Outsourcing 2019

General Chapters:

1 Structuring a Multi-Jurisdictional Outsourcing Deal – Mark Leach, Bird & Bird LLP 1

2 Digital Disruption through Outsourcing – Ron Babin, Centre for Outsourcing Research and Education (CORE) 5 Contributing Editor Mark Leach, Bird & Bird LLPr Country Question and Answer Chapters:

Publisher Rory Smith 3 Australia MinterEllison: Anthony Borgese & Nicholas Pascoe 8 Sales Director Florjan Osmani 4 Belgium Astrea: Steven De Schrijver & Rudi Desmet 16 Account Director Oliver Smith 5 Brazil SIQUEIRA CASTRO ADVOGADOS: Manuela Tavares & Senior Editors Marina Magalhães Gomes Ramacciotti 23 Caroline Collingwood Rachel Williams 6 Denmark Integra Law Firm: Kim G. Hansen & Majbritt Rosa A. Meinfeldt 31

Group Consulting Editor Alan Falach 7 France Frieh Associés: Raphaël Dana & Martin Leny 37

Published by Global Legal Group Ltd. 8 Germany Noerr LLP: Joachim Schrey 44 59 Tanner Street London SE1 3PL, UK 9 Hong Kong Ashurst Hong Kong: Joshua Cole & Hoi Tak Leung 51 Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 Email: [email protected] 10 India PSA: Dhruv Suri & Arya Tripathy 64 URL: www.glgroup.co.uk GLG Cover Design 11 Italy Portolano Cavallo: Marco Blei & Luca Gambini 72 F&F Studio Design GLG Cover Image Source 12 Japan Anderson Mōri & Tomotsune: Takashi Nakazaki 82 iStockphoto

Printed by 13 Luxembourg NautaDutilh Avocats Luxembourg: Vincent Wellens & Ashford Colour Press Ltd July 2019 Faustine Cachera 89

ISBN 978-1-912509-86-7 15 Nigeria Ikeyi Shittu & Co.: Nduka Ikeyi & Sam Orji 107 ISSN 2397-6896 16 Philippines Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW): Strategic Partners Emerico O. de Guzman & Neptali B. Salvanera 113

17 Singapore Sabara Law LLC (a member of the Deloitte Legal Network): Yeoh Lian Chuan & David Teo Shih Yee 121

18 South Africa Cliffe Dekker Hofmeyr Inc.: Preeta Bhagattjee & Christoff Pienaar 129

19 Spain SAMANIEGO Law: Javier Fernández-Samaniego & Blas Piñar Guzmán 138

20 Switzerland Arioli Law: Martina Arioli 143

21 Turkey Yazıcıoğlu Attorneys at Law: Bora Yazıcıoğlu & Nevzat Ali Anı 150

22 United Kingdom Bird & Bird LLP: Mark Leach 157

23 USA Wiggin and Dana LLP: Mark Heaphy & Tamia Simonis 166

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

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Chapter 1

Structuring a Multi-Jurisdictional Outsourcing Deal

Bird & Bird LLP Mark Leach

and so bear similarities to the second type of deal mentioned above, Introduction they more often simply involve the transfer of a service delivery activity from a single country to another. This article focuses on the In today’s globalised economy it is not surprising that many challenges involved in structuring the first two types of multi- organisations are looking to outsource services and functions across jurisdictional deal referred to above and does not discuss in detail more than one country at a time. Indeed, for many multi-national this kind of single country offshoring. businesses, the ability to undertake an outsourcing project on an international scale is often a key factor in enabling them to leverage their purchasing power and unlock the potential cost savings and Key Challenges in Multi-jurisdictional service improvements that outsourcing promises. However, while Outsourcing any outsourcing deal is a complex undertaking, a multi- jurisdictional project brings particular challenges. This article One of the biggest challenges in building the right contractual discusses some of those challenges from a legal point of view and structure for a multi-jurisdictional outsourcing project is the need to looks in particular at how best to structure the contractual achieve the right balance between central co-ordination and local arrangements that will need to underpin a deal of this kind. variations. For practical reasons, deals will usually be led, negotiated and then managed from a central ‘core’ jurisdiction. This What is a Multi-jurisdictional Outsourcing? is essential if a Customer is to be able to negotiate a commercial deal that delivers its business case benefits and is not diluted by myriad local variations. Similarly, in order to manage the transition and First of all, however, it may be helpful to clarify what exactly we ‘steady state’ delivery of the services on an ongoing basis, a mean by a multi-jurisdictional outsourcing project. In broad terms, Customer must retain a degree of central oversight and co- such a project will usually take one of two forms: ordination. ■ an arrangement whereby services currently being provided in a number of different territories are transferred to a Service On the other hand, in most multi-jurisdictional deals the exact Provider as part of the same deal; this will often involve the service requirements of each in-scope territory are likely to vary provision of services by different entities within the Service from country to country. As a result, certain territories may require Provider’s group in particular local territories – e.g. services a different service description and, in some cases, a different service in UK are transferred to the Service Provider’s UK subsidiary level regime. Equally, the specifics of the service transition and exit and services in Germany are transferred to the Service arrangements and the business continuity and disaster recovery Provider’s German subsidiary; or arrangements are also likely to vary depending on the way in which ■ a deal whereby services from a number of different territories services are configured locally and the nature of the Customer’s are transferred to a Service Provider entity located in a single local estate. Similarly, when it comes to managing an outsourcing alternative territory; under this kind of arrangement, a project, it will not be possible to do everything from the centre – customer organisation might, for example, transfer its finance some degree of local management and day-to-day contact between and accounting functions across, say, the Western European region to a shared service centre based in a Central or Eastern the representatives of the Customer and Service Provider who are on European country. The services are then provided remotely the ground will also be necessary. Critically, there will also be local from this centre to multiple countries. law considerations to take into account and which may impact on the way in which assets, third party contracts and employees can be The common feature in these arrangements is the Customer’s wish transferred and services provided in particular jurisdictions. to transfer responsibility for its service requirements to a third party service provider in a number of different territories or regions at the same time. Optimum Contract Structures It is helpful to distinguish these kinds of arrangement from the situation where a Customer outsources services from one country to An optimum contract structure for a multi-jurisdictional outsourcing another – a process typically referred to as ‘offshoring’ and most should ideally reflect the need to achieve this balance. One of the commonly associated with the outsourcing of certain IT, call centre best ways to do this is to adopt a structure which features a master or and business process functions to ‘low cost’ jurisdictions such as global services agreement that contains the main over-arching terms India or China. While these types of deal will sometimes involve of the deal but also serves as a framework under which subsidiary the transfer of services across a number of countries at the same time agreements can be called off. These subsidiary agreements (which

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Bird & Bird LLP Structuring a Multi-Jurisdictional Outsourcing Deal Bird & Bird LLP Structuring a Multi-Jurisdictional Outsourcing Deal

we will refer to in the rest of this article as Territory Agreements) licences in order to provide services in certain territories, but being exported – and, again, these can vary from territory to will tend to relate to a particular jurisdiction or a group of closely Transfer of assets, third party contracts and employees not in others. territory. For instance, some territories (in particular those related jurisdictions and provide a means of dealing with any local ■ Enforceability of terms and conditions: it is sometimes the within the European Union) require data transfer measures to be variations. As well as the transfer of responsibility for the provision of services, case that particular terms that may have been agreed as part implemented including, potentially, execution of certain pro- many outsourcings will also involve the transfer to the Service forma contracts between relevant data exporters and importers. This approach allows the parties to deal in particular with the impact of the ‘global’ deal in the MSA will not be enforceable in a Provider of certain assets (such as equipment), real estate or third particular territory. Examples in certain jurisdictions may The introduction of the GDPR has not materially changed the of local legal regimes. While it is advisable to choose the same party contracts together with certain employees who are currently include certain limitations or exclusions of liability or data transfer requirements in the EU, although the compliance governing law across both the master services agreements and the burden has been reduced somewhat by the removal of the predominantly engaged in the provision of the relevant services. common warranties that might apply to the provision of Territory Agreements in order to ensure consistency of services, such as those relating to fitness for purpose or obligation that used to apply in some jurisdictions to notify the As far as assets are concerned, the Territory Agreement should interpretation and a standardised approach to enforcement, there satisfactory quality. In some circumstances, terms may need local supervisory authority of any data export contracts that will be some local laws which will still apply notwithstanding such document which assets are in scope to transfer at the local level and to be amended or a particular formality followed in order to were entered into. It should also be borne in mind, however, a choice. These are generally known as mandatory laws and cannot also deal with any local law formalities that may apply in order to give effect to the parties’ intentions at a local level and in that breach of the GDPR’s data transfer provisions is included usually be opted out of. It is important to recognise the existence of achieve an effective transfer. For example, in some jurisdictions a other cases an alternative approach may need to be suggested in the category of non-compliance issues for which the maximum level of fines can be imposed. these local laws as they can impact significantly the implementation particular form is required for the transfer of tangible assets and the altogether. The key in each case, however, should be to make of the global deal in a local jurisdiction. On occasion they may documentation effecting the transfer needs to be notarised. In other only such changes as are necessary to ensure the Cyber security: the implementation in a number of countries of mean that a particular element of the deal simply cannot be given jurisdictions, certain rules can be triggered if the transfer constitutes enforceability of the parties’ original intentions or something specific regulations in relation to cyber security has introduced a as close to those original intentions as possible, rather than effect, but more often they will require the parties to structure things the transfer of the whole or part of a business. Similarly, the legal further area of local law that needs to be taken into account. In the means by which a contract can be transferred from one person to seeking to re-open commercially agreed points in order to EU, the introduction of the Network and Information Security slightly differently or recast a particular provision in order that the achieve a further advantage. parties’ intentions be given full effect. The Territory Agreement can another also varies by jurisdiction and this needs to be reflected in Directive (NIS Directive) has placed organisations operating what ■ Intellectual property: the law relating to the ownership, provide the ideal vehicle for the parties to do this. the Territory Agreement. are deemed to be “essential services” under certain requirements to transfer and use of intellectual property tends to vary by take appropriate organisational and technical measures to protect The other key factor in choosing an optimum contract structure is The law relating to the transfer of ownership or interests in real jurisdiction and this will be an important area in many against cyber risk and in certain circumstances to notify a regulator tax. A detailed discussion of the tax issues that may apply in a estate is also typically complex and jurisdiction-specific and technology outsourcings. Potential areas to be aware of of any security breach. The exact criteria defining which global outsourcing transaction is beyond the scope of this article, accordingly the transfer of any local property will need to be include restrictions on the ability to transfer certain IP rights, organisations are caught by the Directive are determined at a but issues that commonly arise relate to the creation of a permanent carefully addressed on a territory-by-territory basis. the implying of certain licences to use by commercial code or national level but, in broad terms, many companies in the energy, establishment, VAT and withholding taxes. It is essential that the The most significant issues usually arise in relation to the transfer of local statute and formalities required to achieve an effective transfer of IP ownership (for example, in some jurisdictions transport, financial services, health and water supply and parties take local tax advice at an early stage in the process so as to employees. The differences in the application of local law in this this must be done in writing and a specific form of wording is distribution sectors will be caught. Where these companies are ensure they are aware of the potential impact of any relevant tax area can have a material impact on the way in which a deal must be required). outsourcing IT or network infrastructure related services, then they rules and to enable a tax efficient structure to be implemented. structured. A key distinction to be aware of is whether a transfer of ■ Processing of personal data: where a Service Provider is will be responsible for ensuring the outsourcing contract that their Again, the use of a Master or Global Services Agreement with employees must be effected in the relevant jurisdiction by means of processing personal data as part of the provision of services, service providers have in place appropriate and proportionate Territory Agreements tends to provide maximum flexibility to the a (freely given) acceptance by an employee of an offer of local data protection law will need to be taken into account. measures to protect against cyber risk. They are also likely to wish parties in this regard. employment or whether, as is the case under the Acquired Rights In the European Union, this has tended to be another area to flow down the relevant breach notification obligations that they Directive in the European Union, the relevant employees are where the implementation of European Directives has are subject to and to ensure that the contractual liability regime deemed to transfer automatically by operation of law if the business differed from country to country leading to a number of traps enables any civil liability that it may incur under the relevant Master or Global Services Agreement (MSA) or undertaking that they are working for is effectively transferring to for the unwary. In some territories, for example, data regulations to be ‘backed off’ to the service provider. In addition to the Service Provider as part of the outsourcing. The answer to this protection legislation extends to information about corporate The MSA will usually be the vehicle through which the main the legal requirements that will apply at a local level, thought also question will clearly affect how the provisions dealing with the persons and not just individuals and rules governing who is commercial terms are agreed and documented. It will set out the needs to be given to more practical and operational questions. transfer of employees are drafted in relation to a particular territory. considered to be the data controller in respect of personal data objectives of the project and the pricing model and main It is also worth pointing out, however, that even within the European can also vary. Generally speaking, data protection law will Service descriptions: it is likely that the Customer’s local commercial terms, together with the key customer and service require certain provisions to be included in a services Union there are significant variations in the details of how the operations will require certain variations in the nature of the services provider contractual protections and the provisions allocating contract where a third party outsourcer is processing personal Acquired Rights Directive has been implemented in different it requires and hand off points and dependencies may also be liability and risk between the parties. It will also often include a data and the nature of these requirements will need to be different. These kind of technical issues need to be identified at an European countries. As a result, it is not possible to assume an checked on a country-by-country basis. In this context, it global service description that will serve as a baseline scope for the early stage and, critically, tested to see where a local request reflects entirely uniform approach can be taken even within the EU area and, should be noted that with effect from 25 May 2018, a new services to be provided by the Service Provider across all territories as a result, the identification of which employees are in scope to General Data Protection Regulation (GDPR) has now come a genuine requirement and where it is more of a ‘nice to have’. A and a set of global service levels. transfer and the associated consultation and other obligations will into effect throughout the European Union and will have certain amount of caution is needed in this area if the Customer is While some Territory Agreements will often be entered into at the need to be reviewed on a territory-by-territory basis. direct effect without the need for implementing national not to lose much of the cost and business benefits that a greater same time as the MSA is signed, there will usually be a need for the legislation. This new legislation requires the inclusion of degree of standardisation in service provision will provide. cut over of service responsibility to the Service Provider to be more detailed data processing provisions in outsourcing However, where local variations are genuinely required, these can phased over time to avoid the risks inherent in a single go live date Provision of Services contracts, including amongst other things obligations to be reflected in the relevant Territory Agreements. notify of security breaches. It also features a far more across multiple territories. As a result, the MSA will typically Governance: as will have become clear from many of the points onerous enforcement regime, with maximum fines for include a procedure for further Territory Agreements to be called off The Territory Agreement will also govern the ongoing provision of breaches of the GDPR of up to the greater of 4% of made above, it is essential that the Customer organisation over time to reflect such a phased cut-over approach and also to services at a local level following any initial transfer of assets, implements a governance structure that enables clear and efficient contracts or employees. In this regard, the Territory Agreement will worldwide turnover or €20 million. As a result, liability provide the flexibility for other territories that are not within the provisions in relation to data protection issues – at both a communication between the co-ordinating territory and the other generally incorporate all the terms of the MSA so that the local original scope of the project to be added if the Customer’s local and global level – will need to be considered even more territories which will be benefiting from the deal. This is important requirements change in the future. The procedure will usually provision of services is governed by the over-arching terms and carefully. One by-product of the introduction of the GDPR is both during the RFP and deal negotiation stage and during the include a template form for the Territory Agreement to follow. conditions that have been agreed centrally but, as with the transfer of likely over time to be a greater degree of uniformity across implementation and ‘steady state’ running of the outsourcing. assets, will also include any variations that may be required from the the EU as regards the content of the required data processing While a full discussion of how best to optimise a governance perspective of local mandatory law. Areas where local laws tend to provisions and less regional variations. However, it is too structure lies beyond the scope of this article, some of the key Territory Agreements impact on the provision of services typically include the following: early to be sure that this will be the case and so caution in this principles that should be reflected in the context of a multi- regard currently remains the best approach. ■ Regulatory consents to outsource: Customers in particular jurisdictional deal are as follows: The Territory Agreements will typically cover two aspects: (1) the industry sectors, such as financial services for example, are ■ Transfer of personal data: a further complication is ■ a requirement that local subsidiaries or divisions do not transfer of local assets, third party contracts and employees to the likely to be subject to local regulatory requirements in terms introduced where personal data is being transferred to or will be engage in disputes without reference to or obtaining the Service Provider at the outset of the project; and (2) the ongoing of outsourced activities and these will need to be reflected in accessed from another territory, as is common in many multi- approval of the central co-ordinating entity; provision of local services. Sometimes these aspects are dealt with the relevant Territory Agreement. jurisdictional outsourcings. In this scenario, the parties will ■ appropriate provisions in the change control procedures that in separate agreements, sometimes in the same agreement. ■ Licences/consents to provide service: linked to the above, need to ensure that they comply with the data transfer include escalations to the global level to prevent any local the Service Provider may require particular consents and requirements of the country from which the personal data is variations undermining the master terms;

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Bird & Bird LLP Structuring a Multi-Jurisdictional Outsourcing Deal Bird & Bird LLP Structuring a Multi-Jurisdictional Outsourcing Deal

Bird & Bird LLP Structuring a Multi-Jurisdictional Outsourcing Deal

Bird & Bird has more than 1,300 lawyers in 29 offices across Europe, the Middle East, Asia-Pacific and North America and clients based in 118 countries worldwide. We specialise in combining leading expertise across a full range of legal services and aim to deliver tailored local advice and seamless cross-border services. With more than 20 years’ outsourcing experience, we have advised on some of the most complex and innovative outsourcing transactions undertaken anywhere in the world. Our team is international and fully integrated, making us uniquely placed to support global and pan-European transactions. We advise clients throughout the lifecycle of an outsourcing relationship, from the initial structuring of a deal, through the procurement process, to contract negotiation, transition and implementation. We have unparalleled expertise in advising on contract management issues and also regularly advise on re-tenderings and exit planning matters. We’re proud to have been identified as one of the world’s best outsourcing advisors in the IAOP’s Global Outsourcing 100 for the last six years and to have been awarded a place this year in the IAOP’s special ranking of the ‘Best of the World’s Best Outsourcing Advisors’.

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Bird & Bird LLP Structuring a Multi-Jurisdictional Outsourcing Deal Chapter 2

■ where issues do arise and the centre agrees that escalation is appropriate, a facility for those issues to be dealt with locally Mark Leach in the first instance and then escalated to the central level if Bird & Bird LLP the issue cannot be resolved at the local level; and 12 New Fetter Lane Digital Disruption ■ clear reporting lines from local territories to the centre and London EC4A 1JP United Kingdom frameworks which facilitate good quality data and management information being made available in a timely Tel: +44 20 7415 6000 Through Outsourcing fashion. Email: [email protected] URL: www.twobirds.com To underpin any governance framework, the Customer should ensure that it retains (or recruits) a sufficient number of appropriately skilled personnel to manage the Service Provider – Mark is a partner in our Commercial Group and head of our both at the central and local levels. As is often noted, managing a International Outsourcing Group, based in London. Centre for Outsourcing Research and Service Provider and the delivery of services from a third party He specialises outsourcing, long-term partnership and large-scale Education (CORE) Ron Babin requires a different skill set form managing the delivery of those transformational projects. services internally and, as with other types of outsourcing project, On outsourcing matters, he advises both customers and suppliers on weaknesses in the retained organisation are a common source of a wide range of information technology (IT), communications and problems in multi-jurisdictional outsourcings. business process outsourcing (BPO) transactions. He frequently acts on complex international and offshoring projects in this area and his Digital Disruption is the strategic transformation of business using a digital future. The CORE curriculum is described at clients include financial institutions and major corporates (particularly digital technologies such as mobile services, cloud, artificial https://www.coresourcing.org/cpages/education. in the aerospace and defence and technology sectors), as well as a The Importance of Preparation intelligence and big data. Outsourcing, or working with digital number of IT vendors. Buyers increasingly work closely with digital service providers to service providers, has become a fundamental method where build a digital capability that is consumer focused, rapidly deployed In closing, it is worth emphasising that, in order to be aware of the Mark has extensive experience of advising suppliers on a range of organisations rely on the knowledge and capabilities of external and integrated with established corporate systems. Researchers at issues that need to be addressed in the Territory Agreements major public sector and security and defence technology projects and, in addition, regularly advises on systems integration, procurement, digital service organisations to create a new disruptive business the MIT Center for Information System Research (CISR) have described above, the parties need to undertake timely and thorough managed services transactions, cloud computing and e-commerce capability. identified the need for a digital backbone as a foundation for local due diligence. As well as taking advice on the impact of contracts and complex software licensing and development deals. During the 1990s, Dr. Clayton Christensen at Harvard University deploying customer facing systems, such as mobile apps. The existing local laws, attention should also be given to any impending Mark speaks regularly at industry events on outsourcing and conceptualised disruptive innovation, described in his book “The digital backbone, such as an Enterprise Resource Planning (ERP) or likely future changes in law that might affect the terms of the deal commercial technology issues and is recognised as a 'Leading Innovator’s Dilemma”. His research was well ahead of the innovation system, provides the seamless and reliable linkage between further down the road. While this may seem obvious, the desire to Individual' in the fields of outsourcing and major commercial contracts fostered by the introduction of the public internet and well before the enterprises’ data, such as customer and product information, back- get a deal done quickly and to minimise internal project costs often in the latest editions of the Chambers Guide to the UK Legal Profession and The Legal 500. disruption that consumer technologies, such as smart phones and office processes and the customer facing mobile app. If a digital creates a pressure to cut corners in this area. However, a failure to social media, have created. Yet, his theories correctly forecast what backbone is lacking, CISR research suggests that digital appreciate, for example, the longer timeframes required for we see happening now in business and government when a new transformation will be difficult. CORE recognises that traditional employee consultations to take place in a particular territory or the technology-based business displaces and destroys an incumbent outsourcing will remain a viable service, particularly for legacy requirement to obtain regulator consent to the transfer of personal business. Netflix killed Blockbuster, Amazon hastened the demise of systems and standard enterprise systems such as an ERP. Most data can have a significant impact on a deal timetable and the ability Sears and Kodak was destroyed by digital photography which is now buyers will benefit from the five key capabilities of a traditional for a Customer to realise the projected benefits of a deal within the available on every smart phone. Today, digital disruption threatens outsource provider: 1) economies of scale; 2) economies of skill (i.e. required timelines and thereby seriously damage the Customer’s just about every business. Most business strategies, particularly in core competencies); 3) labour arbitrage from global sourcing; 4) underlying business case. In a multi-jurisdictional outsourcing, as retail, financial services and communication/entertainment contain a technology exploitation suggested by Moore’s Law; and 5) in much else, good preparation is critical. defensive element to protect the current business model. favourable transaction cost economics. The traditional outsourcing The digital disruptors are some of the largest global organisations; market will remain, but new digital services are becoming an many are beyond the size and power of most nations. The FAANG increasingly important segment of the market. group (Facebook, Apple, Amazon, Netflix and Google) are now Three significant changes characterise the move from asset- seen as a threat to smaller organisations such as banks, retailers and outsourcing to digital service sourcing. First, the digital service car manufacturers, and are resistant to legal challenges from most providers may become competitors to the buyer. Second, the governments. Indeed, the concept of surveillance capitalism can be duration, value and governance of service contracts becomes more seen as a threat to democracy and commercial capitalism, the complex. Third, the technology procurement organisation and Bird & Bird has more than 1,300 lawyers in 29 offices across Europe, the Middle East, Asia-Pacific and North America and clients based in 118 countries worldwide. We specialise in combining leading expertise across a full range of legal services and aim to deliver tailored local advice and centuries-old model for most of the Western world. These digital process must be overhauled. These three changes are described in seamless cross-border services. disruptors are changing the world as we know it. the following paragraphs. With more than 20 years’ outsourcing experience, we have advised on some of the most complex and innovative outsourcing transactions The Centre for Outsourcing Research and Education (CORE) has As buyers engage with the FAANG members and other related undertaken anywhere in the world. Our team is international and fully integrated, making us uniquely placed to support global and pan-European recognised this fundamental change. At CORE we recognise the digital providers, there is a change and a caution compared to earlier transactions. shift from asset-based outsourcing to digital service sourcing. outsourcing models. For example, Apple is arguably one of the We advise clients throughout the lifecycle of an outsourcing relationship, from the initial structuring of a deal, through the procurement process, to Organisations are less inclined to outsource data centres, software largest technology organisations in the world and is one of the contract negotiation, transition and implementation. We have unparalleled expertise in advising on contract management issues and also regularly and people, which was the dominant model in the 1990s and 2000s. largest fin-tech firms. A bank that works with Apple is potentially advise on re-tenderings and exit planning matters. Today, organisations source digital services in the form of cloud working with a very aggressive financial service competitor, but the We’re proud to have been identified as one of the world’s best outsourcing advisors in the IAOP’s Global Outsourcing 100 for the last six years and computing and storage, software as a service (SaaS) and robotic bank may need Apple expertise when deploying a new mortgage or to have been awarded a place this year in the IAOP’s special ranking of the ‘Best of the World’s Best Outsourcing Advisors’. process automation (RPA) with artificial intelligence (AI) to lending app on the iPhone. The technical capabilities of the augment humans. The CORE curriculum now offers a course on FAANG providers must be considered in contrast to their appetite to digital outsourcing because this has become a fundamental compete in new markets, such as retail, financial services and capability that CORE members need. The course modules describe communications/entertainment. Also, the data or meta-data that the how to anticipate the trajectory of digital transformation, how digital service providers will track and capture simply adds to the outsourcing is changing to “everything as a service”, how to work vast empire of data on which the market value of these companies is with digital transformation service providers, how to measure based. In some instances, this will improve the digital capability, for digital transformation success and how to align the organisation for example as IBM’s Watson service learns more about client preferences it is then able to accurately anticipate questions and

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CORE Digital Disruption Through Outsourcing

concerns. However, other meta-data such as movement activities digital technologies. In many cases, the traditional RFP process is captured on a smart phone of retail clients in a shopping mall may be too long, too bureaucratic and results in a poor solution. Many large helpful to retailers, but also helps the smart phone software to keep organisations are now considering Agile methods from the project track on where and when the owner is travelling. Buyers are management discipline to revitalise the technology procurement increasingly wary of working with digital service providers who process. A CIO explained, a procurement process should not take may already be on the path to competition. two years for a solution that has an expected life span of only three A second fundamental shift in sourcing is the duration and or four years. The speed and flexibility of Agile are now being used governance of contracts. Recently, a CORE client described how to create a more rapid and responsive technology procurement outsourcing contracts with duration of 10 years or more, often with process. total contract value in excess of a billion dollars, have dramatically We can say with certainty that business changes created by digital changed to shorter (e.g. fewer than four years) contracts of much technologies will be unending. We also suggest that working with less value. As well, instead of monolithic single vendor contracts, external digital service providers, in a new outsourcing model, will the digital service arrangements are now a blend of multi-vendor be a dominant theme for buyers in the next several years. During the service providers with a strong component of in-house legacy last two decades, most large organisations have adopted a system integration. This results in a much more demanding and technology outsourcing framework to guide the outsourcing life costly governance of sourcing providers and a need for stronger in- cycle and improve the value promised by providers. Buyers must house technology architecture capability. now revise that outsourcing framework, as digital disruption A third change that digital services sourcing requires is the overhaul enabled by new digital service providers becomes a core strategic of procurement with the introduction of Agile Procurement. capability either to protect current business models or to create new Researchers at IDC have described how new digital technologies businesses. As a CORE executive recently summarised, “either demand new procurement approaches in a November 2018 report, prepare to disrupt or prepare to be disrupted, digital transformation “The Future of Technology Sourcing and Procurement”. According cannot be avoided”. We urge buyers to prepare by working to IDC, the typical Technology Sourcing and Procurement cautiously with external service providers to anticipate digital organisation is overly focused on administrative processes and often disruption. lacks the competencies and skills to understand and acquire new

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CORE Digital Disruption Through Outsourcing CORE Digital Disruption Through Outsourcing

concerns. However, other meta-data such as movement activities digital technologies. In many cases, the traditional RFP process is captured on a smart phone of retail clients in a shopping mall may be too long, too bureaucratic and results in a poor solution. Many large Ron Babin helpful to retailers, but also helps the smart phone software to keep organisations are now considering Agile methods from the project Centre for Outsourcing Research and track on where and when the owner is travelling. Buyers are management discipline to revitalise the technology procurement Education (CORE) increasingly wary of working with digital service providers who process. A CIO explained, a procurement process should not take 350 – 1 First Canadian Place Tower Toronto, ON, M5X 1C1 may already be on the path to competition. two years for a solution that has an expected life span of only three Canada A second fundamental shift in sourcing is the duration and or four years. The speed and flexibility of Agile are now being used to create a more rapid and responsive technology procurement Tel: +1 416 979 5000 governance of contracts. Recently, a CORE client described how Email: [email protected] outsourcing contracts with duration of 10 years or more, often with process. URL: www.coresourcing.org total contract value in excess of a billion dollars, have dramatically We can say with certainty that business changes created by digital changed to shorter (e.g. fewer than four years) contracts of much technologies will be unending. We also suggest that working with Dr. Ron Babin is a Professor at Ryerson University in Toronto and is less value. As well, instead of monolithic single vendor contracts, external digital service providers, in a new outsourcing model, will the Chair of the CORE Board of Directors. At Ryerson University, Dr. the digital service arrangements are now a blend of multi-vendor be a dominant theme for buyers in the next several years. During the Babin teaches IT Management in the Ted Rogers School of Management, in undergraduate, MBA and executive programmes. At service providers with a strong component of in-house legacy last two decades, most large organisations have adopted a CORE he teaches a variety of executive programmes including Digital system integration. This results in a much more demanding and technology outsourcing framework to guide the outsourcing life Transformation. His research focus is on outsourcing, with an costly governance of sourcing providers and a need for stronger in- cycle and improve the value promised by providers. Buyers must emphasis on the social impact of outsourcing. Dr. Babin has published house technology architecture capability. now revise that outsourcing framework, as digital disruption two books and several papers on this topic. A third change that digital services sourcing requires is the overhaul enabled by new digital service providers becomes a core strategic Prior to joining Ryerson, Dr. Babin was a consulting partner at KPMG capability either to protect current business models or to create new and at Accenture, where he focused on IT strategy for large clients of procurement with the introduction of Agile Procurement. across all industry sectors. Dr. Babin received his DBA from the businesses. As a CORE executive recently summarised, “either Researchers at IDC have described how new digital technologies Manchester Business School, at the University of Manchester. He demand new procurement approaches in a November 2018 report, prepare to disrupt or prepare to be disrupted, digital transformation received a degree in computer science from York University in Toronto “The Future of Technology Sourcing and Procurement”. According cannot be avoided”. We urge buyers to prepare by working and an MBA from the Schulich School of Business. to IDC, the typical Technology Sourcing and Procurement cautiously with external service providers to anticipate digital organisation is overly focused on administrative processes and often disruption. lacks the competencies and skills to understand and acquire new

CORE is the premier Canadian-based association for businesses focusing on complex service provider relationships such as outsourcing. CORE delivers its programmes globally in partnership with Ryerson University. Through our programmes, we help member companies manage risks and optimise the value of their complex service provider relationships. Whether it is a simple domestic sourcing arrangement or a complicated global outsourcing deal, CORE helps by delivering thought leadership through discussion forums, conferences and executive education. CORE’s Accredited Outsourcing Practitioner™ (AOP) designation recognises individuals who have attained a requisite level of both practical experience and classroom education to understand and apply innovative management approaches for productivity and competitive enhancement. Membership is held by corporate entities. For all the employees of member organisations, membership includes unlimited access to webinars, forums and the annual conference at no additional cost and a 30% discount or more on Execution Education courses. Members have exclusive access to the Research Centre that includes past presentations, white papers and research reports. Through participation in CORE programmes, members become better informed, better educated and better prepared to execute all phases of the services relationship lifecycle.

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Chapter 3 MinterEllison Australia

b) the method and timing of payment, including whether the 3 Procurement Process parties will opt for a monthly ‘pay in advance’ arrangement or monthly invoicing in arrears; and

3.1 What is the most common type of procurement c) whether any profit sharing or gain sharing (whereby parties Australia process that is used to select a supplier? agree to share any pre-agreed savings) arrangements are to be imposed. Anthony Borgese There is no standard type of procurement process. Depending on Benchmarking has traditionally been an important tool in relation to the size of the procurement, some form of tender process is costs, but it has become less important as the average term of commonly used which may either be a broad tender or one issued outsourcing agreements has continued to decrease. only to a small group of pre-selected suppliers. Independent Australia consultants are also commonly used to support the tender process. 6 Transfer of Assets In the public sector, there is often a more formal procurement MinterEllison Nicholas Pascoe process and it is common for probity advisors to be appointed for large outsourcing arrangements. 6.1 What formalities are required to transfer, lease or license assets on an outsourcing transaction?

4 Term of an Outsourcing Agreement The formalities to transfer, lease or license assets vary depending on 1 Regulatory Framework 1.3 Are there any additional legal or regulatory the asset that is being transferred, leased or licensed. Generally, an requirements for outsourcing transactions asset can be transferred, leased or licensed by way of an agreement 4.1 Does national or local law impose any maximum or undertaken in particular industry sectors, such as for between the parties. The exception to this is assets that are required minimum term for an outsourcing contract? 1.1 Are there any national laws or regulations that example the financial services sector? to be registered on a government operated register to record specifically regulate outsourcing transactions, either ownership, for example, interests in land (dealt with in question 6.2 generally or in relation to particular types of There is no maximum or minimum term imposed by national or APRA, the body responsible for the regulation of banks, authorised below) and personal property securities. Also, some assets may not outsourcing transactions (e.g. business process local law. outsourcings, IT outsourcings, telecommunications deposit-taking institutions, registered superannuation entities, and be capable of being leased or licensed (for example, rights under an outsourcings)? general, life and health insurers, has specific prudential standards intellectual property licence), and it may be necessary to transfer and prudential practice guides to regulate the outsourcing activities 4.2 Does national or local law regulate the length of the these by agreement. Other than the laws, regulations or standards imposed by regulators of these industries. notice period that is required to terminate an outsourcing contract? of particular industries (such as the Australian Prudential Regulation Under these standards, regulated bodies must comply with a number 6.2 What are the formalities for the transfer of land? Authority (APRA) in respect of financial services and health of obligations when outsourcing material business activities. These insurance, discussed below in question 1.3), or in relation to privacy obligations include the requirement to have in place a board policy While APRA requires notice periods to be specified in outsourcing The transfer of land is required to be in writing and signed by the and data protection, there are no national laws which specifically that includes a strategy for outsourcing material business activities, contracts it regulates, there are no national or local laws which person that is disposing of the land, or a representative of that regulate outsourcing transactions in Australia. as well as monitoring processes to manage such outsourcing require that a termination right carries a notice period of any person, and is to be registered at the Land Titles Office or Registry arrangements. particular length. In practice, the notice period is often referable to the expected time it would take to put in place an alternative Services in the relevant state or territory. APRA must also be notified when entering into an outsourcing of a 1.2 Are there any additional legal or regulatory supplier. requirements for outsourcing transactions material business activity. The timing of this notification will undertaken by government or public sector bodies? depend on whether the outsourcing is onshore or offshore. 6.3 What post-completion matters must be attended to? 5 Charging Broadly speaking, there are no specific requirements imposed on On commencement of the agreement, there may be a number of 1.4 Is there a requirement for an outsourcing transaction practical matters that must be attended to and these will depend on government or public sector bodies relating to outsourcing to be governed by local law? If it is not to be local 5.1 What are the most common charging methods used in the nature of the outsourcing. This may include the registration of generally. However, depending on the nature of the service being law, is there any generally accepted norm relating to outsourcing transactions? outsourced, there may exist policies or guidelines for government the choice of governing law? assets such as land or domain names. agencies. For example, federal and state governments have The charging mechanism for an outsourcing transaction is developed their own policies in respect of transactions (including Under Australian law, there is no requirement that outsourcing 6.4 How is the transfer registered? determined by the parties, but common charging methods include: outsourcings) which involve cloud services. Instances of this transactions be governed by Australian law. However, it is generally a) a fixed price for the service, or individual components thereof include: accepted that the governing law will be local law. There is no register for outsourcing agreements. Assets that need to for a fixed scope of work, with appropriate change control a) in 2017, the Australian government released its ‘Secure be registered are prepared and lodged with the relevant departments. provisions for variation; Cloud Strategy’ which requires government agencies to For example, the transfer of an interest in land, being a title transfer 2 Legal Structure b) rate-based pricing, under which the customer pays for develop their own cloud strategies, guided by seven or a lease of the land, is lodged with the Land Titles Office in the principles that include ‘use as much of the cloud as possible’ services at a pre-agreed unit-cost defined by one or more rate relevant state or territory, which then processes the registration and and ‘use public cloud services as the default’; and cards (e.g. hourly or daily rates for onshore and offshore 2.1 What are the most common types of legal structure records it on the certificate of title for the parcel of land. b) state and territory governments have released their own personnel); and used for an outsourcing transaction? policies and guidelines, including the New South Wales c) a ‘cost plus’ or ‘open book’ method, whereby the customer is Government’s ‘NSW Government Cloud Policy’, and the charged for the actual cost of providing the service, plus a 7 Employment Law Victorian Government’s ‘Information Technology Strategy’ Outsourcing agreements in Australia commonly take the form of percentage of that cost, as a profit element. and ‘Cloud-based ICT Services Checklist’. These have been service agreements. A master services agreement is often used for put in place to enable the adoption of cloud-based services outsourcing arrangements if there are a number of services to be 5.2 What other key terms are used in relation to costs in 7.1 When are employees transferred by operation of law? across government departments and provide guidance for outsourced; for example, in out-tasking arrangements, where government agencies to determine which cloud delivery outsourcing transactions? businesses engage a service provider to provide a range of specific In Australia, employees do not transfer by operation of law (in an model is best suited to their business needs. IT services, rather than the entire IT function of the business. Key terms concerning costs in outsourcing transactions include: outsourcing or any other transfer of business) and there is no Most commonly, a customer will enter into an agreement with the equivalent of the Acquired Rights Directive. In the context of a) whether the pricing is subject to indexation, or to changes to local subsidiary of a multinational service provider (or with the account for exchange rate fluctuations, and how the costs outsourcing, an employee will only transfer to the service provider parent company, if it does not have a local subsidiary). For larger may be varied; if it makes an offer of employment and the employee accepts that arrangements, customers may sell or transfer their assets or property offer. However, such a transfer, following the acceptance of an used to provide the services to the service provider.

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MinterEllison Australia

b) the method and timing of payment, including whether the 3 Procurement Process parties will opt for a monthly ‘pay in advance’ arrangement or monthly invoicing in arrears; and

3.1 What is the most common type of procurement c) whether any profit sharing or gain sharing (whereby parties process that is used to select a supplier? agree to share any pre-agreed savings) arrangements are to be imposed. There is no standard type of procurement process. Depending on Benchmarking has traditionally been an important tool in relation to the size of the procurement, some form of tender process is costs, but it has become less important as the average term of commonly used which may either be a broad tender or one issued outsourcing agreements has continued to decrease. only to a small group of pre-selected suppliers. Independent Australia consultants are also commonly used to support the tender process. 6 Transfer of Assets In the public sector, there is often a more formal procurement process and it is common for probity advisors to be appointed for large outsourcing arrangements. 6.1 What formalities are required to transfer, lease or license assets on an outsourcing transaction?

4 Term of an Outsourcing Agreement The formalities to transfer, lease or license assets vary depending on the asset that is being transferred, leased or licensed. Generally, an asset can be transferred, leased or licensed by way of an agreement 4.1 Does national or local law impose any maximum or between the parties. The exception to this is assets that are required minimum term for an outsourcing contract? to be registered on a government operated register to record ownership, for example, interests in land (dealt with in question 6.2 There is no maximum or minimum term imposed by national or below) and personal property securities. Also, some assets may not local law. be capable of being leased or licensed (for example, rights under an intellectual property licence), and it may be necessary to transfer 4.2 Does national or local law regulate the length of the these by agreement. notice period that is required to terminate an outsourcing contract? 6.2 What are the formalities for the transfer of land? While APRA requires notice periods to be specified in outsourcing contracts it regulates, there are no national or local laws which The transfer of land is required to be in writing and signed by the require that a termination right carries a notice period of any person that is disposing of the land, or a representative of that particular length. In practice, the notice period is often referable to person, and is to be registered at the Land Titles Office or Registry the expected time it would take to put in place an alternative Services in the relevant state or territory. supplier. 6.3 What post-completion matters must be attended to? 5 Charging On commencement of the agreement, there may be a number of practical matters that must be attended to and these will depend on 5.1 What are the most common charging methods used in the nature of the outsourcing. This may include the registration of outsourcing transactions? assets such as land or domain names.

The charging mechanism for an outsourcing transaction is 6.4 How is the transfer registered? determined by the parties, but common charging methods include: a) a fixed price for the service, or individual components thereof There is no register for outsourcing agreements. Assets that need to for a fixed scope of work, with appropriate change control be registered are prepared and lodged with the relevant departments. provisions for variation; For example, the transfer of an interest in land, being a title transfer b) rate-based pricing, under which the customer pays for or a lease of the land, is lodged with the Land Titles Office in the services at a pre-agreed unit-cost defined by one or more rate cards (e.g. hourly or daily rates for onshore and offshore relevant state or territory, which then processes the registration and personnel); and records it on the certificate of title for the parcel of land. c) a ‘cost plus’ or ‘open book’ method, whereby the customer is charged for the actual cost of providing the service, plus a 7 Employment Law percentage of that cost, as a profit element.

5.2 What other key terms are used in relation to costs in 7.1 When are employees transferred by operation of law? outsourcing transactions? In Australia, employees do not transfer by operation of law (in an Key terms concerning costs in outsourcing transactions include: outsourcing or any other transfer of business) and there is no equivalent of the Acquired Rights Directive. In the context of a) whether the pricing is subject to indexation, or to changes to account for exchange rate fluctuations, and how the costs outsourcing, an employee will only transfer to the service provider may be varied; if it makes an offer of employment and the employee accepts that offer. However, such a transfer, following the acceptance of an

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10 Australia ne te W c o a apial idsra isrmn (see instrument industrial applicable an question 7.2above). or Act FW the under triggered be also may pay redundancy addition, In leave. service long and leave annual untaken but accrued any for payments and eely I bt css te imsa wud e lse a a payment a (or termination as of notice including entitlements, classed be would to dismissal unable the redundancy. is A dismissal in these circumstances will cases, trigger various it both employees In any dismiss redeploy. can it contract, a loses supplier a if Similarly, them. dismiss can customer the it, accept receive an offer from the supplier, or they receive an offer but do not Yes, under certain circumstances. For example, if employees do not 7.4 outsourcing. the of result a as redundancies more or 15 make to proposes it if or instrument, or industrial the FW Act, applicable in respect of an employees on parental leave under obligations consultation have may customer the addition, In above). 7.2 question (see them between negotiations commercial of subject addressed the be will parties, are the between implications the how and case, the is this whether that all impacted employees receive offers on comparable terms, but and service of insist will customer the cases, some length In entitlements. leave accrued applies), agreement) enterprise or award and conditions (including whether an industrial instrument (modern The customer will usually provide details of employees’ roles, terms 7.3 b) a) the FW the Act: If under provisions business of transfer employees. the by caught transferring is outsourcing to employment on offers terms it the general choose which to the free to is provider exceptions service the important that position two are There grounds). unlawful on based decisions these make cannot provider service a service a and on what terms, to any of the impacted employees (provided that negotiations, employment, offer commercial to whether choose to free any generally is service provider to the from Subject employment of provider. offer an accept, and receive, they if so do only will and transfer automatically not do Employees 7.2 question 7.2below). (see implications certain has which (FWWork Act), Fair 2009 Act business’of the ‘transfer under a offer,constitute employment may MinterEllison WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd employee forareasonconnectedtotheoutsourcing? provide toeachother? take place? eet te fe wt te evc poie ad their and provider service redundancy.) the with employment is terminated by the customer on the grounds of offer employee the the if pay rejects redundancy to entitlement could it an as avoid terms comparable in are offers that insist customer may the (Commercially, entitlements. service-based transferring a recognise employee’s service to the customer to for the purpose of certain new need will their provider service in the employees the to apply employment withtheserviceprovider;and to continue and their employment with the customer, may be transferred with in employees the to applied which agreement, enterprise an Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw

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udr h Piay c in Act Privacy the under APPs) NDB) scheme in Australia

OUT19_04_07_Layout 104/07/201914:46Page11 h floig s smay f oe f h ky a ise to issues tax key the of some of summary a is following The there mustbeanimportationofgoods into Australia. supply/supplier the of importation”, “taxable To a nature made). be is supply the which through the on Australia depends with generally connected be (which must supply the supply”, “taxable a) consider: and natureofthebusinesstypeoutsourcinginvolved. by undertaken outsourcing any to applied be will that taxation The considered atransferoftheunderlyingbusinessfortaxpurposes. is arrangement outsourcing an that dictate that regimes legislative ( Commission Investments on prescriptive and Securities Australian more The requirements. becoming security information also are regulators Australian of behaviour the monitor individuals intheEUmayneedtocomply. or EU the in services and goods offer EU, the in establishment an have that businesses Australian 2018. May 25 since place in been have that requirements protection data ICLG TO: OUTSOURCING 2019 GST is generally payable on taxable supplies/importations. To be a 9.2 circumstances specific the on dependent be therefore will entity an Unlike in some countries in Europe, Australia does not have specific 9.1 contains Regulation Protection Data General Union European The 8.2 MinterEllison eiine Hat Check Health resilience: b) respond and breaches, cyber quickly andeffectively toanycyberbreachesthatoccur. potential for prepare protect and places to against standard entities new APRA-regulated all The on 2019. obligations July additional 1 on effect into come to has also recently released a new prudential standard (CPS 234), due resilience. The Australian Prudential Regulatory Authority ( built on this with the the 2018, ASIC December In resilience. cyber improve population norgs raiain t dsus n ipoe n hi cyber their on improve and discuss to organisations encourages c) d) 9 hte aons aal udr h rlvn areet by agreement relevant the under payable amounts whether the outsourcing party are deductible for income tax purposes; Tax Issues Is thereanyVAT leakage onthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring requirements concerninginformationsecurity? Are thereindependentlegaland/orregulatory under theoutsourcingcontract? whether the personnel involved in the provision of services of provision the in involved personnel the whether provider isrequiredtoregisterforandcharge GST. service the whether including arrangement, outsourcing the tax); or tax, superannuation guarantee obligations and fringe benefits employees are PAYG(e.g. arise obligations related and payroll withholding, tax taxes agreement employee whether accordingly, outsourcing and contractors, the under hte icm tx n sap uy r pybe n the on payable are duty stamp and tax income whether the goods and services tax ( tax services and goods the goodwill andintellectualproperty); any property transferred includes interests in Australian land, where (e.g. arrangement the under property any of transfers

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b) cent of the consideration payable to the offshore service provider). service offshore the to payable consideration the of cent per 10 to (equal liability GSTcharge reverse a incur may customer Australian the purpose, creditable fully a have not does customer an intangible supply, which is not otherwise subject to GST, but that Furthermore, where an Australian GST-registered customer imports course ofaregisteredentity’s enterprise. for GST (i.e. is a consumer), or if the services are not acquired in the registered be the to required or registered not is if supply the of recipient apply only changes the However, Australia. in customers non-business certain to supplied are that services) professional and consultancy software, content, digital supplies, as intangible (such supplies offshore including to applies GST 2017, July 1 From using rulessimilartothe‘permanentestablishment’ rules). determined is (which in Australia in enterprise an on carries provider GST to subject be not Australia. The important also factor to determine is whether the offshore will services outsourcing these the supply then Australia, in not on carried is does that business enterprise but an through performs services GST), Australian for an provider registered is for (that service customer Australia, offshore in services the outsourcing where instances In services tothe Australian businesscustomer). of supply the on GST remit or for register to required be generally not will it is, (that net GSTthe Australian outside remain generally can provider service offshore the circumstances, such in Therefore, upis fr xml, iaca sple ad upis f life of supplies and supplies insurance (i.e.GST leakage willarisehere). financial example, for supplies, tax credit to the extent it acquires the services to make ‘input-taxed’ input an claim to entitled be not will customer business Australian the Australian business customer’s taxable enterprise. However, the no GST leakage) where the services are acquired for the purposes of on (i.e. credit tax input an claim to able be generally should customers GST charges and business GST,Australian to subject are that registers makes it that supplies provider service offshore an If companies. insurance life and funds investment banks, as such offshoresector, services to applicable commonly financial the by in acquired entities services is Australian outsourcing GST charge reverse This Australia. in GST to subject be not generally will the services outside supplies only entirely outsourcing provider the Australia, in GST-registeredbusiness a to services service performed offshore the are and Australia, services outsourcing Where a) other Australian taxissuesthatmayariseincludethefollowing: the of some offshore, transferred is business outsourced an Where 9.3 n eti pyet t frin eiet fr specific for residents per cent;and foreign to categories of “works” and related activities, at the payments rate of five certain on foreign contractor PAYG withholding taxes, which can apply obtainable untiltheRWT isremittedtothe ATO; not RWTis the for deduction tax income An amount. unpaid the on charge interest general a and amount tax withholding Office ( Taxation Australian the to tax and withholding withhold the to remit fails who taxpayer resident Australian An double tax agreements ( The RWT rate is 30 per cent, usually reduced under Australia’s a such ‘know-how’). of provision (e.g. royalty where a constitutes payment non-resident a to Australia) in permanent establishment of a through course or Australia, the in business in a on made carrying is payment the where non-resident imposed in respect of a payment by an Australian resident (or a utain oat wthlig a ( tax withholding royalty Australian What othertaxissuesmayarise? ATO

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MinterEllison Australia

Where outsourcing services are performed entirely outside 8.2 Are there independent legal and/or regulatory Australia, and the offshore service provider only supplies the requirements concerning information security? services to a GST-registered business in Australia, the outsourcing services will generally not be subject to GST in Australia. The European Union General Data Protection Regulation contains Therefore, in such circumstances, the offshore service provider can data protection requirements that have been in place since 25 May generally remain outside the Australian GST net (that is, it will not 2018. Australian businesses that have an establishment in the EU, generally be required to register for or remit GST on the supply of offer goods and services in the EU or monitor the behaviour of services to the Australian business customer). individuals in the EU may need to comply. In instances where the offshore service provider performs Australian regulators are also becoming more prescriptive on outsourcing services in Australia, for an Australian business information security requirements. The Australian Securities and customer (that is registered for GST), but does not supply the Australia Investments Commission (ASIC) published Report 429 Cyber services through an enterprise that is carried on in Australia, then resilience: Health Check in March 2015 to help its regulated these outsourcing services will also not be subject to GST in population improve cyber resilience. In December 2018, the ASIC Australia. The important factor to determine is whether the offshore built on this with the Cyber Resilience Good Practice Guide, which provider carries on an enterprise in Australia (which is determined encourages organisations to discuss and improve on their cyber using rules similar to the ‘permanent establishment’ rules). resilience. The Australian Prudential Regulatory Authority (APRA) From 1 July 2017, GST applies to offshore intangible supplies, has also recently released a new prudential standard (CPS 234), due including supplies (such as digital content, software, consultancy to come into effect on 1 July 2019. The new standard places and professional services) that are supplied to certain non-business additional obligations on all APRA-regulated entities to protect customers in Australia. However, the changes only apply if the against and prepare for potential cyber breaches, and respond recipient of the supply is not registered or required to be registered quickly and effectively to any cyber breaches that occur. for GST (i.e. is a consumer), or if the services are not acquired in the course of a registered entity’s enterprise. 9 Tax Issues Furthermore, where an Australian GST-registered customer imports an intangible supply, which is not otherwise subject to GST, but that customer does not have a fully creditable purpose, the Australian 9.1 What are the tax issues on transferring the customer may incur a reverse charge GST liability (equal to 10 per outsourced business – either on entering into or cent of the consideration payable to the offshore service provider). terminating the contract? This reverse charge GST is commonly applicable to offshore outsourcing services acquired by Australian entities in the financial Unlike in some countries in Europe, Australia does not have specific services sector, such as banks, investment funds and life insurance legislative regimes that dictate that an outsourcing arrangement is companies. considered a transfer of the underlying business for tax purposes. If an offshore service provider registers and charges GST on The taxation that will be applied to any outsourcing undertaken by supplies that it makes that are subject to GST, Australian business an entity will therefore be dependent on the specific circumstances customers should generally be able to claim an input tax credit (i.e. and nature of the business and type of outsourcing involved. no GST leakage) where the services are acquired for the purposes of The following is a summary of some of the key tax issues to the Australian business customer’s taxable enterprise. However, the consider: Australian business customer will not be entitled to claim an input a) whether amounts payable under the relevant agreement by tax credit to the extent it acquires the services to make ‘input-taxed’ the outsourcing party are deductible for income tax purposes; supplies, for example, financial supplies and supplies of life b) whether the personnel involved in the provision of services insurance (i.e. GST leakage will arise here). under the outsourcing agreement are employees or contractors, and accordingly, whether employee taxes and related obligations arise (e.g. PAYG tax withholding, payroll 9.3 What other tax issues may arise? tax, superannuation guarantee obligations and fringe benefits tax); Where an outsourced business is transferred offshore, some of the c) whether income tax and stamp duty are payable on the other Australian tax issues that may arise include the following: transfers of any property under the arrangement (e.g. where a) Australian royalty withholding tax (RWT), which may be any property transferred includes interests in Australian land, imposed in respect of a payment by an Australian resident (or a goodwill and intellectual property); and non-resident where the payment is made in the course of d) the goods and services tax (GST) implications in relation to carrying on a business in Australia, or through a permanent the outsourcing arrangement, including whether the service establishment in Australia) to a non-resident where such a provider is required to register for and charge GST. payment constitutes a royalty (e.g. provision of ‘know-how’). The RWT rate is 30 per cent, usually reduced under Australia’s double tax agreements (DTA) to between five and 10 per cent. 9.2 Is there any VAT leakage on the supply of services An Australian resident taxpayer who fails to withhold and under the outsourcing contract? remit the withholding tax to the Australian Taxation Office (ATO) may be subject to an administrative penalty equal to the GST is generally payable on taxable supplies/importations. To be a withholding tax amount and a general interest charge on the “taxable supply”, the supply must be connected with Australia unpaid amount. An income tax deduction for the RWT is not obtainable until the RWT is remitted to the ATO; (which generally depends on the nature of the supply/supplier through which the supply is made). To be a “taxable importation”, b) foreign contractor PAYG withholding taxes, which can apply there must be an importation of goods into Australia. on certain payments to foreign residents for specific categories of “works” and related activities, at the rate of five per cent; and

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12 Australia n) m) l) k) j) i) h) g) f) e) d) c) b) be a) may others, among protections, included inacontracttoprotectthecustomer: additional following The 11.2 injunctions, specificperformanceandtermination. include may law general the under breach of for remedies other provisions contract, the and breach of type the on Depending law. general under contract of breach for remedy main the are Damages 11.1 disaster around performance drive to recovery andsecurityobligations. levels service see also availability being the most important for cloud-based offerings. We with deal, of type the on depends levels service the of nature The back provisionsinrelationtoservicecredits. and commonplace service are credits are common on large deals. agreements Vendors in often seek earn- levels service of Inclusion 10.1 relief. outsourcing agreement, or whether any DTA will operate to provide the under derived income of respect in in Australia taxable be will they whether consider to need also will supplier non-resident The c) MinterEllison WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 10 levels andservicecredits? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? step-in rights. insurance requirementsforthesupplier; and confidentiality, privacyanddatasecurityprovisions; business continuitymanagementprocedures; audit procedures; performance a governance structurestooverseesupplierperformance; provide to supplier guarantee fromitsparentcompany; the for obligations disengagement ortransition-outprovisions; and convenience for specified breaches; customer the meet for rights to termination failure supplier’s the milestones; for damages liquidated service levelandcreditregimes; acceptance testingprocessesandcriteria; liability caps forthesupplier; to exceptions and liability customer’s the on caps warranties andindemnities; acceptable arm’s lengthpricingbasis. an on business Australian the to enterprise non-resident the of expenses and income the allocate to apply may provisions pricing party.transfer Australia’srelated international an to transferred is business the where pricing, transfer Australian What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice

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ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page13 the agreementandthenbeheldtohaveitselfrepudiated. terminate invalidly not does party a that ensure to guidance, legal However, exercising these rights requires careful consideration, and regulate the termination rights of outsourcing contracts in Australia. specifically that standards or regulations laws, other no are There non- involving breach an a payment ornon-performance. amend as such or reason, terminate another to for agreement right the retain would been counterparty has arrangement of scheme a or announced. appointed been has controller managing into other entered or receiver has a administration, party voluntary other the because merely damages, seek or contract, the terminate to right a ‘enforce’ cannot counterparty into administration. For contracts entered into after 30 June 2018, a h Epaaoy eoadm o h At eonss ht a that recognises Act the to Memorandum Explanatory The clauses to amend, or terminate, contracts with a company that passes eitrd nelcul rpry ihs o o apy For apply. not do rights completeness, we property note that copyright will subsist in the written form intellectual registered 1995 Marks TradeAct the under provisions infringement as the such, and patents, or trademarks as such registered rights property to intellectual rise business-critical give generally other not do and information confidential secrets trade know-how, However, contractual no breaches ofconfidentialityagreements. is there if even remedy,for available are contract in claims addition, In place. in protection a with rights these of the between parties in order to protect those rights in contract an outsourcing transaction. or agreement binding, legally written, a of express such agree of to termination rightsastheywish. free otherwise regime are parties exhaustive The rights. an termination has agreement outsourcing or term intermediate an of law conduct which demonstrates breach that a party has repudiated the contract. common serious sufficiently to a term, recourse essential an of have breach a upon arise will These may rights. termination parties the agreement, ICLG TO: OUTSOURCING 2019 of respect in legislation other and (Cth) 1990 Act Patents (Cth), A general law claim for breach of confidence can provide the owner 14.2 Intellectual property rights are to be identified and protected by way 14.1 The 13.3 the if excluded be may rights termination law common The 13.2 outsourcing an within rights termination exhaustive no are there If MinterEllison Act 2017 Act 14 Treasury Laws Amendment (2017 Enterprise Incentives No 2) No Incentives Enterprise (2017 Amendment TreasuryLaws law? critical confidentialinformationprotectedbylocal Are know-how, trade secretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight termination rights? Can thepartiesexcludeoragreeadditional to seeinanoutsourcingcontract? (Cth) imposes a stay on the use of so-called ‘ so-called of use the on stay a imposes (Cth) Intellectual Property

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13 Australia OUT19_04_07_Layout 104/07/201914:46Page12

12 Australia WWW.ICLG.COM c) b) be a) may others, among protections, included inacontracttoprotectthecustomer: additional following The 11.2 injunctions, specificperformanceandtermination. include may law general the under breach of for remedies other provisions contract, the and breach of type the on Depending law. general under contract of breach for remedy main the are Damages 11.1 disaster around performance drive to recovery andsecurityobligations. levels service see also availability being the most important for cloud-based offerings. We with deal, of type the on depends levels service the of nature The back provisionsinrelationtoservicecredits. and commonplace service are credits are common on large deals. agreements Vendors in often seek earn- levels service of Inclusion 10.1 relief. outsourcing agreement, or whether any DTA will operate to provide the under derived income of respect in in Australia taxable be will they whether consider to need also will supplier non-resident The c) MinterEllison f) e) d) h) g) j) i) k) m) l) n) 11 10 acceptance testingprocessesandcriteria; liability caps forthesupplier; to exceptions and liability customer’s the on caps warranties andindemnities; acceptable arm’s lengthpricingbasis. an on business Australian the to enterprise non-resident the of expenses and income the allocate to apply may provisions pricing party.transfer Australia’srelated international an to transferred is business the where pricing, transfer Australian emnto rgt fr h csoe fr ovnec and convenience for specified breaches; customer the meet for rights to termination failure supplier’s the milestones; for damages liquidated service levelandcreditregimes; biain fr h sple t poie performance a provide to supplier guarantee fromitsparentcompany; the for obligations disengagement ortransition-outprovisions; audit procedures; governance structurestooverseesupplierperformance; business continuitymanagementprocedures; insurance requirementsforthesupplier; and confidentiality, privacyanddatasecurityprovisions; step-in rights. contract documentationtoprotectthecustomer? What additionalprotectionscouldbeincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder levels andservicecredits? What istheusualapproachwithregardtoservice

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ICLG TO: OUTSOURCING 2019

Australia

OUT19_04_07_Layout 104/07/201914:46Page13 regulate the termination rights of outsourcing contracts in Australia. specifically that standards or regulations laws, other no are There non- involving breach an a payment ornon-performance. amend as such or reason, a terminate another that to for agreement right recognises the Act retain the would been counterparty to has Memorandum Explanatory arrangement The of scheme a or announced. appointed been has controller managing into other entered or receiver has a administration, party voluntary other the because merely damages, seek or contract, the terminate to right a ‘enforce’ cannot counterparty into administration. For contracts entered into after 30 June 2018, a clauses to amend, or terminate, contracts with a company that passes ICLG TO: OUTSOURCING 2019 For apply. not do rights completeness, we property note that copyright will subsist in the written form intellectual of respect registered in legislation other and (Cth) 1990 Act Patents (Cth), 1995 Marks TradeAct the under provisions infringement as the such, and patents, or trademarks as such registered rights property to intellectual rise business-critical give generally other not do and information confidential secrets trade know-how, However, contractual no breaches ofconfidentialityagreements. is there if even remedy,for available are contract in claims addition, In place. in protection a with rights these of A general law claim for breach of confidence can provide the owner 14.2 the between parties in order to protect those rights in contract an outsourcing transaction. or agreement binding, legally written, a of Intellectual property rights are to be identified and protected by way 14.1 2017 Act The 13.3 express such agree of to termination rightsastheywish. free otherwise regime are the parties exhaustive The if rights. an termination excluded has be may agreement rights outsourcing termination law common The 13.2 the agreementandthenbeheldtohaveitselfrepudiated. terminate invalidly not does party a that ensure to guidance, legal or However, exercising these rights requires careful term consideration, and intermediate an of law conduct which demonstrates breach that a party has repudiated the contract. common serious sufficiently to a term, recourse essential an of have breach a upon arise will These may rights. termination parties the agreement, outsourcing an within rights termination exhaustive no are there If MinterEllison © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 Treasury Laws Amendment (2017 Enterprise Incentives No 2) No Incentives Enterprise (2017 Amendment TreasuryLaws termination rights? law? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? critical confidentialinformationprotectedbylocal Are know-how, trade secretsandotherbusiness How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional (Cth) imposes a stay on the use of so-called ‘ so-called of use the on stay a imposes (Cth) Intellectual Property

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Competition and Consumer Act 2010 Act Consumer and Competition

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13 Australia OUT19_04_07_Layout 104/07/201914:46Page14

14 Australia uy i ipid no eti tps f otat o i certain in or contracts of types certain circumstances. into implied is duty, similar a or this, that found duty, in have a other courts but Australian contracts commercial all into Australia. The High Court has not recognised the existence of such implied be should faith in good act to duty a whether on position settled no currently is There 17.1 court andagreementfromtheotherparty. arbitral Australia, in the of leave with court, arbitration a to appealed be only generally can awards to applying legislation Under in whichthedisputeisheardbyarbitratingbodyorindividual. (or panel of arbitrators) in respect of the dispute, following a period arbitrator independent an of ruling the to submit parties the which place of commencing court proceedings. Arbitration is a process in The parties may also be obliged to refer the dispute for arbitration in Arbitration dispute totherelevantcourtsinthatjurisdiction. the escalate may parties the dispute, the to resolution about bring to fail methods resolution dispute alternative the that event the In in movingforwardandresolvingthedispute. mediator attempts to guide the parties in exploring potential options independent the where method resolution passive a largely is This guidelines. available publicly with accordance in mediate providers mediation professional These body. equivalent another Disputes or Centre Australian the as such provider mediation professional a by mediation for dispute the refer to obliged be may parties The Mediation dispute isnotresolved. the if nominees) their or CEOs the (e.g. representatives senior to dispute, and these discussions are generally required to be escalated the resolve to attempt and meet will party each of Representatives Negotiated resolution These mayincludeavarietyofthefollowing: MinterEllison WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 17 reasonableness undergenerallaw? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Good Faith

■ ■ both: commerce, and trade in conduct unconscionable prohibit expressly the to 2 (Schedule Law Consumer Australian the of 21 and 20 sections Additionally, ■ ■ However: at olgtos ut e ae it acut n exercising in account ■ into taken be termination forconveniencerights.Forexample: must obligations faith good implied whether on focussed have cases recent of number A ■ Norquay; RhysGuild;SamQuinn;and Todd Woodland. Momsen; Karla Nader; Kosta Hountalas; Lisa Mitry; Madison Lawler; Revell James Wallace; Georgia Hamish Shaw; Williams; Gordon Daniel McCarthy; Tang; Chris Fehrenbach; Ashleigh who Lin; colleagues their acknowledge to contributed to this chapter: Aaron Bicknell; like Amelia Norris; Anthony would authors The Acknowledgments unconscionability describedbythe Act. of scope broader the within circumstances, limited more in unconscionable of doctrine equitable dealing; and the by defined as was faith good implied. of requirement no and restriction without convenience language, clear for in expressed was termination clause such where the clause, of terms broad the with inconsistent be would convenience for terminate to right the court held that a requirement to act in good faith in exercising Ltd Pty Australia Supermarkets iial, in Similarly, and appeared was necessary. court ‘clear The faith good in act to requirement no and that case court, this in satisfied termination’. absolute to the an right with to uncontrolled Placer providing according in was, unambiguous the clause in the clause specific The contract was not qualified by an obligation of good faith, and convenience. for terminate Ltd In clause convenience for termination could beactivatedintheabsenceofgoodfaith. a whether to as tried be to question serious a be to found 283 was there 720, ALR of goodfaith. term implied an to subject be may convenience for terminate to right the that argued successfully was it 200, VSC [2007] In In Kellog Brown & Root Pty Ltd v Australian AerospaceAustralian v Ltd Ltd Pty Root Brown& Kellog Theiss Contractors Pty Ltd v Placer (Granny Smith) Pty Smith) (Granny Placer v Ltd Pty Contractors Theiss udrrjh Tahr Fdrto Hat Ltd Health Federation Teachers v Sundararajah 20] AC 16 Pae eecsd t rgt to right its exercised Placer 166, WASCA [2001]

trik nentoa Gop t Ld Coles v Ltd Pty Group International Starlink optto ad osmr c 2010 Act Consumer and Competition

ICLG TO: OUTSOURCING 2019 21] SS 15, the 1154, NSWSC [2011]

Australia

(Cth)) [2011]

OUT19_04_07_Layout 104/07/201914:46Page15 ICLG TO: OUTSOURCING 2019 MinterEllison solutions thatassistclientsinachievingtheirbusinessobjectives. MinterEllison is one of Asia Pacific's leading full-service law firms. Established in Sydney in 1827, today the firm operates firm the today 1827, in Sydney in Established firms. law of full-service one leading is Pacific's MinterEllison Asia category). and offer clients services that are multi-disciplinary and industry facing. In 2017 we expanded our market-leading legal techn global a in operating businesses by faced challenges the understand we staffworldwide, legal 1,050 and partners 230 about With mainland China,Mongolia,NewZealandandtheUnitedKingdomthroughanetworkofintegratedoffices andassociatedoffices. Our lawyers have been independently recognised amongst the world's best for their strong technical skills and ability to delive government andstate-ownedentities. MinterEllison's large and diverse client base includes blue-chip public and private companies, leading multinationals, global f acquisition ofITNewcom,atop-tiertechnologyconsultancy. nhn hs xesv eprec assig let i ter IT, their in clients assisting experience extensive has Anthony Anthony leads the outsourcing team with over 20 years' experience of itd s Laig niiul in Individual Leading a as listed is and information law, telecommunications law,and law commercial outsourcing law, technology of areas the in Lawyers Best as such guides independent leading in expertise his for recognised is Anthony organisations andserviceproviders. the sector private of and public both understanding of range wide solid a of drivers has commercial He organisations. client for arena delivering strategicandcommerciallyfocusedsolutionswithintheICT technology internet, the computing, disputes andcybersecurity. cloud arrangements, outsourcing management, and vendor supply long-term negotiating and reviewing outsourcing, cross-border His and domestic includes practice arrangements. outsourcing complex and telecommunications Tel: Australia Sydney NSW2000 1 FarrerPlace Level 40GovernorMacquarie Tower MinterEllison Anthony Borgese URL: Email:

+61 299214250 www.minterellison.com [email protected]

hmes sa Pacific Asia Chambers

TT IT (TMT:

eeae hs lbl usucn eprec wt cins n Asia, outcomes toarangeofmatters. and insights in valuable bring clients to Australia and with America North experience Europe, He outsourcing global outsourcing. his process business leverages their in gains efficiency make iks iernig C ad rcrmn eprie nue clients ensures expertise procurement and ICT wide-ranging Nick’s intellectual property, andthedevelopmentofcomplexdeliverables. other of licensing the and offerings, as-a-service and telecommunications cloud including IT,services, of acquisition the transactions, outsourcing for arrangements contractual on advising and negotiating e sit cins cos rne f nutis ih structuring, with industries of range a across clients assists He ih n xeln tak eod f diig ulc n piae sector private and clients, onbothlocalandcross-bordertransactions,inthesefields. public advising of record track excellent an with ik s n C, usucn ad omril rcrmn specialist procurement commercial and outsourcing ICT, an is Nick Email: Tel: Australia Sydney NSW2000 1 FarrerPlace Level 40GovernorMacquarie Tower MinterEllison Nicholas Pascoe URL: [email protected] +61 299218809 www.minterellison.com

in Kong, Hong Australia, WWW.ICLG.COM r commercially practical inancial institutions and ology practice with the

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15 Australia OUT19_04_07_Layout 1 04/07/2019 14:46 Page 15

MinterEllison Australia

Anthony Borgese Nicholas Pascoe MinterEllison MinterEllison Level 40 Governor Macquarie Tower Level 40 Governor Macquarie Tower 1 Farrer Place 1 Farrer Place Sydney NSW 2000 Sydney NSW 2000 Australia Australia

Tel: +61 2 9921 4250 Tel: +61 2 9921 8809 Email: [email protected] Email: [email protected] URL: www.minterellison.com URL: www.minterellison.com

Anthony has extensive experience assisting clients in their IT, Nick is an ICT, outsourcing and commercial procurement specialist Australia telecommunications and complex outsourcing arrangements. His with an excellent track record of advising public and private sector practice includes domestic and cross-border outsourcing, reviewing clients, on both local and cross-border transactions, in these fields. and negotiating long-term supply and outsourcing arrangements, He assists clients across a range of industries with structuring, vendor management, cloud computing, the internet, technology negotiating and advising on contractual arrangements for outsourcing disputes and cyber security. transactions, the acquisition of IT, telecommunications and other Anthony leads the outsourcing team with over 20 years' experience of services, including cloud and as-a-service offerings, the licensing of delivering strategic and commercially focused solutions within the ICT intellectual property, and the development of complex deliverables. arena for client organisations. He has solid understanding of the Nick’s wide-ranging ICT and procurement expertise ensures clients commercial drivers of a wide range of both public and private sector make efficiency gains in their business process outsourcing. He organisations and service providers. leverages his global outsourcing experience with clients in Asia, Anthony is recognised for his expertise in leading independent guides Europe, North America and Australia to bring valuable insights and such as Best Lawyers in the areas of commercial law, information outcomes to a range of matters. technology law, outsourcing law and telecommunications law, and is listed as a Leading Individual in Chambers Asia Pacific (TMT: IT category).

MinterEllison is one of Asia Pacific's leading full-service law firms. Established in Sydney in 1827, today the firm operates in Australia, Hong Kong, mainland China, Mongolia, New Zealand and the United Kingdom through a network of integrated offices and associated offices. With about 230 partners and 1,050 legal staff worldwide, we understand the challenges faced by businesses operating in a globalised marketplace and offer clients services that are multi-disciplinary and industry facing. In 2017 we expanded our market-leading legal technology practice with the acquisition of ITNewcom, a top-tier technology consultancy. MinterEllison's large and diverse client base includes blue-chip public and private companies, leading multinationals, global financial institutions and government and state-owned entities. Our lawyers have been independently recognised amongst the world's best for their strong technical skills and ability to deliver commercially practical solutions that assist clients in achieving their business objectives.

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Chapter 4 Astrea Belgium

immediate help if the supplier runs into financial, technological or be used, whereby each supplier submits his offer following a public other difficulties (therefore it is absolutely necessary to thoroughly contract notice. These will be compared and assessed based either validate a supplier’s financial stability prior to any engagement); (3) on the price only, or on different criteria such as price, quality, a supplier may move its best resources to a new contract it deems technical value, guarantees, etc. In the first case, the lowest priced Belgium “more important”; (4) having only one supplier removes a sense of offer is selected. In the second, a score is given to each criteria and competition between suppliers, which can be a useful tool to the supplier with the highest score is chosen. Other procedures Steven De Schrĳver optimise costs and maintain a high level of service; and (5) a include a non-public procedure, where the contract notice is supplier may seek cost improvements in service delivery rather than published and candidates can request to participate in the process. A innovation and business improvements. selection of candidates will then be allowed to submit an offer, B) Alternative Contract Models – As an alternative to a single which will be assessed under one of the two options set forth above. supplier agreement (which remains the most commonly used legal Finally, a negotiation procedure, whereby the public authorities Belgium structure in Belgium), sometimes a multi-supplier agreement is negotiate with one or more suppliers about the conditions of the Astrea Rudi Desmet concluded. With the growing number of functions that customers assignment, is also an option. wanted to outsource, executives became concerned with the Private entities may occasionally use a procurement process as well. growing task of constantly aligning multiple suppliers and renegotiating contracts, which slowed down business. Hence, mega-deals with large IT services companies were concluded. It 4 Term of an Outsourcing Agreement Following the advice of the Belgian financial regulatory agency, i.e. 1 Regulatory Framework turned out that these large firms have similar issues in aligning the Financial Services and Markets Authority (FSMA), the credit different competencies internally as their customers do. In addition, institution must publish a declaration setting out its policy in 4.1 Does national or local law impose any maximum or they must squeeze sub-contractors in order to win mega-deals and minimum term for an outsourcing contract? 1.1 Are there any national laws or regulations that relation to the outsourcing of investment management services to are reluctant to renegotiate to upgrade services for clients, leading to specifically regulate outsourcing transactions, either non-professional clients. little flexibility. Service improvement or cost reduction through Belgian law does not prescribe much with respect to the content of generally or in relation to particular types of The European Banking Authority (EBA) is working on guidelines application of new technology is similarly postponed until the outsourcing transactions (e.g. business process an outsourcing agreement, as the main principle is contractual that will include a clear definition of outsourcing and specify the contract is up for renewal. Therefore, in some cases, customers do outsourcings, IT outsourcings, telecommunications freedom. Favourable effects of outsourcing only arise if agreements criteria to assess the criticalness or importance of an outsourced prefer having multiple suppliers. outsourcings)? are concluded for a lengthy period of time. Renegotiation is also activity, service, process or function (or part of it). Also, the Belgian There is also an upcoming demand for an integration of services and costly for the customer. Therefore, in practice, contracts are four financial regulatory agency and the Belgian national bank have There exist no national laws in Belgium that specifically regulate the appointment of a management partner. In such a model, one years on average, with two or three one-year extensions in good specified detailed requirements as to a bank’s IT environment which outsourcing transactions, save for two exceptions (see question 1.3). vendor acts as an “integrator” and provides a service integration and relationships. However, as technology evolves at a very high pace, the service providers will have to fulfil, including requirements that management function, whereby each of the suppliers has an In most cases, an outsourcing agreement will be qualified as a it is usually provided that the contract can be adapted to the parties’ must be taken into account when outsourcing IT services. individual contract with the customer and the “integrator” is services contract (aannemingsovereenkomst/contrat d’entreprise) needs if it has a lengthy duration. responsible for the integrated service offering, managing suppliers and consequently fall under the framework of rules for such according to their individual contracts (in particular the SLAs), and contracts. However, these statutory provisions are quite general and 1.4 Is there a requirement for an outsourcing transaction to be governed by local law? If it is not to be local aligning them to meet the customer’s objectives. Non-performing 4.2 Does national or local law regulate the length of the leave a considerable amount of contractual freedom to the parties. notice period that is required to terminate an law, is there any generally accepted norm relating to or non-co-operative suppliers can be replaced without disrupting the outsourcing contract? the choice of governing law? entire outsourced operation. 1.2 Are there any additional legal or regulatory C) Captives and Shared Service Centres – While the general requirements for outsourcing transactions In principle, no. However, some mandatory laws, e.g. with regard to If the contract has been concluded for an indefinite duration, each tendency is towards in-house or captive operations, there is also a undertaken by government or public sector bodies? employment or data protection, may apply. party has the right to terminate it with reasonable notice. The determined and consistent trend towards hybrid operations reasonableness of this notice period shall be determined in light of (collaborations with third-party Business Process Outsourcing or IT The mandatory rules of public procurement law apply to the concrete circumstances, such as, e.g., the already performed Outsourcing providers), borne out by the fact that there has been a outsourcing transactions in the public sector. 2 Legal Structure period of time of the contract, the period necessary for the service recent significant jump in “hybrid” models. This may be explained provider to find an equivalent source of income. The parties can, by the desire to tap into automation innovations without taking these however, explicitly agree on a certain notice period in their contract 1.3 Are there any additional legal or regulatory 2.1 What are the most common types of legal structure initiatives on internally, or by the fact that necessary expansions can (including a notice procedure and compensation). Parties are also requirements for outsourcing transactions used for an outsourcing transaction? be quickly enabled by leveraging BPO or ITO partners. The free to agree upon an initial term during which none of the parties undertaken in particular industry sectors, such as for sustainable model will be referred to as an “outsourcing shall have a right to terminate. example the financial services sector? A) The Standard Supplier Customer Model – Here, all outsourcing partnership”, which could be a joint venture with an existing BPO or Sometimes, the customer accepts a termination for convenience work goes to a monolithic supplier. This is the most common legal ITO company with proven delivery capability, or a partnership with clause, but such flexibility of course comes at a certain price. A) If the services to be rendered by the supplier are regulated structure in Belgium, mainly due to the size of the Belgian tighter control on delivery operations. In both these models, the services (e.g. telecommunications, banking or insurance services), outsourcing contracts (often below EUR 5 million), as a result of BPO or ITO partner will have the flexibility to manage career In a contract of definite duration, which automatically ends when the supplier is subject to the same applicable regulatory laws as any which splitting contracts does not generate a lot of financial benefit. growth and compensation expectations, and planned employee the agreed period lapses, the parties may agree on a possibility to other service provider in this field. The customer manages the Governance, Retained Functions and rotation (to other clients/projects), while the global company has a terminate the contract earlier or to prolong it at the end. B) If the customer services are in a regulated industry (e.g. a bank or Vendor Management, while the supplier manages Service Co- tighter control on the delivery and security. insurance company), industry-specific regulatory laws may set out ordination and Service Delivery. A contract between the customer 5 Charging specific requirements for the outsourcing of services. and the supplier specifies the scope of services. The single supplier 3 Procurement Process The sector of financial services, including credit institutions, must may have different internal divisions doing the work, but all is done take appropriate measures to limit the entailed operational risks by the single supplier and nothing is sub-contracted out. The 5.1 What are the most common charging methods used in supplier is responsible for managing all interactions between its when outsourcing to third parties the operational tasks that are of 3.1 What is the most common type of procurement outsourcing transactions? critical importance to a continuous and satisfactory provision of internal divisions. process that is used to select a supplier? certain services, especially investment services and activities. The advantage of this model is its simplicity, since the business only There are different charging methods in outsourcing. Although it is There should be no substantial impact on the appropriate nature of needs to manage one other party. However, there are several A procurement process will only be mandatory when the customer is rare to agree upon fixed prices for the entire contract period, it is not the internet control procedures of the credit institution, nor on the downsides: (1) when a customer is outsourcing multiple functions, a public or governmental body, or when he is subject to public entirely impossible. An indexation clause will usually be included ability of the supervisory authority to verify whether the credit it is unlikely that a single supplier can provide a leading service in procurement law otherwise. Often, a public (open) procedure will in the agreement. Sometimes a “cost plus fee” method is used. Also institution complies with its statutory and regulatory obligations. each area; (2) the customer has no other suppliers available for common is a monthly fee with additional reimbursement for

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Chapter 4 Astrea Belgium

18 Belgium WWW.ICLG.COM the via Agreements No.32 agreement bargaining Bargaining collective Collective on 1968 5 of December Act the of application by partially incorporated is Directive Rights Acquired the Belgium, In Directive. Rights Acquired the i.e. applies, (TUPE) Employment of Protection with Undertakings of Transfers on law EU the which in circumstances be may there If a service is outsourced – thus, if legally there is a new employer – 7.1 involves it when needed is transfer the immovable property, trademarksorpatents(seequestion6.1). of registration The 6.4 that dateoncethecontractends. with happens what ensure to as activities outsourced the to crucial is data personal of processing the when GDPR the by required be ensure an easy transfer to a different supplier. It may in some cases to agreement the in included be may clause exit or reversibility A 6.3 in writing; and(c)subleasingmayrequiretheconsentoflandlord. be must leasing (b) notary; public a by enacted and writing in In case of immovable property: (a) the transfer of real estate must be 6.2 required (preferablyinwriting). the on to possibility depends the for transfer, then provide the consent of the transferor and the transferee will be transferability not do the these If contracts, terms. contractual key of case In licensor. original licence provides for this and may require the consent of the the if transferred be can licences IP (c) and registered; and writing in be should patents or marks trade of transfer the (b) writing; in be must copyright of transfer the (a) licences: and rights IP of case In In caseofmovableproperty, nospecificformalitiesapply. 6.1 including apossibilitytosharethesavingsoutofthis. savings or cost reduction (e.g. through a so-called “benchmarking”), efficiency propose to how stipulates that clause a or agreement the It may, for instance, be possible to include a list of excluded costs in 5.2 (consultancy, agreement basic services, etc.). the of scope performed the services outside other and provision service project-specific Astrea © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 7 6 license assetsonanoutsourcingtransaction? outsourcing transactions? Employment Law Transfer of Assets Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? What formalitiesarerequiredtotransfer, leaseor What otherkeytermsareusedinrelationtocosts

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18 Belgium WWW.ICLG.COM the via Agreements No.32 agreement bargaining Bargaining collective Collective on 1968 5 of December Act the of application by partially incorporated is Directive Rights Acquired the Belgium, In Directive. Rights Acquired the i.e. applies, (TUPE) Employment of Protection with Undertakings of Transfers on law EU the which in circumstances be may there If a service is outsourced – thus, if legally there is a new employer – 7.1 involves it when needed is transfer the immovable property, trademarksorpatents(seequestion6.1). of registration The 6.4 that dateoncethecontractends. with happens what ensure to as activities outsourced the to crucial is data personal of processing the when GDPR the by required be ensure an easy transfer to a different supplier. It may in some cases to agreement the in included be may clause exit or reversibility A 6.3 in writing; and(c)subleasingmayrequiretheconsentoflandlord. be must leasing (b) notary; public a by enacted and writing in In case of immovable property: (a) the transfer of real estate must be 6.2 required (preferablyinwriting). the on to possibility depends the for transfer, then provide the consent of the transferor and the transferee will be transferability not do the these If contracts, terms. contractual key of case In licensor. original licence provides for this and may require the consent of the the if transferred be can licences IP (c) and registered; and writing in be should patents or marks trade of transfer the (b) writing; in be must copyright of transfer the (a) licences: and rights IP of case In In caseofmovableproperty, nospecificformalitiesapply. 6.1 including apossibilitytosharethesavingsoutofthis. savings or cost reduction (e.g. through a so-called “benchmarking”), efficiency propose to how stipulates that clause a or agreement the It may, for instance, be possible to include a list of excluded costs in 5.2 (consultancy, agreement basic services, etc.). the of scope performed the services outside other and provision service project-specific Astrea 7 6 Employment Law Transfer of Assets Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? license assetsonanoutsourcingtransaction? What formalitiesarerequiredtotransfer, leaseor outsourcing transactions? What otherkeytermsareusedinrelationtocosts

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this istobecheckedonacase-by-casebasis(seequestion7.6). contract. outsourcing but also, the transferred be to need may obligations pension Additional in included be to need may premiums year of end and allowance holiday certainty, job about Provisions ut rnfr n wl d s atmtcly o ht o new no that so automatically so do employment agreementisrequired. will and transfer must activity (transferred) outsourced the to connected employees All outsourcing, achangeofsupplierorreversetransfer. initial the of moment the at place takes transfer employee and asset ea, cnmc n sca cneune, n te measures the service provider will in most cases agree on a joint communication. and consequences, the and customer the practice, In social employees. the towards intended and economic legal, the thereof, reasons the date, transfer envisaged the on individually the beforehand within informed be exists must concerned delegation employees the customer, union trade or council works no If result inacriminalfine. for liabilities failing to inform and consult the works council, and this could even criminal face could provider service and customer The representatives. employee of disagreement express the even with service the outsource to to decide duty can a employer The is there consult. although outsourcing, an conduct to required not is agreement council’s works The employees. customer’s the reasons for the contemplated outsourcings and the consequences for the provide must it specifically, More employees. of transfer the works its consults and informs council prior to making any official customer decision on an outsourcing with the that required is It 7.3 transfer.the of date the at oral) or (written agreement employment the from arising obligations and rights all of continuity a is There 7.2 agiig gemn o icroae it te individual the into incorporated or employment conditions. agreement bargaining collective a in agreed is such invalidity,unless or death retirement, Theoretically, Belgianlawdoesnotrequireadditionalinsurancefor 7.6 bargaining collective a via collectively agreed agreement concludedwiththetradeunions. be also the requires can cases most in Changes conditions. non-essential which for except consent, employee’s date, transfer the after only The new employer can make changes to the employment agreement 7.5 wrongfully were dismissed. that employees the to due being compensation economic or technical reasons. Infringement may lead to additional for possible only is undertaking of transfer the to due dismissal A 7.4 provide toeachother? What employeeinformationshouldtheparties take place? On whattermswouldatransferbyoperationoflaw Are thereanypensionsconsiderations? existing workforce? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan

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OUT19_04_07_Layout 104/07/201914:46Page19 ICLG TO: OUTSOURCING 2019 commercial purely a From data. anonymised or aggregated including vendor, the by data the of uses secondary on restriction the is overlooked sometimes is that contracts cloud of aspect One protection. adequacy of the protection, not the specific means for achieving that customer’s unique a requirements. However, the meet key for customers should be the to standards such have customise may to they ability limited setting, internal cloud a consistent in with maintain especially standards, come must security protections suppliers Since contractual these limitations. of Many incidents. restrictions, use and customer data access rights, and retention vendor liability/insurance for cyber data investigation, incident on security and audits, reporting restrictions security testing, security vendor, training), and the checks by (background protections employee-related subcontracting, required standards security as such provisions, contractual key by mitigated be can risk Cyber year, whichever isgreater. financial preceding the for turnover undertaking’sworldwide an of 4% or million 20 EUR either is GDPR the of infringements serious for imposed be can that fine maximum the that noted be should It security-related data context, and clauses aretobeagreed. this In technical availability. and the integrity on to order in their agree ensure to and access, supplier unauthorised from data personal protect the should by taken be parties to measures organisational event, any In data subjects’ reasonableinterests. the covering arrangements additional with combined be could and up, set be should Board the or board supervisory competent the by applicable EU model clauses or business codes of conduct approved the of basis the on agreements corresponding EU/EEA, the outside located is supplier the If provider. service the to data personal of the service provider is to be set up, which may legitimise subjects’ the transfer data the processing reflecting specific interests in the transfer of personal data by the controller to data agreement specific a a either or EU/EEA, agreement the within resides the and supplier processed is data personal that provided and GDPR, the the by commissioned controller.Under the as processor qualifies supplier the whether or customer data the a whether of so, that if is and, role supplier, supplier’s the by used and processed be Firstly, it should be determined whether any personal data at all will 8.1 issues willhavetobecarefullyconsidered. law law.Employment governing chosen the over prevail that rules mandatory overriding any destination’shas of system country legal the whether assess offshore to important an be will govern it transaction, to outsourcing chosen be may law Belgian though Even apply. country, the law of the country in which the employer is situated will single one in contract his execute country.not does employee an If another to detached temporarily is he if even Belgium, in contract his executes usually that employee any to apply will law Belgian 7.7 Astrea © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 transaction? Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations?

within 24to48hours. breaches data personal and breaches data personal suspected any of them inform to processors for demands controller of relaxation a to lead may clarification This breach. a such of it informed has to be aware of a processor’s personal data breach once the processor Data European the considered be will controller of a that state (EDPB) Board guidelines Protection recent that noted be should It any of them suspected personaldatabreaches. notify to processors require even controllers Some See question 8.1 for the general legal and regulatory requirements. regulatory and legal general the for 8.1 question See 8.2 ufrd ihn 4 o 8 or o bcmn aae f breach. a of aware becoming of have hours they 48 breaches to 24 data within personal suffered of them notify to processors after becoming aware hours of it. 72 Hence, controllers often than contractually require later no breaches data personal supervisory of data authorities notify to personal required a are controllers of Similarly, aware breach. becoming after delay undue without Processors are also under the requirement of notifying the controller relation topersonaldatabreaches. assist to processors in obligations controllers’ with for compliance ensuring in requirement controllers the (7) and data; the personal (6) in-scope process to engage [sub-]processors; they sub-processors any to obligations other protection data same the of down flow to processors for requirement replacement or addition the concerning changes intended any of controllers the inform to for prohibition requirement a (5) the controller; the from authorisation written general (4) or specific prior provisions; without sub-processors engaging from processors protection data national or EU other or GDPR the infringes instruction an opinion, its in if, the by mandated controller; (3) the processor shall immediately inform the controller auditor another or controller the inspections, by including conducted audits, to contribute and for allow should processor a (2) compliance; demonstrate to necessary information obligations: (1) a processor must make available to the controller all The written agreements should also include the following rights and Different processed. being data measures existfordifferent types. of type the for breach a GDPR with associated risk of level the mind in bearing implemented, the appropriate security and organisational measures that need to be what and identify supplier and data personal that on the out carried be to by are “processes” processed be to is data personal what determine to need will they agreement, written this In processor”. “data its and controller a between contract agreement written a in GDPR, which comprehensively sets out items that must be included the of 28 Article be will contract processor outsourcing an negotiating parties when both a for call of port and first the such, company) As provider). (service (outsourcing controller a between Most outsourcing relationships will be considered as an engagement de- inadequately of retention vendor’s identified datamayruntheriskofviolatingcertainprivacylaws. a addition, In failures. security of risk the increasing thereby data, the of re-identification risks vendor the by data of retention any standpoint, cybersecurity the vendor and corresponding loss of value to the customer. From a to value substantial mean can right use secondary this standpoint, hscl tutrs n fclte o sc vtl motne o the to importance vital such of facilities and structures physical outsourcing (organisationalinfrastructure critical so-called operates the and customer if apply will Act Infrastructures Critical the Also, security-related obligationsfromthe supplier. data specific require will law regulatory company), insurance an or bank a (e.g. industry regulated a in is customer the Additionally,if requirements concerninginformationsecurity? Are thereindependentlegaland/orregulatory

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20 Belgium provider’s the and customer’s the geographical locationmaydeterminehowandif VAT and islevied. services of nature The 9.3 tax no if place take supplier), deduction ispossible. the by subcontractors foreign of use the as (such circumstances VATcertain under may, leakage 9.2 conditions. A transfer of an undertaking may be exempt from VAT under certain of theparties. VATto one for exist may reduction tax 21%. Ato of right rate a at The supply of services under an outsourcing contract will be subject 9.1 for Centre law whensecurityrequirementsarenotmet. Belgian The new the in foreseen are punishments criminal and 200,000 EUR to 2019. of end up of fines Administrative checks. regular hold will Cybersecurity the by purpose that incidents, such as cyberattacks. A digital platform will be set up for any of authorities the inform to have will providers Also, be. will computing services. It is yet unknown what these security measures cloud and engines search online platforms, sales also online to law applies the However, sectors. infrastructures digital and potable water services, health services, financial transport, energy, the in found be can services essential These them. implement to time of period the and requirements (security) new possible any of informs them and providers these identifies It 2019. May 3 since NIS on rely that services essential of providers all to applies Directive, the implementing law, NIS Belgian The EU. the in cybersecurity (NIS) Directive provides legal measures to boost the overall level of Security Information and 2016/1148Network Directive on EU The and companies follows uponthecybersecurityofsuchcriticalinfrastructure. these for system warning national a on working is cybersecurity.to apply Cybersecurity for Centre federal Belgian The also which obligations, safety general imposes Act This services). transport and utility e.g., – consequences dramatic other or security, sustained supply shortages, significant disruption of public safety and in result would degradation or failure their that economy and society Astrea WWW.ICLG.COM mechanisms, credit service Often performance. poor for solution proper the not are they course, Of attainable. and agreed be must supplier.service SLAs the of effectiveperformance the to relevant directly be must they and measurement of capable be must levels (SLAs). SLAs must contain clearly defined levels of service. These It is usual to agree on lengthy and detailed service level agreements 10.1 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 9 levels andservicecredits? under theoutsourcingcontract? terminating thecontract? Tax Issues What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring What istheusualapproachwithregardtoservice Service Levels

sitne rm h fre sple. rpr xt n transition and exit Proper arrangements needtobeprovidedforinthecontract. supplier. former the from assistance supplier,require new may a which to transfer a or transfer sourcing in- an negotiations, new be can termination of consequences The performance indicatorsforthesupplier. like provisions contractual key with non-compliance customer,or the for obligations financial important with non-compliance as such period), remediation a with (sometimes breach serious of case the in contract the terminate to possibility a also is Normally,there 11.2 contract anddemanddamages. the terminate to right a customer the give may Acontract of breach 11.1 First of all, it should be noted that, if the outsourcing agreement can 13.1 (2) fraud andthird-partyliabilityinsurancemayberequired. liability; also Possibly, business liability. employer’s (3) general and liability; (1) professional for: insurance maintain and out take to supplier the oblige should agreement outsourcing The 12.1 applicable laws(includingtheGDPR). all with complies he (9) and future, near the in so become not will third of claims he knowledge, his certain of best the to and, insolvent of not is he (8) parties, out resulting losses any for customer the violate not the indemnify will he (7) parties, third of rights property intellectual will he (6) agreements, licence all respect will he necessary human resources needed for the all good execution of the agreement, (5) his over obstructs and technical the parties acquire to efforts all make will he disposes (4) functioning, third with he agreement no (2) (3) authorisations, obligations, his execute Typically, the supplier will warrant that (1) he has the full capacity to 11.3 performance underthecontract. good steer to used are SLAs, the in set standard performance the meet to fails performance supplier actual if supplier the to contract the under paid be to amounts from deducted are amounts whereby 11 13 12 contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? for damagesfromtheterminated party? transaction? that areincludedinanoutsourcingcontract? What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcing agreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities Customer Remedies Termination Insurance ICLG TO: OUTSOURCING 2019

Belgium

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to invokeliability. possibility a without performed further is contract the that avoid to an as the or reaching maximum financial cap on liability should be included too, in order of separately case in clause liability termination A each amount. aggregate for percentage or amount, fixed a of form the take can cap financial a Such provision. a such without contract a in engage to want even not do usually Suppliers ofdnil nomto o bsnse bsd n h rlvn EU Directive 2016/943. relevant the on based businesses of information confidential breaches ofdataprotectionprovisions;and(5)securitybreaches. the to indemnities (2) apply breaches; relating to employees; IP(3) usually breaches of confidentiality provisions; (4) to not relating damages do (1) following: liability on limitations Possible for damagescausedbygrossnegligencecanbeexcludedexplicitly. liability Only misconduct. intentional or fraud by caused damages discussion. Customers sometimes try to push for unlimited liability. ne Blin a, t s o pritd o xld laiiy for liability exclude to permitted not is it law, Belgian Under of point a often is this and approach, However,common no is there usucn, t s oml o ae fnnil a o liability. on cap financial a have to normal IT is In it damage. physical outsourcing, or rights IP of violations for save Yes, 15.2 damages. of types similar (5) and data; damaged or lost of value the (4) goodwill; and/or of opportunity business loss of (2) loss (3) profit; revenue; to of loss supplier (1) a following: the for for uncommon liability exclude not is it contracts, outsourcing In this liabilitybetweenthem. apportion to how on contract can but parties, third towards liability exclude or limit cannot They profits. business or business of loss Parties can exclude liability for indirect or consequential losses, and them. between liability of allocation the on agree to free are Parties can parties although deviate fromthisrule. profits, lost losses and general, damages In incurred not. include or contract the into entering of time the not, and between whether the losses were foreseen or foreseeable at between is or act/omission distinction or breach the to attributable The are losses the whether losses. indirect and direct between distinguish not does law Belgian that noted be should it all, of First 15.1 know-how post-termination,unlessagreedotherwise. Usually the customer will not have the right to access the supplier’s 14.4 any impliedpost-terminationrightsofthesupplier. Usually the agreement will be drafted in such a way that it excludes 14.3 15 can itmakeofit? supplier's know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? liability? Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexcludeliability To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto under nationallaw? Liability

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Belgium

21 Belgium OUT19_04_07_Layout 104/07/201914:46Page21 f P ihs Eco my e sd o eoi te ore oe of code source the software usedordevelopedduringtheoutsourcingagreement. deposit to used be may Escrow rights. IP of violation the deter to upon agreed is liability Frequently,unlimited ICLG TO: OUTSOURCING 2019 other and know-how protects 2018 July 30 of Act Belgian The 14.2 possible. is supplier the by customer the of licences of use The confusion. avoid to initiative own supplier’s the on developed been has which that customer,and the of demand the that on developed been has which between outsourcing the during created IP the in distinction intellectual a the make to recommended is about It contract. the discussion to prior rights property no be will there cases most In performance ofthecontract. outsourcing the in mechanism a agreement as to the property of the rights used or created during the by covered further be should rights IP These trademarks. or databases patents, copyright, e.g. property, intellectual of protection solid for provides law Belgian 14.1 mandatory certain for possibly, (except, employment orprivacylaws). none principle, In 13.3 convenience, withpropercompensationofcourse. for terminate to possibility a for provides contract the Sometimes or insolvency. control, of change non-extension, and term of expiry of cases in e.g. termination, for grounds additional on agree can parties The 13.2 for investmentsmadebythesuppliermustbepaid. but in that case, a lump sum indemnity and possibly a compensation convenience, for termination allow will agreement the Sometimes on aterminationclausewithouttheinvolvementofjudge. required for this termination possibility. However, parties can agree such case also entitled to damages. In principle, a court judgment is supplier.the for indicators performance in is party terminating The key with non-compliance customer,or the for obligations financial like provisions contractual important with non-compliance as such period), remediation a with (sometimes breach serious of case the be however, in contract the terminate to right the can, party each grants law Belgian right This profit. contractually excluded. lost and supplier’s costs the as incurred well as performed, been already has that work the reimburses he that condition the on time, all at contract price Belgian Civil Code grants the customer a right to terminate a fixed- the – case usual the is which – contract services a as qualified be Astrea © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 law? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? termination rights? critical confidentialinformation protectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional Intellectual Property

breaches ofdataprotectionprovisions;and(5)securitybreaches. the to indemnities (2) apply breaches; relating to employees; IP(3) usually breaches of confidentiality provisions; (4) to not relating damages do (1) following: liability on limitations Possible for for damagescausedbygrossnegligencecanbeexcludedexplicitly. liability exclude to liability Only permitted misconduct. intentional or fraud by caused not damages is it law, Belgian Under discussion. Customers sometimes try to push for unlimited liability. of point a often is this and approach, However,common no is there value of lost or damaged data; and (5) similar types of damages. of types similar (5) and data; damaged or lost of value the (4) goodwill; and/or of opportunity business loss of (2) loss (3) profit; revenue; to of loss supplier (1) a following: the for for uncommon liability exclude not is it contracts, outsourcing In this liabilitybetweenthem. apportion to how on contract can but parties, third towards liability exclude or limit cannot They profits. business or business of loss Parties can exclude liability for indirect or consequential losses, and to invokeliability. possibility a without performed further is contract the that avoid to an as the or reaching maximum financial cap on liability should be included too, in order of separately case in clause liability termination A each amount. aggregate for percentage or amount, fixed a of form the take can cap financial a Such provision. a such without contract a in engage to want even not do usually Suppliers ofdnil nomto o bsnse bsd n h rlvn EU Directive 2016/943. relevant the on based businesses of information confidential Parties are free to agree on the allocation of liability between them. between liability of allocation the on agree to free are Parties can parties although deviate fromthisrule. profits, lost losses and general, damages In incurred not. include or contract the into entering of time the not, and between whether the losses were foreseen or foreseeable at between is or act/omission distinction or breach the to attributable The are losses the whether losses. indirect and direct between distinguish not does law Belgian that noted be should it all, of First 15.1 know-how post-termination,unlessagreedotherwise. Usually the customer will not have the right to access the supplier’s 14.4 any impliedpost-terminationrightsofthesupplier. Usually the agreement will be drafted in such a way that it excludes 14.3 usucn, t s oml o ae fnnil a o liability. on cap financial a have to normal IT is In it damage. physical outsourcing, or rights IP of violations for save Yes, 15.2 15 under nationallaw? can itmakeofit? and canthesebeexcludedfromtheagreement? liability? To whatextentcanapartylimitorexcludeliability supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto Are thepartiesfreetoagreeafinancialcapon Liability

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Belgium

21 Belgium OUT19_04_07_Layout 104/07/201914:46Page22

22 Belgium rirto i uuly rfre oe ntoa cut (u to (due courts national over language, confidentiality, preferred technicalexpertiseandspeed). usually is Arbitration procedure couldbeincludedinthecontract. dispute a a duty to negotiate in case of changed circumstances or a mediation seek will agreement resolution procedure to achieve an amicable solution. For instance, the in provisions Frequently, 16.1 Astrea WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd efficient solution. law of area relevant every consider to it enables This case. each to lawyers specialist of team customised a assigns it hand, the and needs client’s individual the on Based approach. comprehensive a offer to it allows composition broad-based firm’s The long-e to companies growth and start-ups in Belgium. promising from ranging businesses, international corporations (including more and than 15 Fortune 500 companies). Astrea also undertakes regular work for government departments an Belgian to services legal quality A talent. young and specialists experienced with expanded steadily has and firms, sp various in 40 experience of wealth than a gained had more and partners 13 with advice legal result-oriented experien of handful a by 2006 in established officeswas in between firm spread The Brussels. lawyers, and experienced promising Antwerp firm law Belgian all-round independent an is Astrea IT and drones transfers, intelligence, technology artificial robotics. computing, security, cloud IT outsourcing, implementation), (including law privacy GDPR law, internet e- licensing, includes software expertise His commerce, technologies. new with dealing projects and agreements commercial complex on entrepreneurs, innovative experience of years as 25 well as companies, has technology foreign and Belgian He large advising Astrea. firm law Belgian the with Technologyand Corporate/M&A for partner a is Schrijver De Steven 16 used? What arethemainmethodsofdisputeresolution Dispute Resolution Tel: Belgium B-1050 Brussels Louizalaan 235 Astrea Steven DeSchrijver Email: URL: +32 22159758 [email protected] www.astrealaw.be

ne gnrl otat a,At 13 o te ega Cvl Code imposes theprincipleofexecutioningoodfaithanyagreement. Civil Belgian the of 1134 Art. law, contract general Under 17.1 sus Rd as seilss n usucn, mirto and immigration outsourcing, in litigation and(collective)negotiation. specialises also advising, in experience considerable has He employment. international Rudi issues. law employment in on experience companies of international years and 25 Belgium over counselling has He Astrea. firm law Belgian the with Security Social and law Employment for partner a is Desmet Rudi 17 reasonableness undergenerallaw? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Good Faith Tel: Belgium B-2600 Antwerp Posthofbrug 6 Astrea Rudi Desmet URL: Email:

ICLG TO: OUTSOURCING 2019 +32 328711 28 www.astrealaw.be [email protected]

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OUT19_04_07_Layout 104/07/201914:46Page23 It is important to point out that the recipient of the service hires the hires service the of recipient the that out point to important is It relationship –thesubordination. employment the of requirement main the characterise would this as work, worker,his the control not cannot service, it being reason the the numberofemployees. with compatible capital corporate a have shall provider service The well astoperformservicesotherthanthosecontracted. It is forbidden to hire temporary staff to replace workers on strike, as prior contract. the of termination the from counted days 90 work after recipient temporary the same the of to services render only may termination worker same the agreement, Upon leave). sick worker a during of replacement (e.g.: kept been have contract prior the extended for up to 90 days, if it is proved that the same conditions of employer, same the cannot exceed a term of 180 regarding days, consecutive or not, which may be agreement, work temporary The worker, permanent a as rights including wageandworkinghours,forexample. same the has worker the ensure shall service the of recipient the agreement, work temporary the In relationship betweentheworkerandrecipientofservice. employment the of recognition with null, declared be may contract the which without requirements certain of accomplishment the for Federal Law n. 6,019/1974, amended by Law n. 13,429/17, provides including thoserelatedtothecoreormeansofcompany.activities, the of any of execution the for parties third to services of provision the grants also A, 4 article 13,429/17, n. Law Federal service additional or demand. staff permanent of replacement transitory activities, any of – including equivalent the main activity of or the company, entity to respond to legal the need of a – parties third to relations ofserviceproviders. states provisions about temporary work agreements and the working which n.13,429/2017, Law by amended 6,019/1974 n. Law Federal The temporary work agreement concerns the provision of services of provision the concerns agreement work temporary The h Baiin as ht euae usucn tascin are: transactions outsourcing regulate that laws Brazilian The 1.1 SIQUEIRA CASTROADVOGADOS ICLG TO: OUTSOURCING 2019 Brazil Chapter 5 1 Regulatory Framework outsourcings)? outsourcings, ITtelecommunications Are thereanynationallawsorregulationsthat outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

n te eiin o te evc; enn te efrac o the service istheresponsibilityofworker, of withoutsubordination. performance the meaning service; the of recipient the and directly between the worker – without into an employment relationship entered – one the is contract provider service independent The contracted legalentityareretired. as an employee or independent provider, except if the partners of the months, (eighteen) 18 last the in company the to services rendered have that workers hire to service the of recipient the prohibits Law contract. obligations and social security payments related to the period of the The recipient of the service has subsidiary liability regarding labour ii) i) the followingrequirements: meet they Public provided Direct Foundations, the and of Autarchies Administration, scope the in services of execution indirect 9,507/18, of possibility no. the recognising thus Decree 2,271/97, no. Decree Federal repealing issued Government Federal The no. 200/1967). Decree-Law of 10 article of 7 paragraph Decree regulated which 2,271/97, as, (such outsourcing Decree by regulated CF), and law by for II, provided is 37, (article Tender it as long as cases, specific some in allowed been have transactions the is the in sector and bodies public government in rule contracting the Although 1.2 oiin icue i ter o ad aay ln, xet f they if except the plans, salary to and job inherent their in attributions included with positions professionals the require of that services contracting of execution indirect the prevents that rule a is there companies, subsidiary and state-owned to of relation In transfer the as as thoserelatedtopoliceandsupervisory powers,areprohibited. long as well viable, as decision-making, and acts administrative for responsibility still as is understood activities services of noncore execution indirect of possibility The iv) iii) MarinaMagalhãesGomesRamacciotti usucn my eprie h cnrl f processes, of control whose the entity, or knowledge andtechnologies; jeopardise body may the for outsourcing strategic considered are the areasofplanning,coordination,supervisionandcontrol; in positioning institutional or decision-making involve they undertaken bygovernmentorpublicsectorbodies? requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory rvdd y a, r n h cs te oiin s oal or totally is position the otherwise case partially extinguishedunderthegeneralstaff table. the as in except or entity, law, by or the provided body by the covered of categories plan functional position the in inherent are power; and sanction and service public regulatory, police, to related are

Manuela Tavares

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Chapter 5 Brazil Manuela Tavares

SIQUEIRA CASTRO ADVOGADOS Marina Magalhães Gomes Ramacciotti

The recipient of the service has subsidiary liability regarding labour 1 Regulatory Framework obligations and social security payments related to the period of the contract. 1.1 Are there any national laws or regulations that Law prohibits the recipient of the service to hire workers that have specifically regulate outsourcing transactions, either rendered services to the company in the last 18 (eighteen) months, generally or in relation to particular types of as an employee or independent provider, except if the partners of the outsourcing transactions (e.g. business process contracted legal entity are retired. outsourcings, IT outsourcings, telecommunications outsourcings)? The independent service provider contract is the one entered into directly between the worker – without an employment relationship – The Brazilian laws that regulate outsourcing transactions are: and the recipient of the service; meaning the performance of the Federal Law n. 6,019/1974 amended by Law n.13,429/2017, which service is the responsibility of the worker, without subordination. states provisions about temporary work agreements and the working relations of service providers. 1.2 Are there any additional legal or regulatory The temporary work agreement concerns the provision of services requirements for outsourcing transactions to third parties – a legal entity or equivalent – of any activities, undertaken by government or public sector bodies? including the main activity of the company, to respond to the need of transitory replacement of permanent staff or additional service Although the contracting rule in government bodies and in the demand. public sector is the Tender (article 37, II, CF), outsourcing transactions have been allowed in some specific cases, as long as it Federal Law n. 13,429/17, article 4 A, also grants the provision of is provided for by law and regulated by Decree (such as, Decree services to third parties for the execution of any of the activities, 2,271/97, which regulated paragraph 7 of article 10 of Decree-Law including those related to the core or means of the company. no. 200/1967). Federal Law n. 6,019/1974, amended by Law n. 13,429/17, provides The Federal Government issued Federal Decree no. 9,507/18, for the accomplishment of certain requirements without which the repealing Decree no. 2,271/97, thus recognising the possibility of contract may be declared null, with recognition of the employment indirect execution of services in the scope of the Direct Public relationship between the worker and the recipient of the service. Administration, Autarchies and Foundations, provided they meet In the temporary work agreement, the recipient of the service shall the following requirements: ensure the worker has the same rights as a permanent worker, i) they involve decision-making or institutional positioning in including wage and working hours, for example. the areas of planning, coordination, supervision and control; The temporary work agreement, regarding the same employer, ii) are considered strategic for the body or entity, whose cannot exceed a term of 180 days, consecutive or not, which may be outsourcing may jeopardise the control of processes, extended for up to 90 days, if it is proved that the same conditions of knowledge and technologies; the prior contract have been kept (e.g.: replacement of a worker iii) are related to police, regulatory, public service and sanction during sick leave). Upon termination of the temporary work power; and agreement, the same worker may only render services to the same iv) are inherent in the functional categories covered by the recipient after 90 days counted from the termination of the prior position plan of the body or entity, except as otherwise contract. provided by law, or in the case the position is totally or It is forbidden to hire temporary staff to replace workers on strike, as partially extinguished under the general staff table. well as to perform services other than those contracted. The possibility of indirect execution of services understood as The service provider shall have a corporate capital compatible with noncore activities is still viable, as long as the transfer of the number of employees. responsibility for administrative acts and decision-making, as well as those related to police and supervisory powers, are prohibited. It is important to point out that the recipient of the service hires the service, not the worker, the reason being it cannot control his work, In relation to state-owned and subsidiary companies, there is a rule as this would characterise the main requirement of the employment that prevents the indirect execution of services that require the relationship – the subordination. contracting of professionals with attributions inherent to the positions included in their job and salary plans, except if they

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24 Brazil WWW.ICLG.COM provide servicesto itsshareholdersaswelltothird parties. can company) (new venture joint the result, a As risks. and results management, its share rule, general a as and, purpose specific a for business their join parties more or two venture, joint a of means By venture, partialspin-off orcarveout. joint a as such transactions corporate for opt companies some Also, outsourcing execution ofanindependentserviceprovidercontract. an for party; (ii) the execution used of a temporary work agreement; and (iii) the structure legal transaction are: (i) the execution of a services common agreement with a third most The the service will be provided in Brazil, Brazilian legislation will apply. and Brazilian are parties both If legislation. Brazilian with conflict not does it extent the to acceptable be would legislation foreign case, this In matters. labour to regard with including legislation, Brazilian Law-Decree 9, by governed be must Brazil in place take that obligations 4657/1942, article of paragraph first the to pursuant however, Parties are free to choose the legislation applicable to the agreements; 1.4 7,102/83, and (v)independentserviceprovidercontracts. n. Law services; transportation cash and (iv) surveillance security, concerning services; regulates telecommunication which regulates Code, Labor the of which II, 94, article 9,472/97, n. Law (iii) contracts; subcontracting 455 article Federal (ii) the public services; of of permission 175 and article concession and the 25 regarding Constitution, article of 3 to 1 paragraphs 8,987/95, n. Law (i) as: such legislation, specific by regulated also are sectors Some agreements. outsourcing regulates 13,429/17 n. Law by amended 6,019/1974, n. Law Federal above, mentioned As 1.3 respective the in plans, positionsandsalaries. inherent attributions the with whose correspondence Union, the of companies outsourcing criterion for permanent activities lies mainly in the the non- to especially outsourced, 9,507/18 no. be can that Decree activities of list extensive more Federal a incorporate to sought of regulation the that evident is It iv) iii) ii) i) cost- efficiency, least oneofthefollowinghypotheses: at of of occurrence the in principles as such reasonableness, and effectiveness administrative the contradict SIQUEIRA CASTROADVOGADOS © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 2 the choiceofgoverninglaw? example thefinancialservicessector? structure usedforanoutsourcingtransaction? 2.1 mosblt o cmeig n h cmeiie akt in market competitive which itoperates. the in competing of impossibility is it such service lessharmfultotheenvironment;or when make or cost reduce expertise, to order in safe, service and appropriate or technology upgrading temporary increaseinthevolumeofservices; temporary natureoftheservice; Legal Structure law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory What arethemostcommontypesoflegal

other parties. to order company can provide services to the original company as well as to in assets its third of the Consequently, services. and/or part sectors specific segregate company) new third a a to to transfers (or company company a out, carve or spin-off partial By of thecompany. a out carrying policies compliance internal and the to adheres which process, bidding proposals fees requesting involves process procurement common most the sector, private the to connection In market. the in specifications quality usual by defined and objectively be can standards performance which in goods, and services common of acquisition the for 10,520/2002, n. Law in for provided auction, 8,666/93). n. electronic the Law is common most the modalities, of bidding the Among 25 n. (article Law of non-demandable 24 or (article waived 8,666/93) be may rule general the which in situations for provides law aforementioned the contexts, certain In of rule in bidding, which modalitiesareprovidedforinLawn.8,666/93. general the is the suppliers of sector, selection and public goods of acquisition federal the to respect With 3.1 means of the delivery of a written notice to the other party or as or party other the to notice written a of delivery the of means of case the by formalised is in (which term undetermined days an for signed 90 contracts to 30 usually least at parties of period the notice the terms, a fact establish those the forth Besides sets Code days. Civil seven Brazilian of the minimum of term a the ifis before, agreement day one (iii) and fortnight; or week a four days’ notice, if the remuneration was determined for a period of remuneration was determined for a period of one month or more; (ii) the if days’notice, eight (i) observed: be must the terms following the if that establishes Code period, notice the Civil of length the foresee not does agreement services Brazilian the of 599 Article 4.2 our see please agreements, work comments inquestion1.1. temporary to regards With or determined a for of previousnotice,penalties,etc.). be will contract term (i.e. termination its for rules the as well as term, undetermined the whether define to law.in established limitation parties’the upon is it Hence, decision this follow not do parties private rule, general a as and, servitude of work. certain cases a avoid to is provision this of of intention the however,that Note, execution the to destined who is person it the if or of it, debt renders the of payment the to due is agreement the although years, four than longer term a have cannot agreement services a that establishes Code Civil Brazilian the of 598 Article 4.1 3 4 process thatisusedtoselectasupplier? outsourcing contract? minimum termforanoutsourcingcontract? Procurement Process Term ofanOutsourcing Agreement What isthemostcommontypeofprocurement notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum

ICLG TO: OUTSOURCING 2019

Brazil

OUT19_04_07_Layout 104/07/201914:46Page25 xcto o te mnmn t te opn’ atce of and theShare’s Transfer RegisterBook. articles company’s Book Share’sRegister the of execution the of means the by place take to amendment association. In the case of a the corporate, the transfer of the shares will of liability limited execution a of case the In place. take must Agreement an agreementinwhichalltermsandconditionswillbedetermined. be recommended to formalise the transfer by means will of the execution of transfer (the is it however, property); place movable the of delivery the by take completed shall formality no Code, Civil In the case of the transfer of movable properties, as per the Brazilian Agreement, License Agreement). Lease Agreement, Sales (e.g. agreement proper a of transferred, leased or licensed in outsourcing transactions by means ■ as are costs to follows: connected terms key common most The among involved, others. amount and risks hired, being are that services the of nature operate, parties the which in industry the to according worked orspecificactionscarriedout. the in fees, final established plus fee retainer (as a basis, monthly instalments a on in e.g. agreement, or whole in paid amount outsourcing transactions in Brazil, the most common are: (i) a fixed and period notice payment ofindemnificationsarenotrequired. cause, just with termination of hypothesis the period proportional to the investments carried out by the investor. In services, the term of the agreement may be enforced for a minimum the of provision the enable to order in significantly invested parties the of one if Code, Civil Brazilian the of 473 article of paragraph ICLG TO: OUTSOURCING 2019 Purchase the of means Share by made be will quotas a the of transfer the company, quotas/shares, of transfer a of case the In be will assets the if agreement an in stipulate must parties The 6.1 ■ vary may transactions outsourcing in used terms key Other 5.2 etc.); and (ii) a variable amount, calculated in accordance with hours for used methods charging different many are there Although 5.1 sole the to pursuant However, contract). the in determined SIQUEIRA CASTROADVOGADOS ■ ■

■ 6 5 h srie cvrd y h areet n te additional the and agreement the by covered services the hc pry hl b rsosbe o te ot fr the for costs the for responsible implementation oftheservices; be shall party which costs fortheprovisionofuncoveredservices/expenses; Transfer of Assets Charging license assetsonanoutsourcingtransaction? What formalitiesarerequiredtotransfer, leaseor What otherkeytermsareusedinrelationtocosts outsourcing transactions? What arethemostcommonchargingmethodsusedin outsourcing transactions? which party shall be responsible for the collection of each tax euir fn i te vn o dly n efrig the performing in delay of event the in fine pecuniary payment oranyotherbreachtotheagreement. price oftheagreement;and applicable totheprovisionofservices; determination of the index and frequency of correction of the

rce wt te rf ad intr o a oml gemn (of agreement formal a to whichever nature: Transfer; of Lease;License)involvingtheasset. necessary signature and is draft it the assets, with proceed property intellectual to regards With the of Colonization and Agricultural Reform(“INCRA”). “Certificate the of update Institute National the by issued to Property” Rural of Registration subject also are lands Rural land intheRealEstate’s Registry. to title applicable the with filed be must which instrument, public a In case of immovable properties, transfer shall be made by means of responsible for the labour obligations related to the period that the that period the to related obligations labour the for responsible the contract. In this regard, the recipient of the service is subsidiary of period the to related payments security social and rights labour the regarding liability subsidiary has service the of recipient The 7.3 allowed bylaw, cannotcauseanydamagetotheemployee. hypothesis the in agreement, employment the of transference The 7.2 of theLaborCode). 448-A (article agreement employment the completing in successor the supporting companies, of succession (ii) and Code); Labor the specific same economic group or branches the of the same company (article in 2 of to the to damage belonging companies any (i) as: agreement, cause such relationship, not employment does it employment as long the as original circumstances, of the transference the that executed one the from allows different entity legal a system to contract employment legal Brazilian The 7.1 and related other and necessary documents. agreement the include must be presentation to needs such Office, and Trademark and Patent procedure Brazilian the before independent presented an of means by place take will transfer the assets, property intellectual to regards With Please seeourcommentsunderquestion6.1. 6.4 before theBrazilianPatentand Trademark Office. recorded be to needs referred Agreement the parties, third to effect produce to want parties the and 9.279/1996) n. (Law Law Property If the assets constitute rights protected under the Brazilian Industrial Please seeourcommentsunderquestion6.1. 6.3 properties. immovable to related 6.1 question under comments our see Please 6.2 7 Employment Law take place? What employeeinformationshould theparties On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? provide toeachother?

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24 Brazil WWW.ICLG.COM provide servicesto itsshareholdersaswelltothird parties. can company) (new venture joint the result, a As risks. and results management, its share rule, general a as and, purpose specific a for business their join parties more or two venture, joint a of means By venture, partialspin-off orcarveout. joint a as such transactions corporate for opt companies some Also, outsourcing execution ofanindependentserviceprovidercontract. an for party; (ii) the execution used of a temporary work agreement; and (iii) the structure legal transaction are: (i) the execution of a services common agreement with a third most The the service will be provided in Brazil, Brazilian legislation will apply. and Brazilian are parties both If legislation. Brazilian with conflict not does it extent the to acceptable be would legislation foreign case, this In matters. labour to regard with including legislation, Brazilian Law-Decree 9, by governed be must Brazil in place take that obligations 4657/1942, article of paragraph first the to pursuant however, Parties are free to choose the legislation applicable to the agreements; 1.4 7,102/83, and (v)independentserviceprovidercontracts. n. Law services; transportation cash and (iv) surveillance security, concerning services; regulates telecommunication which regulates Code, Labor the of which II, 94, article 9,472/97, n. Law (iii) contracts; subcontracting 455 article Federal (ii) the public services; of of permission 175 and article concession and the 25 regarding Constitution, article of 3 to 1 paragraphs 8,987/95, n. Law (i) as: such legislation, specific by regulated also are sectors Some agreements. outsourcing regulates 13,429/17 n. Law by amended 6,019/1974, n. Law Federal above, mentioned As 1.3 respective the in plans, positionsandsalaries. inherent attributions the with whose correspondence Union, the of companies outsourcing criterion for permanent activities lies mainly in the the non- to especially outsourced, 9,507/18 no. be can that Decree activities of list extensive more Federal a incorporate to sought of regulation the that evident is It iv) iii) ii) i) cost- efficiency, least oneofthefollowinghypotheses: at of of occurrence the in principles as such reasonableness, and effectiveness administrative the contradict SIQUEIRA CASTROADVOGADOS 2 structure usedforanoutsourcingtransaction? 2.1 mosblt o cmeig n h cmeiie akt in market competitive which itoperates. the in competing of impossibility is it such service lessharmfultotheenvironment;or when make or cost reduce expertise, to order in safe, service and appropriate or technology upgrading temporary increaseinthevolumeofservices; temporary natureoftheservice; Legal Structure the choiceofgoverninglaw? law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction example thefinancialservicessector? undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory What arethemostcommontypesoflegal

other parties. to order company can provide services to the original company as well as to in assets its third of the Consequently, services. and/or part sectors specific segregate company) new third a a to to transfers (or company company a out, carve or spin-off partial By of thecompany. a out carrying policies compliance internal and the to adheres which process, bidding proposals fees requesting involves process procurement common most the sector, private the to connection In market. the in specifications quality usual by defined and objectively be can standards performance which in goods, and services common of acquisition the for 10,520/2002, n. Law in for provided auction, 8,666/93). n. electronic the Law is common most the modalities, of bidding the Among 25 n. (article Law of non-demandable 24 or (article waived 8,666/93) be may rule general the which in situations for provides law aforementioned the contexts, certain In of rule in bidding, which modalitiesareprovidedforinLawn.8,666/93. general the is the suppliers of sector, selection and public goods of acquisition federal the to respect With 3.1 means of the delivery of a written notice to the other party or as or party other the to notice written a of delivery the of means of case the by formalised is in (which term undetermined days an for signed 90 contracts to 30 usually least at parties of period the notice the terms, a fact establish those the forth Besides sets Code days. Civil seven Brazilian of the minimum of term a the ifis before, agreement day one (iii) and fortnight; or week a four days’ notice, if the remuneration was determined for a period of remuneration was determined for a period of one month or more; (ii) the if days’notice, eight (i) observed: be must the terms following the if that establishes Code period, notice the Civil of length the foresee not does agreement services Brazilian the of 599 Article 4.2 work. certain a of execution the to destined who is person it the if or of it, debt renders the of payment the to due is agreement the although years, four than longer term a have cannot agreement services a that establishes Code Civil Brazilian the of 598 Article 4.1 ih ead t tmoay ok gemns pes se our see please agreements, work comments inquestion1.1. temporary to regards With or determined a for of previousnotice,penalties,etc.). be will contract term (i.e. termination its for rules the as well as term, undetermined the whether define to law.in established limitation parties’the upon is it Hence, decision this follow not do parties private rule, general a as and, servitude of cases avoid to is provision this of intention the however,that Note, 3 4 Procurement Process Term ofanOutsourcing Agreement What isthemostcommontypeofprocurement outsourcing contract? notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof minimum termforanoutsourcingcontract? Does nationalorlocallawimposeanymaximum process thatisusedtoselectasupplier?

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Brazil

OUT19_04_07_Layout 104/07/201914:46Page25 ICLG TO: OUTSOURCING 2019 of and theShare’s Transfer RegisterBook. articles company’s Book Share’sRegister the of execution the of means the by place take to amendment association. In the case of a the corporate, the transfer of the shares will of liability limited execution a Purchase the of of means Share by made case be will quotas a the the of transfer the In company, quotas/shares, of place. take transfer must a Agreement of case the In an agreementinwhichalltermsandconditionswillbedetermined. be recommended to formalise the transfer by means will of the execution of transfer (the is it however, property); place movable the of delivery the by take completed shall formality no Code, Civil In the case of the transfer of movable properties, as per the Brazilian Agreement, License Agreement). Lease Agreement, Sales (e.g. agreement proper a of be will assets the if transferred, leased or licensed in outsourcing transactions by means agreement an in stipulate must parties The 6.1 ■ ■ as are costs to follows: connected terms key common most The among involved, others. amount and vary risks hired, being may are that transactions services outsourcing in the of nature operate, parties the which in industry the to used according terms key Other 5.2 worked orspecificactionscarriedout. the etc.); and in (ii) a variable amount, fees, calculated in final accordance established with plus hours fee retainer (as a basis, monthly instalments a on in e.g. agreement, or whole in paid amount for used methods charging outsourcing transactions in Brazil, the most common differentare: (i) a fixed many are there Although 5.1 and period notice payment ofindemnificationsarenotrequired. cause, just with termination of hypothesis the period proportional to the investments carried out by the investor. In services, the term of the agreement may be enforced for a minimum sole the the of provision the to enable to order in significantly invested parties pursuant the of one if However,Code, Civil Brazilian the of 473 article of paragraph contract). the in determined SIQUEIRA CASTROADVOGADOS ■ ■ ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 5 6 outsourcing transactions? license assetsonanoutsourcingtransaction? outsourcing transactions? hc pry hl b rsosbe o te ot fr the for costs the for responsible implementation oftheservices; be shall party which additional the and costs fortheprovisionofuncoveredservices/expenses; agreement the by covered services the Charging Transfer of Assets What formalitiesarerequiredtotransfer, leaseor What otherkeytermsareusedinrelationtocosts What arethemostcommonchargingmethodsusedin euir fn i te vn o dly n efrig the performing in delay of event payment oranyotherbreachtotheagreement. the in fine pecuniary price oftheagreement;and determination of the index and frequency of correction of the applicable totheprovisionofservices; which party shall be responsible for the collection of each tax

rce wt te rf ad intr o a oml gemn (of agreement formal a to whichever nature: Transfer; of Lease;License)involvingtheasset. necessary signature and is draft it the assets, with proceed property intellectual to regards With the of Colonization and Agricultural Reform(“INCRA”). “Certificate the of update Institute National the by issued to Property” Rural of Registration subject also are lands Rural land intheRealEstate’s Registry. to title applicable the with filed be must which instrument, public a In case of immovable properties, transfer shall be made by means of 6.4 before theBrazilianPatentand Trademark Office. recorded be to needs referred Agreement the parties, third to effect produce to want parties the and 9.279/1996) n. (Law Law Property If the assets constitute rights protected under the Brazilian Industrial Please seeourcommentsunderquestion6.1. 6.3 properties. immovable to related 6.1 question under comments our see Please 6.2 responsible for the labour obligations related to the period that the that period the to related obligations labour the for responsible the contract. In this regard, the recipient of the service is subsidiary of period the to related payments security social and rights labour the regarding liability subsidiary has service the of recipient The 7.3 allowed bylaw, cannotcauseanydamagetotheemployee. hypothesis the in agreement, employment the of transference The 7.2 of theLaborCode). 448-A (article agreement employment the completing in successor the supporting companies, of succession (ii) and Code); Labor the specific same economic group or branches the of the same company (article in 2 of to the to damage belonging companies any (i) as: agreement, cause such relationship, not employment does it employment as long the as original circumstances, of the transference the that executed one the from allows different entity legal a system to contract employment legal Brazilian The 7.1 and related other and necessary documents. agreement the include must be presentation to needs such Office, and Trademark and Patent procedure Brazilian the before independent presented an of means by place take will transfer the assets, property intellectual to regards With Please seeourcommentsunderquestion6.1. 7 provide toeachother? take place? Employment Law How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? What employeeinformationshould theparties On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw?

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26 Brazil es ad y h Baiin niy o h pry oae abroad located party the to Brazil into imported being entity service the of nature the on Brazilian (depending the by paid fees service the of amount the of 40% approximately to up reach may the heavy tax burden that may be levied on such transactions, which consider should parties services, outsourcing offshore of terms In 7.7 scheme. pension government the to reverted is which amount), maximum pre-determined a to (limited compensations employees’ from 11% to up of percentage a source) at (withhold discount must employers general, In contribute. must themselves employees Furthermore, 6-9%, dependingonthecompany’s activities. called “third parties’ contributions”, which so- vary from the approximately plus 20%, of rate general a at (employer) company the by sources is subject to the Social Security contribution on Payroll, due Security Social local through employees’paid of remuneration most regard, this In of payment via both contributions. employees, by funded and programme companies disability and retirement specific In terms of public pensions, the Brazilian Federal government has a 7.6 of employeesinthesameprofessionalsector. shall grant remuneration and benefits equivalent to the remuneration do not have an employment relationship with the temporary worker, they although services, the of recipient the that states 13,429/2017, n. Law Federal by amended 6,019/1974, n. Law Federal However, similarity the employmentagreement. no is of conditions there the and contract because work the of conditions services, the between the of recipient the to In provision service contracts, there is no transference of employees 7.5 an have not liability for eventual non-compliance of the employment does agreement. services the subsidiary has although workers, the with relationship of employment recipient The employment an has relationship. employee the which with company service providing the meaning employer, the by or contract service provision with terminated, the of performance be the with related reasons for cause, only just without may agreement employment The 7.4 observance oflabour, fiscalandcommercialsrights. recipient of the service – the joint or subsidiary liability for the non- – entity public the to transferring automatically not of case the in repercussion general of notion a stated Court Supreme Federal The employees onamonthlybasis. their with provider service the of obligations contractual and the legal all of fulfilment the monitors service the of recipient the that worker rendered services on its behalf. It is therefore recommended SIQUEIRA CASTROADVOGADOS WWW.ICLG.COM that hasarelationshipwiththerespectiveemployees. providing service company, and it is the providing service company the with exclusively relationship a has services the of recipient The © Published andreproduced withkindpermission byGlobalLegal Group,Ltd employee forareasonconnectedtotheoutsourcing? existing workforce? Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan

subjects. data affect might that damage any for liable held be may and data, have personal protect can to measures administrative and technical security, law the related all take must processors and controllers LGPD, Concerning since companies, extraterritorial effect) and requires a legal basis for processing data. foreign by (including data personal treatment of treatment of kind any to applies law This (“LGPD”). to Law need Protection Data will Brazilian the transaction with comply outsourcing any 2020, February of As 8.1 singular circumstances of the transfer of assets (e.g., State in which in State (e.g., assets of transfer the of circumstances singular and nature the VAT, on to depending regards With arise. should consequences tax income adverse no rent, regular or assets, the of sales agreement with capital gain to the seller). In case of free lease a via made is assets the of transference the if (i.e., transference said tax, it may levy upon the potential capital gain earned by the party in income regarding VATParticularly and tax issues. income trigger In general, if the outsourcing foresees the transfer of assets, this may arrangements, venture etc.). joint structure, group a within operations of type the on (i.e., carve-out agreements, services outsourcing – parties the by executed agreement the for structure parties legal the the by on adopted depending arise may issues tax Different 9.1 public federal the the within establishes administration. security 9.637/18 information No. of Decree governance Presidential public the the in sector, security information regarding hand, other the On or anytypeofinappropriateunlawfulprocessing. communication alteration, loss, destruction, from unlawful or accidental and/or accesses unauthorised from data personal protect to information of must take all related security, technical and administrative measures standards certain observe security. In this sense, as provided must above, controllers and processors data personal of processing any that establishes but issues security information cover specifically not does LGPD sector, private the Concerning 8.2 osdrd a hvn; n (v ohr nentoa tax international other (iv) and havens; considerations. tax considered (iii) jurisdictions tax to taxation; made payments for rates tax income of increase double avoid to treaties by brought provisions (ii) jurisdictions); certain involving or parties related between executed deals of case (in rules pricing transfer Brazilian (i) e.g.: applicable, be may rules specific Also, deal). the of aspects particular the and 8 9

transaction? terminating thecontract? requirements concerninginformationsecurity? Security Data ProtectionIssuesandInformation Tax Issues and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory

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26 Brazil WWW.ICLG.COM abroad located party the to Brazil into imported being entity service the of nature the on Brazilian (depending the by paid fees service the of amount the of 40% approximately to up reach may the heavy tax burden that may be levied on such transactions, which consider should parties services, outsourcing offshore of terms In 7.7 scheme. pension government the to reverted is which amount), maximum pre-determined a to (limited compensations employees’ from 11% to up of percentage a source) at (withhold discount must employers general, In contribute. must themselves employees Furthermore, 6-9%, dependingonthecompany’s activities. called “third parties’ contributions”, which so- vary from the approximately plus 20%, of rate general a at (employer) company the by sources is subject to the Social Security contribution on Payroll, due Security Social local through employees’paid of remuneration most regard, this In of payment via both contributions. employees, by funded and programme companies disability and retirement specific In terms of public pensions, the Brazilian Federal government has a 7.6 of employeesinthesameprofessionalsector. shall grant remuneration and benefits equivalent to the remuneration do not have an employment relationship with the temporary worker, they although services, the of recipient the that states 13,429/2017, n. Law Federal by amended 6,019/1974, n. Law Federal However, similarity the employmentagreement. no is of conditions there the and contract because work the of conditions services, the between the of recipient the to In provision service contracts, there is no transference of employees 7.5 an have not liability for eventual non-compliance of the employment does agreement. services the subsidiary has although workers, the with relationship of employment recipient The employment an has relationship. employee the which with company service providing the meaning employer, the by or contract service provision with terminated, the of performance be the with related reasons for cause, only just without may agreement employment The 7.4 observance oflabour, fiscalandcommercialsrights. recipient of the service – the joint or subsidiary liability for the non- – entity public the to transferring automatically not of case the in repercussion general of notion a stated Court Supreme Federal The employees onamonthlybasis. their with provider service the of obligations contractual and the legal all of fulfilment the monitors service the of recipient the that worker rendered services on its behalf. It is therefore recommended SIQUEIRA CASTROADVOGADOS that hasarelationshipwiththerespectiveemployees. providing service company, and it is the providing service company the with exclusively relationship a has services the of recipient The Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? existing workforce? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan

ramn b frin opne, ic te a cn have can law the since companies, extraterritorial effect) and requires a legal basis for processing data. foreign by (including data personal treatment of treatment of kind any to applies law This (“LGPD”). to Law need Protection Data will Brazilian the transaction with comply outsourcing any 2020, February of As 8.1 singular circumstances of the transfer of assets (e.g., State in which in State (e.g., assets of transfer the of circumstances singular and nature the VAT, on to depending regards With arise. should consequences tax income adverse no rent, regular or assets, the of sales agreement with capital gain to the seller). In case of free lease a via made is assets the of transference the if (i.e., transference said tax, it may levy upon the potential capital gain earned by the party in income regarding VATParticularly and tax issues. income trigger In general, if the outsourcing foresees the transfer of assets, this may arrangements, venture etc.). joint structure, group a within operations of type the on (i.e., carve-out agreements, services outsourcing – parties the by executed agreement the for structure parties legal the the by on adopted depending arise may issues tax Different 9.1 public federal the the within establishes administration. security 9.637/18 information No. of Decree governance Presidential public the the in sector, security information regarding hand, other the On or anytypeofinappropriateunlawfulprocessing. communication alteration, loss, destruction, from unlawful or accidental and/or accesses unauthorised from data personal protect to information of must take all related security, technical and administrative measures standards certain observe security. In this sense, as provided must above, controllers and processors data personal of processing any that establishes but issues security information cover specifically not does LGPD sector, private the Concerning 8.2 osdrd a hvn; n (v ohr nentoa tax international other (iv) and havens; considerations. tax considered (iii) jurisdictions tax to taxation; made payments for rates tax income of increase double avoid to treaties by brought provisions (ii) jurisdictions); certain involving or parties related between executed deals of case (in rules pricing transfer Brazilian (i) e.g.: applicable, be may rules specific Also, deal). the of aspects particular the and subjects. data affect might that damage any for liable held be may and data, personal protect to measures administrative and technical security, related all take must processors and controllers LGPD, Concerning 9 8

Tax Issues Security Data ProtectionIssuesandInformation transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory requirements concerninginformationsecurity?

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OUT19_04_07_Layout 104/07/201914:46Page27 a b ofe aant et o te a cnetd ih future with product andlocal(State)legislation. connected tax the of code tariff the the on depending vary of rates ICMS transactions. debts against offset be may etc.) inputs, of purchase imports, (e.g. transactions previous in tax the of payment to related credits which in system non-cumulative a in works tax this IPI, the to intermunicipal Similarly goods. of importation the on and interstate on as well as services, goods, telecommunication and services transportation of sales on levied tax The other VAT is the so-called State VAT (“ICMS”), which is a State tax suspensionmayoccur. which in transactions, outsourcing industrial detailed to applicable Veryare rules leakage. tax of prevention the hence transactions, future with connected tax the of debts against offset be may etc.) inputs, of purchase imports, (e.g. transactions previous in tax the of payment the to related credits which in system non-cumulative vary according to the tariff code of the product. This tax works in a may that rates at products manufactured and imported of sales on The Excise Tax (“IPI”), which is a Federal tax levied on imports and VAT inBrazilisbasicallydividedintotwodifferent taxes: and statelevels)wereconceivedsoastopreventthisphenomenon. VATBrazilian federal put, both Simply (at legislation description. accurate its and activities) parties’ the of nature and arrangements again, once outsourced the of will, (format transaction the of this format the on Naturally,depend contracts. outsourcing under Broadly speaking, there should be no VAT leakage (VAT cascading) 9.2 tax (“ISS”)shouldlevyonthetransaction. are parties the which Lastly, located. service no rent, or lease free selling, of case in also in States the on depending charged it being of chance a is there but Paulo), São as such legislation, States’ Brazilian some in provisions express to due assets fixed of transfer the in levy not does it (indeed transactions said on levy not should (these taxes are further explained below). Broadly speaking, ICMS the both transferred), Value-AddedState TaxExcise and (“IPI”) levy Tax may be (“ICMS”) will they where to and located are they SIQUEIRA CASTROADVOGADOS ICLG TO: OUTSOURCING 2019 rules. contribution VATour Security in Social changes in to) and limited not are (but include which country, the in reforms tax significant implementing to committed is government federal Brazilian the of administration current that aware be should parties note, final a On specific cases),aswellonthetypeofservicerendered. some for provided, be to deemed is service is the where provider (or the located where municipality the on depending 5%, to 2% from varying rates at services, on levied tax municipal a is ISS The provision. such upon levied be may (“ISS”) tax service structured, under the agreement and the form in which the agreement is legally rendered being services the a of nature the on of depending Moreover, case in liabilities tax (ii) corporate orcontractualjointventure. and employees), of transfer of case (in contributions security social employees’and of tax income tax payment and withholding the outsourcing, to related obligations/liabilities legal the to (i) as such structure account, into taken be always must of aspects compliance choice the of Regardless 9.3 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices What othertaxissuesmayarise?

h csoe cn ek h rmde amnsrtvl (using administratively remedies the seek consumer protectionbodies)orjudicially. can customer The the rectify to performance breach. specific for request (b) or for damages; compensation claim (a) options: two has costumer the Protection Code, Consumer the to According chain. supply the of part any against damages claim can customer the law, Brazilian Under 11.1 standards setintheservicelevels. corrections, terminate the agreement if the supplier fails demand to meet the performance to even or suspend and allowed agreement, the under due payments be withhold shall contractor the by which mechanisms include to common is it market, Brazilian the In 10.1 services). the of provision the during customer the to supplier the by caused be provided (e.g. civil liability insurance, applicable to any damages liabilities and risks potential arising from the specific the nature of the services to with accordance in hired and negotiated usually are Insurance policies connected to the provision of outsourced services 12.1 (i) forth: set compliance ofthetermsandconditionscontract;etc. to the until retainer fee (iii) agreements and clauses; the of breaches for (ii) penalties parties; the outsourced of any to caused in damage any for indemnification common is It 11.3 clause; among others. confidentiality (iv) and courts); labour by disregarded be aiming to avoid any subsidiary labour liability (this disposition may between the customer and the employees dispatched by the supplier, the indemnify to and customer for any damage caused; (iii) services inexistence of a legal relation the of liability provision any the from from exempt arising customer the hold to supplier the for or suspension and obligation fine, (ii) breach; of event the in agreement pecuniary the of of termination a possibility to (i) supplier customer: the the subjecting protect to order outsourcing in in included agreements are dispositions following the Usually, 11.2 11 10 12 general lawifthesupplierbreachescontract? levels andservicecredits? transaction? that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities What additionalprotectionscouldbeincludedinthe Customer Remedies Service Levels Insurance

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28 Brazil salse i a oml gemn, hc wud dal express ideally such ownershipofrightsinthissense. would which agreement, formal a in established are transaction the of party each to belonging rights the general, In 14.1 deemed is provision unenforceable, itmaybedeclaredinvalid. or condition any as if 13.2, Notwithstanding, question in stated contracts. outsourcing in seen commonly No, there are no local laws that might override the termination rights 13.3 be to found is provision jurisdiction, ifrequestedbyanyofthepartiesinvolved. such competent of Court termination the by if null declared additional be may it forth unenforceable, However, set to free provisions. are parties The Yes. 13.2 provision inthisregard. termination of the contract. It is recommended of to have a contractual guarantee or damages payment of the employees’ any labour rights that may be fired due to of the outstanding the indemnification retain for may payments contractor the provider, service the by motivated is breach material for failure. termination the if Also, the of evidence strong present must party terminating the breach, material for termination of event the in that mentioning worth is It the executionofaterminationagreement. of means by damages for claim a to rise giving without agreement the terminate may parties both that establish also agreements Some payment ofpenalties. the cause not will followed, duly if that, notice previous of period a foresee usually term undetermined an with executed Agreements of theBrazilianCivilCode. early of comment in question 4.2 regarding the sole paragraph of article 473 case the in the amount due up to the end of the agreement. Also, please see our and allowed, plus penalty a party other the to pay not shall offender the termination, is termination that early foresee term determined a by executed agreements Usually, on what hasbeenestablishedintheagreement. depend will parties private by executed Agreements Services As mentioned in question 4.2 above, the rules for the termination of 13.1 SIQUEIRA CASTROADVOGADOS WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 13 for damagesfromtheterminatedparty? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? termination rights? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement Intellectual Property Termination

the contract. confidential of termination the after even of restricted, be use its and protected be kind should agreement contractual any a of means by accessed information agreement, assignment a not is know-how it if hand, other the On agreement. assignment the referred in expressed duly terms the by restricted be could it of made such be to use the however, considering post-termination; know-how supplier’s the and therefore, context, assignment in this fact occurs, the customer would have gained access to In agreement. assignment an essentially, is, know-how of transfer the involving agreement any licensing; to susceptible not is know-how Brazil, In 14.4 be yes, could, otherwise entails excluded fromtheagreement. that provision any sense, this In post-termination. IPrights the using continue to supplier the for services – for instance – in fact occurs, so that there is no possibility the sense of limiting such in licence to the period restrictive in which the provision be of to need would Agreement Licence a Ideally, 14.3 this and information, protection isexecutedbymeansof,mostly, unfaircompetition. confidential and secrets trade know-how, of protection provides Law Property Industrial Brazilian the Yes, 14.2 case ofjudicialdispute. in reviewed be may is cap the cap insignificant, the or excessive If considered liabilities. applicable the of nature the be and liability to amount the cap transaction, the financial of the nature the for considering reasonable on important cap is financial it a However, forth liability. setting restrict not does law Brazilian 15.2 offender mustindemnifytheoffended partybyanydamagecaused. the Code, Civil Brazilian the per as 13.1, question in mentioned As and damages others. environmental fraud, discrimination, as such law, Brazilian to pursuant excluded be cannot liabilities However,some others. among liability, each for responsible parties exclusions, limits, as such parties, private by signed Services Agreements in preferences liability the forth set and negotiate to free are parties the Brazil, In 15.1 15 can itmakeofit? and canthesebeexcludedfromtheagreement? law? liability? under nationallaw? supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexclude liability Liability

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Brazil

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28 Brazil WWW.ICLG.COM express ideally such ownershipofrightsinthissense. would which agreement, formal a in established are transaction the of party each to belonging rights the general, In 14.1 deemed is provision unenforceable, itmaybedeclaredinvalid. or condition any as if 13.2, Notwithstanding, question in stated contracts. outsourcing in seen commonly No, there are no local laws that might override the termination rights 13.3 be to found is provision jurisdiction, ifrequestedbyanyofthepartiesinvolved. such competent of Court termination the by if null declared additional be may it forth unenforceable, However, set to free provisions. are parties The Yes. 13.2 provision inthisregard. termination of the contract. It is recommended of to have a contractual guarantee or damages payment of the employees’ any labour rights that may be fired due to of the outstanding the indemnification retain for may payments contractor the provider, service the by motivated is breach material for failure. termination the if Also, the of evidence strong present must party terminating the breach, material for termination of event the in that mentioning worth is It the executionofaterminationagreement. of means by damages for claim a to rise giving without agreement the terminate may parties both that establish also agreements Some payment ofpenalties. the cause not will followed, duly if that, notice previous of period a foresee usually term undetermined an with executed Agreements of theBrazilianCivilCode. early of comment in question 4.2 regarding the sole paragraph of article 473 case the in the amount due up to the end of the agreement. Also, please see our and allowed, plus penalty a party other the to pay not shall offender the termination, is termination that early foresee term determined a by executed agreements Usually, on what hasbeenestablishedintheagreement. depend will parties private by executed Agreements Services As mentioned in question 4.2 above, the rules for the termination of 13.1 SIQUEIRA CASTROADVOGADOS 14 13 protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty to seeinanoutsourcingcontract? override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight termination rights? Can thepartiesexcludeoragreeadditional for damagesfromtheterminatedparty? terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement Intellectual Property Termination

the contract. confidential of termination the after even of restricted, be use its and protected be kind should agreement contractual any a of means by accessed information agreement, assignment a not is know-how it if hand, other the On agreement. assignment the referred in expressed duly terms the by restricted be could it of made such be to use the however, considering post-termination; know-how supplier’s the and therefore, context, assignment in this fact occurs, the customer would have gained access to In agreement. assignment an essentially, is, know-how of transfer the involving agreement any licensing; to susceptible not is know-how Brazil, In 14.4 be yes, could, otherwise entails excluded fromtheagreement. that provision any sense, this In post-termination. IPrights the using continue to supplier the for services – for instance – in fact occurs, so that there is no possibility the sense of limiting such in licence to the period restrictive in which the provision be of to need would Agreement Licence a Ideally, 14.3 this and information, protection isexecutedbymeansof,mostly, unfaircompetition. confidential and secrets trade know-how, of protection provides Law Property Industrial Brazilian the Yes, 14.2 case ofjudicialdispute. in reviewed be may is cap the cap insignificant, the or excessive If considered liabilities. applicable the of nature the be and liability to amount the cap transaction, the financial of the nature the for considering reasonable on important cap is financial it a However, forth liability. setting restrict not does law Brazilian 15.2 offender mustindemnifytheoffended partybyanydamagecaused. the Code, Civil Brazilian the per as 13.1, question in mentioned As and damages others. environmental fraud, discrimination, as such law, Brazilian to pursuant excluded be cannot liabilities However,some others. among liability, each for responsible parties exclusions, limits, as such parties, private by signed Services Agreements in preferences liability the forth set and negotiate to free are parties the Brazil, In 15.1 15 can itmakeofit? supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccessto and canthesebeexcludedfromtheagreement? continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto law? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness liability? Are thepartiesfreetoagreeafinancialcapon under nationallaw? To whatextentcanapartylimitorexclude liability Liability

ICLG TO: OUTSOURCING 2019

Brazil

OUT19_04_07_Layout 104/07/201914:46Page29 step forengaginginlitigationorarbitration. pre- a as clauses multi-tiered on found usually are provisions ADR Brazilian parties to show availability to settle on new-born disputes. methods of resistance cultural a considering disputes commercial of practice resolution dispute Alternative (“ADR”) such as mediation or dispute boards are still unusual in the standards. Brazilian arbitration for smaller disputes is still limited due to the high cost for judicial procedures can be notably lengthy. Nevertheless, the use of that considering especially transactions, cross-border on use former years, past the its besides Over disputes, domestic in space more gained has located. arbitration is defendant the where court the governs often submitted under the Brazilian law Civil Procedural Code default rules to Brazilian still As is often are disputes transactions, consumer and commercial domestic Brazil litigation. in used Court resolution traditional dispute of method main The 16.1 SIQUEIRA CASTROADVOGADOS ICLG TO: OUTSOURCING 2019 all during faith times. good and probity of principles with accordance in act to obligated the are transaction in or agreement involved an of negotiations parties all Code, Civil Brazilian the to Pursuant 17.1 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 17 16

reasonableness undergenerallaw? used? What arethemainmethodsofdisputeresolution according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Good Faith Dispute Resolution

aaas aeo Adé rsad Dne Ptna Eduardo assistence inthepreparationofthischapter. Pitanga, Daniel Rodrigo Frossard, Verainvaluable and their Cordeiro, for Thais Ribeiro, Leitão Dantas, Silvia André Guilherme thank Macedo, to Calazans like would authors The Acknowledgments the clauses of the agreements except in strict and necessary cases. necessary and strict in except agreements the of clauses the review to able be of not will decisions court that and agreements conditions their and terms the negotiate to parties the to liberty the and enterprise free the of power the minimum reinforces 881 MP general, In the of principle by externalsshallbeexceptional. the agreements, intervention of the State will prevail private and revisions to the agreements in that determined and Code Civil Brazilian the of articles some 881 changed MP agreements, to regard With legislation. Brazilian the to named as the “MP of Economic Liberty” brought some amendments (“MPon 881 published 2019, Measure 881”), 30, Provisional April law duringthisperiod,itwillloseitseffects. into converted not MPis the If days. 60 further a for postponed be Nevertheless, we highlight that MP 881 is valid for 60 days and can

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Brazil

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30 Brazil WWW.ICLG.COM SIQUEIRA CASTROADVOGADOS © Published andreproduced withkindpermission byGlobalLegal Group,Ltd companies in the scenario of a highly globalised economy.globalised highly a c of foreign scenario for the door in access companies reliable and safe a firm our makes also It International alliances and partnerships give us insight into global trends and allow us to be part of the growth and affirmati and processes. investment continuous through achieved is this All risks. of anticipation/mitigation the and opportunities of maximisation the From the solution of highly complex problems to managing routine daily challenges, we advise our clients regarding the strategi service. We areafullsolutionfirm.WeWe aremorethanlawyers.We arebusinessadvisorswithlegaltraining. d solutions. business through our all is to expertise It aggregate to able us. are we for that – start universe legal the the just outside and is inside – services knowledge legal of range full the Providing asset. greatest our is intelligence This of businesslawandevolvedtooffer ourclientsmorethanlegalwork.We renderstrategicconsultationwithlegalintelligenc America, with a team of more than 2,500 members in 18 Brazilian cities. Always focused on innovation, we have expanded our ser During our 70 years of history, we have played a main role in the evolution of the legal sector in Brazil. Today, we are one o Economic LawatUniversidadePresbiterianaMackenzie. and Politic in degree Master’s a has and departments, legal and firms law of management administrative and technical in specialises She Prosecution Labour the and Service. Employment and Labour the of with Ministry relations regarding consultation economic in many and litigation in in companies sectors served has she which during area, labour the in experience of years 25 TavaresManuela than more has A strong culture of collaboration and partnership guarantees the integration of our different offices and generates efficiency,generates and officesdifferent our of integration the guarantees partnership and collaboration of Aculture strong to investinBrazil. by specialisedpublications,inBrazilandabroad. Year afteryear, wearerepeatedlyawardedineverydifferent areasofbusi The impact of SiqueiraCastro in the legal and business worlds, besides being known by clients and by the market in general, is regularly recognised to therelationshipswithourclients.

Email: Tel: Brazil São PauloSP 04533010 Rua Tabapuã 816ºandar SIQUEIRA CASTRO ADVOGADOS Manuela Tavares URL: [email protected] +55 11 37049840 www.siqueiracastro.com.br

Business School. at Trade Foreign in Aduaneiras and a course in Risk Management and Compliance at course FIA a Contábeis, (FIPECAFI), Pesquisa Financeiras e de Atuariais Instituto Fundação at course Accounting Basic a completed has She start-ups. law, corporate contracts, and corporate law, mergers and acquisitions, capital market, international operations capital, foreign banking and auditing, financing programmes, ethics legal and integrity compliance, in specialist a is Marina URL: Email: Tel: Brazil São PauloSP 04533010 Rua Tabapuã 816ºandar SIQUEIRA CASTRO ADVOGADOS Ramacciotti Marina MagalhãesGomes ICLG TO: OUTSOURCING 2019

wwww.siqueiracastro.com.br [email protected] +55 11 40856473 eep and multidisciplinary and eep on of our country and our f the largest firms in Latin e. proximity and flexibility and proximity ness law. in technology,people in c conduct of business, ompanies that intend that ompanies

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30 Brazil WWW.ICLG.COM SIQUEIRA CASTROADVOGADOS by specialisedpublications,inBrazilandabroad. Year afteryear, wearerepeatedlyawardedineverydifferent areasofbusi The impact of SiqueiraCastro in the legal and business worlds, besides being known by clients and by the market in general, is regularly recognised to therelationshipswithourclients. efficiency,generates and officesdifferent our of integration the guarantees partnership and collaboration of Aculture strong to investinBrazil. economy.globalised highly a c of foreign scenario for the door in access companies reliable and safe a firm our makes also It International alliances and partnerships give us insight into global trends and allow us to be part of the growth and affirmati and processes. investment continuous through achieved is this All risks. of anticipation/mitigation the and opportunities of maximisation the From the solution of highly complex problems to managing routine daily challenges, we advise our clients regarding the strategi service. We areafullsolutionfirm.WeWe aremorethanlawyers.We arebusinessadvisorswithlegaltraining. d solutions. business through our all is to expertise It aggregate to able us. are we for that – start universe legal the the just outside and is inside – services knowledge legal of range full the Providing asset. greatest our is intelligence This of businesslawandevolvedtooffer ourclientsmorethanlegalwork.We renderstrategicconsultationwithlegalintelligenc America, with a team of more than 2,500 members in 18 Brazilian cities. Always focused on innovation, we have expanded our ser During our 70 years of history, we have played a main role in the evolution of the legal sector in Brazil. Today, we are one o Economic LawatUniversidadePresbiterianaMackenzie. and Politic in degree Master’s a has and departments, legal and firms law of management administrative and technical in specialises She Prosecution Labour the and Service. Employment and Labour the of with Ministry relations regarding consultation economic in many and litigation in in companies sectors served has she which during area, labour the in experience of years 25 TavaresManuela than more has

Email: Tel: Brazil São PauloSP 04533010 Rua Tabapuã 816ºandar SIQUEIRA CASTRO ADVOGADOS Manuela Tavares URL: [email protected] +55 11 37049840 www.siqueiracastro.com.br

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OUT19_04_07_Layout 104/07/201914:46Page31 ■ ■ ■ ■ ■ ■ procurement enteredintoforce,e.g.thefollowing: public regarding regulations and laws several 2016, January 1 On 1.2 regulate outsourcing transactions; generally that regulations or laws national no are There 1.1 Integra LawFirm ICLG TO: OUTSOURCING 2019 Denmark Chapter 6 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 1 otat ipeet te ocsin Directive result in. Concessions the right gains to perform a task operator and be entitled private to the earnings this a may where contracts the i.e. contracts, concession of awarding concession the regulates which implements of (2014/23/EU), awarding the on contracts Act Consolidation The sectors and transport postal services. energy, services water, which of procurement (2014/25/EU), postal the Directive regulates Utilities and the transport implements energy, water, the in procurement of processes on Act Consolidation The ( board complaints the on Act The public contractsbelowthethreshold. be dealtwithbytheDanishComplaintsBoard. public contracts. The Act makes it possible for complaints to regulates the rights and complaints regarding the awarding of undertaken bygovernmentorpublicsectorbodies? outsourcings)? h Cnoiain c o te s o electronic ( Act Tender The of use interest. the cross-border clear a with threshold the under on procurements Act communications in the procurement and advertising of public Consolidation The the implements which contracts above,andunder, public thethreshold. regulates Act and (2014/24/EU) Directive Procurement Procurement Public The Regulatory Framework requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory Are thereanynationallawsorregulationsthat outsourcings, ITtelecommunications outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

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Kim G.Hansen question 1.2 above. The three The above. 1.2 question cf.

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32 Denmark are, e.g.,priceindexationandbenchmarkingmechanisms. Other key terms used in relation to costs in outsourcing transactions 5.2 agreement. the of term the and provided be to services of types the on depend transactions outsourcing in used methods charging The 5.1 notice the of length period thatisrequiredtoterminateanoutsourcingcontract. the regulate generally not does law Danish 4.2 circumstances requireadeviationfromthis. framework a procurement, public Within agreement cannot exceed a term of three to four years unless certain term. longer a have outsourcing an of contract is term normally fixed from four to the six years; a few contracts general, can In contract. outsourcing an for term minimum or maximum any impose not does law National 4.1 draft the outlined contract andothercommercialterms. has customer the which for in Request (“RFP”), a Proposal issues customer the where process procurement a In the private sector, outsourcing projects will typically initiate with Private companies ■ ■ Integra LawFirm WWW.ICLG.COM assets inanoutsourcingtransaction. are no other specific formalities required to transfer, lease or license there transfer, the of terms the regulating agreement an for Except 6.1 (v) acombinationofseveralcharging methods. (ii) cost or cost plus, (iii) pay per use, (iv) resource-based price, charges, or fixed (i) are methods charging common most the However, © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 6 5 4 license assetsonanoutsourcingtransaction? outsourcing transactions? outsourcing transactions? outsourcing contract? minimum termforanoutsourcingcontract? h cmeiie ilge wih s omly sd in used normally is which particularly complexcases. dialogue, competitive The complex contracts. more for used normally is which tender, Limited Transfer of Assets Charging Term ofanOutsourcing Agreement What otherkeytermsareusedinrelationtocosts What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum What formalitiesarerequiredtotransfer, leaseor

il e rnfre b oeain f law of Transfers ofUndertakings, Act no.710of20 August 2002. operation by transferred be actual will an on or employees agreement the business, of transfer a includes business) on of transfer based (either outsourcing the If 7.1 Registration Court( Land Danish the at online registered is land to title of transfer The 6.4 Please seetheanswertoquestion6.2. 6.3 the digital landregisterat in electronically recorded be must properties of transfers All 6.2 technical ororganisational changesintheorganisation. financial, to leads transfer the if employee the dismiss to possible be outsourcing/transfer.will However,the it to related only a reason for employee an dismiss to allowed not is customer/supplier A 7.4 This etc. specific deadlineapplies. transfer, the of no – place aspects takes transfer the before well given be must information social and financial the transfer, legal, the for reason the place, take will transfer the when as such information important and mandatory on any), if steward, the transferred employees, or their representatives (i.e. the elected shop inform must transferor the Moreover, exchanged. be cannot data personal sensitive however, agreements; bargaining collective regarding information and agreements employment the of copies Normally, the parties should provide employee information, such as 7.3 a of part or business business. a of transfer and a of case the agreements, in transferee the employment to transferred automatically individual are agreements, bargaining collective of obligations and rights the that states Undertakings of Transfer on Act Danish The 7.2

h Dns Bsns Lae a wl rglt te iuto i the if outsourcing transaction involves situation the lease of commercial the properties. regulate will law Lease Business Danish The 7 employee forareasonconnectedtotheoutsourcing? provide toeachother? take place? Employment Law Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw www.tinglysning.dk www.tinglysning.dk

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OUT19_04_07_Layout 104/07/201914:46Page33 such contributionstothetransferredemployees. paying for responsible be will transferee the otherwise as transfer, the of date the until and up transferor the by paid are contributions benefit. contribution all that ensure defined must transferee and transferor Accordingly,the both a be will schemes pension market employees by the transferee, see question 7.2 above. Danish labour existing prior to the transfer continue to be offered to those the transferred to schemes pension similar that ensure must transferee The 7.6 would ordinarilyexpire. agreement collective the when time in collective point the from the effect with by terminated be only earliest, covered the at can, rights employees the and agreements, the to rights individual as considered be to continue will agreements collective following benefits the However, business. transferee’s the to apply not will be transfer, the after agreement collective time the accordingly and transferee the by rejected short very a the within can, If agreements notice. collective individual such agreements, collective by the protected are employees of be length only can the this with employee implemented individual the to but yes, Basically 7.5 Integra LawFirm ICLG TO: OUTSOURCING 2019 be shall data customers’ of Confidentiality data. customer’s a rules specific the of processing the to relation for in requirements security the governing provide shall agreement outsourcing The the between in acontract. contract the in out controller and the processor shall set be imposed on that other processor as obligations protection data the (sub-processor), processor another engages supplier the If the riskofdatasubjects. the and to appropriate security of level a ensure to controller measures organisational the GDPR, the of processor have an obligation to implement appropriate 32 technical and article to According specific legalbasisisrequired. country,third this to transferred is data personal and county) third a (a EU/EEA the outside established is supplier the if Furthermore, the of behalf processing agreementassetoutinarticle28oftheGDPR. on data a to according data place take only may personal processing the customer, processes supplier the When protection framework. into force on 25 May 2018, regulates the Danish and European data entered which (GDPR), Regulation Protection Data General The 8.1 The abovelegalprinciplesdonotapplytoseagoingvessels. 7.7 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 existing workforce? transaction? Security Data ProtectionIssuesandInformation Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations?

eie te otata rqieet, hr ae lo legal also are The DanishDataProtection Act (the“DP Act”) there requirements, requirements. contractual to the related Besides highly are security insurance requirementsandcontractualrequirements. information on Requirements eitr otie emr, nldn uig lu computing. cloud using including Denmark, outside large of registers processing other authorities’ and storage public outsource for to significance opportunities practical great has rule The this contribution. of time the at systems issued been yet not IT has list The specific rule. the by covered the on list a set will Justice of Ministry The exclusively inDenmark. for public administrative authorities must be stored, in full or in part, kept and systems IT specified in processed are which data personal that effect the to rules down lay may minister, competent the with consultation in Justice, of Minister the Act, DP the to According ISO standards Systems andCertainDigitalServices”(“TheNIS Act”). Name Domain for Security Information and Network on Act “The On 8 May 2018, the NIS Directive was implemented under the name The NIS Act legal requirements. with compliance in and correctly performed is activity outsourced the ensure to responsibility company’s outsourcing the regarding of outsourcing on Order Executive significant areas of activity has been issued. the The order sets out rules sector, financial the In General 8.2 hr i a edny ht e lgsain hv rqieet on requirements have information security. legislations new that tendency a is There ■ ■ ■ Several actscontainprovisionsoninformationsecurity, e.g.: Others of case the In principles oftheISO/IEC27001standard. standard. 27001 IEC outsourcing, the / outsourcing provider also needs to comply with the ISO the of the principles with comply to obliged are companies/authorities public All level ofsecuritywhenoutsourcingdataprocessing. the on requirements legal specific no are there GDPR, the Besides be impossible to enforce the agreement in countries outside the EU. the from Even if the outsourcing agreement takes fine care of these issues, it may possible a for insurance supervisory authority. out take to Denmark data in possible not the is it as issue of an is GDPR the costs with non-compliance the of risk and the Also, GDPR. audits the in required of as assistance processors’ costs the allocate to how include, issues These requirements. these from derived issues other imply requirements regulatory above-mentioned The non- ensured through contractualmonitoringandauditprocedures. and usually is contracts compliance Therefore, outsourcing provisions. disclosure the by addressed specifically Executive Orderonoutsourcingofsignificantareasactivity Furthermore, theruleismoreflexiblethanformerrule.

requirements concerninginformationsecurity? eilto o te s o eetoi sgaue (especially signatures important forthesecurityofonline payments). electronic of use the on Legislation Legislation oncomputerabuseorhacking. Legislation ondataprotectionand datasecurity. Are thereindependentlegaland/orregulatory

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34 Denmark the maximum of service credits on both a monthly and yearly basis. to is credits allocate a number service of service credits to each service level, and to cap to regard with approach common most The the customerifservicelevelsarenotmet. The parties can also specify the financial compensation to be paid contract. to the of term the the throughout whether maintained are on levels service reporting for process facility the describe and services, provided be IT to services the define must i.e. parties the Still, question, etc. management, in outsourcing transaction in outsourcing levels service the on depends it since general, regarding in described be cannot agreements approach usual The 10.1 There arenoothergeneraltaxissuesthatmayarise. 9.3 fully VAT-ablea business. conducts customer the if e.g. customer, Danish the of status tax the on depends it contract, outsourcing the under services of supply VATDanish VATto ordinary relation to In the 25%. on at leakage subject generally are contract outsourcing an under made Payments 9.2 establishment, thiswillalsocausesometaxissues. permanent a creates Denmark of outside outsourcing an case the In the priceofthattransactionwouldbeonopenmarket. not related. The arms-length price for a transaction is therefore what were parties the if as same the be must product given a for another to party related one by charged amount the that meaning principle, arms-length the reflect must transactions outsourcing tax Intra-group if Moreover, realised. apply onrecaptureddepreciations. are also may tax Danish gains assets, the on made any been have depreciations if apply may tax If the outsourcing transaction involves the transfer of assets, Danish deductible. tax are contract outsourcing an under made payments general, In similar taxesonthecontract. terminating an outsourcing or contract, i.e. there are into no stamp duties or entering when issues tax an specific any arise transferring not will There when consider to issues outsourced business. tax some are There 9.1 Integra LawFirm WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 9 terminating thecontract? levels andservicecredits? under theoutsourcingcontract? Tax Issues What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Service Levels

intellectual propertyrights. third-party of non-infringement (iii) and assets, transferred to title are provisions regarding (i) breach of confidentiality, contracts (ii) the customer’s outsourcing in included are that warranties Typical 11.3 (iv) proactiveremedies. and regulations, exit (iii) principle, later settle audit first, fix (i) (ii) as rights, such provisions be can customer in the contract protect to the order in included be can which protections Additional 11.2 proportionate demand reduction, (ii)claimdamages,or(iii)terminateforcause,etc. (i) to is contract, the breaches party other the law,if Danish general under party a to available remedies The 11.1 e, h pris a ecue r ge o adtoa termination additional on rights. agree or exclude can parties the Yes, 13.2 rise toaclaimfordamagesfromtheterminatedparty. the other party can terminate the agreement for cause without giving In case of anticipated or material breach of the agreement by a party, in theeventofinsolvencyorchangecontrol. e.g., terminated, be can it that contract the in define can parties The There isnosuchrightinmandatoryDanishlaw. 13.1 ■ the transaction, outsourcing an in following typesofinsuranceshouldbeconsidered: involved risks the cover To 12.1 ■ ■ ■ ■ 11 13 12 that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? termination rights? for damagesfromtheterminatedparty? transaction? Employee liabilityinsurance. What arethetypicalwarrantiesand/orindemnities What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder Can thepartiesexcludeoragree additional terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin Industrial injuryinsurance. General liabilityinsurance. Product liabilityinsurance. Property damageinsurance. Customer Remedies Termination Insurance

ICLG TO: OUTSOURCING 2019

Denmark

OUT19_04_07_Layout 104/07/201914:46Page34

34 Denmark WWW.ICLG.COM the maximum of service credits on both a monthly and yearly basis. to is credits allocate a number service of service credits to each service level, and to cap to regard with approach common most The the customerifservicelevelsarenotmet. The parties can also specify the financial compensation to be paid contract. to the of term the the throughout whether maintained are on levels service reporting for process facility the describe and services, provided be IT to services the define must i.e. parties the Still, question, etc. management, in outsourcing transaction in outsourcing levels service the on depends it since general, regarding in described be cannot agreements approach usual The 10.1 There arenoothergeneraltaxissuesthatmayarise. 9.3 fully VAT-ablea business. conducts customer the if e.g. customer, Danish the of status tax the on depends it contract, outsourcing the under services of supply VATDanish VATto ordinary relation to In the 25%. on at leakage subject generally are contract outsourcing an under made Payments 9.2 establishment, thiswillalsocausesometaxissues. permanent a creates Denmark of outside outsourcing an case the In the priceofthattransactionwouldbeonopenmarket. not related. The arms-length price for a transaction is therefore what were parties the if as same the be must product given a for another to party related one by charged amount the that meaning principle, arms-length the reflect must transactions outsourcing tax Intra-group if Moreover, realised. apply onrecaptureddepreciations. are also may tax Danish gains assets, the on made any been have depreciations if apply may tax If the outsourcing transaction involves the transfer of assets, Danish deductible. tax are contract outsourcing an under made payments general, In similar taxesonthecontract. terminating an outsourcing or contract, i.e. there are into no stamp duties or entering when issues tax an specific any arise transferring not will There when consider to issues outsourced business. tax some are There 9.1 Integra LawFirm 10 9 Tax Issues levels andservicecredits? What istheusualapproachwithregardtoservice What othertaxissuesmayarise? under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Service Levels

intellectual propertyrights. third-party of non-infringement (iii) and assets, transferred to title are provisions regarding (i) breach of confidentiality, contracts (ii) the customer’s outsourcing in included are that warranties Typical 11.3 (iv) proactiveremedies. and regulations, exit (iii) principle, later settle audit first, fix (i) (ii) as rights, such provisions be can customer in the contract protect to the order in included be can which protections Additional 11.2 proportionate demand reduction, (ii)claimdamages,or(iii)terminateforcause,etc. (i) to is contract, the breaches party other the law,if Danish general under party a to available remedies The 11.1 e, h pris a ecue r ge o adtoa termination additional on rights. agree or exclude can parties the Yes, 13.2 rise toaclaimfordamagesfromtheterminatedparty. the other party can terminate the agreement for cause without giving In case of anticipated or material breach of the agreement by a party, in theeventofinsolvencyorchangecontrol. e.g., terminated, be can it that contract the in define can parties The There isnosuchrightinmandatoryDanishlaw. 13.1 ■ the transaction, outsourcing an in following typesofinsuranceshouldbeconsidered: involved risks the cover To 12.1 ■ ■ ■ ■ 13 12 11 Employee liabilityinsurance. that areincludedinanoutsourcingcontract? What arethetypicalwarrantiesand/orindemnities contract documentationtoprotectthecustomer? What additionalprotectionscouldbeincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder termination rights? Can thepartiesexcludeoragree additional for damagesfromtheterminatedparty? terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement transaction? order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin Industrial injuryinsurance. General liabilityinsurance. Product liabilityinsurance. Property damageinsurance. Termination Insurance Customer Remedies

ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page35 rpry ihs a as b poetd y neig no transfer a into entering agreement. by protected be also can rights property Intellectual rights. property intellectual regarding agreement provisions with outsourcing the in outsourcing regulated an normally in are transaction party each of rights property intellectual The 14.1 the override might contract. outsourcing that an in see laws to expect might local one that rights termination mandatory no are There 13.3 Integra LawFirm ICLG TO: OUTSOURCING 2019 There isnosuchrightunlessthepartieshaveagreedotherwise. 14.4 agreed have parties the unless rights such otherwise. no are there No, 14.3 the Directive onProtectionof Tradeimplements Secrets2016/943/EU. Act The 2018. June 9 on force into came which Yes,Danish the by protected are secrets trade on Act TradeSecrets, 14.2 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 can itmakeofit? and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness

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Denmark

35 Denmark OUT19_04_07_Layout 104/07/201914:46Page36

36 Denmark WWW.ICLG.COM Integra LawFirm © Published andreproduced withkindpermission byGlobalLegal Group,Ltd We assume responsibility for the tasks, processes and outcomes. By way of digital tools, structured processes, service-minded processes, structured tools, digital of way By outcomes. and processes tasks, the for responsibility assume We deliver simpleandeasy-to-usesolutionsontime. Integra Law Firm provides companies, organisations and authorities with legal and business advice related to digital business a SOLUTION-ORIENTED ADVICE FORDANISH AND INTERNATIONAL COMPANIES. outsourcing standard sector private Danish agreement forIT, the D17. of co-author a is Kim outsourcing. IT and processing business including matters, IT-relatedin businesses international and Danish advises mainly Kim employees, accessibilityandefficiency isensuredeverytime. Kgs. Nytorv28,2 Integra LawFirm Kim G.Hansen URL: Email: Tel: Denmark Copenhagen DK-1050 www.integralaw.dk [email protected] +45 24212148

nd floor

of extensiveIT disputes. acquisitions, outsourcing, etc. Majbritt is also experienced in the area IT to relating disputes especially resolution, dispute handles Majbritt aspects ofIT services. legal the disciplines, to Majbritt has addition obtained fundamental insight In into the technical players. market the and market services cloud IT compliance, to relation both entrepreneurs and large companies, and has wide insight into the in law data computing, data processing agreements and security. Majbritt personal advises on advises consultancy hosting, also outsourcing, Majbritt etc. computing, cloud agreements, license K03), agreements, K02, (K01, systems IT of acquisition law,including IT of aspects all on advice provides Majbritt

Kgs. Nytorv28,2 Integra LawFirm Majbritt Rosa A. Meinfeldt URL: Email: Tel: Denmark Copenhagen DK-1050 ICLG TO: OUTSOURCING 2019 www.integralaw.dk [email protected] +45 30560054

nd floor

ctivities. We always

Denmark

and dedicated and

OUT19_04_07_Layout 104/07/201914:46Page37 on theSeparationandRegulationof Banking Activities. 2013 July 26 of 2013-672 No. Law by France in implemented been have Directives Those institutions. credit and firms investment of Directive) along with Directive 2006/49/EC on the capital adequacy and pursuit of the business of credit institutions (Banking Consolidation up taking the to relating 2006/48/EC Directive by organised Public of Code the in gathered are Procurement. bodies sector public or All rules related to the purchase of goods or services by government private company must comply with specific tender offer procedures. of framework public procurement. The outsourcing of legal public sector activities to a specific a follow to necessity the of because terms asregardsthetripartiterelationship. payment to relation in mainly provisions specific contains law This client toanotherpersonknownasthesubcontractor”. the of part or all responsibility, their under and subcontract, a of understood as “the process by which a contractor entrusts, by means transactions, subcontracting regarding provisions specific contains 1975 December 31 of 75-1334 No. Law that note However,please h rglto o otorig o fnnil evcs a been has services financial for outsourcing of regulation The Financial services 1.3 sector, public the in outsourcing to apply regulations Specific 1.2 the with concluded contract public or contract works a of execution There arenospecificlawsregulatingoutsourcingtransactions. 1.1 Frieh Associés ICLG TO: OUTSOURCING 2019 France Chapter 7 1 Regulatory Framework example thefinancialservicessector? outsourcings)? undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory undertaken bygovernmentorpublicsectorbodies? requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory outsourcings, ITtelecommunications Are thereanynationallawsorregulationsthat outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

■ The concernedentitiesare: ■ ■ ■ ■ ■ The outsourcing of financial services is subject to the provisions of: ■ The relevantprovisionsareincludedin: ■ ■ Obligations fortheseinstitutionsinclude: activity. outsourced the manage to agreement an into entering company the is supplier the and outsourcing is that company the is customer The ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ credit institutions; the GeneralRegulationofFinancialMarkets Authority. the FrenchPrudentialControl Authority; and the on of firms investment and 2014 institutions credit of control internal November 3 of Order Ministerial French the L.522-18 and Articles L.526-27 toL.526-34); the FinancialMarkets Authority Regulations. and Authority; Control Prudential French the of Regulations the the MonetaryandFinancialCode; h Mntr ad iaca Cd ( Code Financial and Monetary the The customerisabletocontroltheoutsourcedactivities. its with Control legal obligations. compliance institution’s the Prudential check can the Authority to given Authority and parties must ensure that the Prudential Control be must Information or payment institutions. institutions credit either of investments firms;and composed persons legal investment firms; The customer remains responsible for the obligations it has it obligations the for responsible remains customer The ces we ncsay t al nomto o te activity the on information all to necessary, when access, customer regarding the organisation of control. It must allow service the by defined processes the the with comply must supplier The modify substantially provided withoutthepriorapproval ofthecustomer. cannot supplier The a seriousthreattoservicecontinuity. of protection the with and service the confidential information. of use the with complies normal supplier the that ensures not customer The must arrangement outsourcing prejudice thecontinuityorqualityofservice. the of Termination between thesupplierandcustomer. The outsourcing activity must be subject to a written contract was outsourced. This isanessentialpartofitsservice. activity the when partners and customers own its regarding The customer must install a safety mechanism in the case of case the in mechanism safety a install must customer The

Raphaël Dana Martin Leny

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rils .2-4 to L.522-14 Articles

37 OUT19_04_07_Layout 104/07/201914:46Page36

36 Denmark WWW.ICLG.COM Integra LawFirm We assume responsibility for the tasks, processes and outcomes. By way of digital tools, structured processes, service-minded processes, structured tools, digital employees, accessibilityandefficiencyof isensuredeverytime. way By outcomes. and processes tasks, the for responsibility assume We deliver simpleandeasy-to-usesolutionsontime. Integra Law Firm provides companies, organisations and authorities with legal and business advice related to digital business a SOLUTION-ORIENTED ADVICE FORDANISH AND INTERNATIONAL COMPANIES. outsourcing standard sector private Danish agreement forIT, the D17. of co-author a is Kim outsourcing. IT and processing business including matters, IT-relatedin businesses international and Danish advises mainly Kim Kgs. Nytorv28,2 Integra LawFirm Kim G.Hansen URL: Email: Tel: Denmark Copenhagen DK-1050 www.integralaw.dk [email protected] +45 24212148

nd floor

Kgs. Nytorv28,2 Integra LawFirm Majbritt Rosa A. Meinfeldt URL: Email: Tel: Denmark Copenhagen DK-1050 ICLG TO: OUTSOURCING 2019 www.integralaw.dk [email protected] +45 30560054

nd floor

ctivities. We always

Denmark and dedicated and

OUT19_04_07_Layout 104/07/201914:46Page37 on theSeparationandRegulationof Banking Activities. 2013 July 26 of 2013-672 No. Law by France in implemented been have Directives Those institutions. credit and firms investment of Directive) along with Directive 2006/49/EC on the capital adequacy been and pursuit of the business of credit institutions (Banking Consolidation up has taking the services to relating 2006/48/EC financial Directive by for organised outsourcing of regulation The Financial services 1.3 Public of Code the in gathered are Procurement. bodies sector public or All rules related to the purchase of goods or services by government private company must comply with specific tender offer procedures. of framework public procurement. The outsourcing of legal public sector activities to sector,a specific a public follow to the necessity the in of because outsourcing to apply regulations Specific 1.2 terms asregardsthetripartiterelationship. payment to relation in mainly provisions specific contains law This client toanotherpersonknownasthesubcontractor”. the the with concluded contract public or contract works of a of execution part or all responsibility, their under and subcontract, a of understood as “the process by which a contractor entrusts, by means transactions, subcontracting regarding provisions specific contains 1975 December 31 of 75-1334 No. Law that note However,please There arenospecificlawsregulatingoutsourcingtransactions. 1.1 Frieh Associés ICLG TO: OUTSOURCING 2019 France Chapter 7 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 1 example thefinancialservicessector? undertaken bygovernmentorpublicsectorbodies? outsourcings)? Regulatory Framework undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory Are thereanynationallawsorregulationsthat outsourcings, ITtelecommunications outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

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Raphaël Dana Martin Leny

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rils .2-4 to L.522-14 Articles

37 OUT19_04_07_Layout 104/07/201914:46Page38

38 France ■ ■ ■ (EEA), additionalconditionsapply: Area Economic European the outside and Community European the of member a not a is that country a in based is supplier the If ■ ■ The disadvantagesare: ■ ■ are: disadvantages and Advantages a involves sometimes of theclient’s sites. which each for contracts application contract, with together agreement framework ordinary an through Description of structure: Outsourcing is most commonly arranged Direct Outsourcing 2.1 provider hasitsnormalplaceofresidence. service the which in country the of law the is services of provision the to applicable law the that provides This apply. will 2008 June If no such choice is made, European Regulation No. 593/2008 of 17 ■ ■ ■ the between choose can following: parties The parties. the by chosen law the contract is an international one, in principle, it is governed by the if that provides law French relations, professional of be context the In to transaction outsourcing an for governed bylocallaw. requirement no is There 1.4 Frieh Associés WWW.ICLG.COM ■ flexible. The disadvantagesare: disadvantages and Advantages separate activitiestodifferent suppliers. of number a outsources customer The structure: of Description Multi-sourcing © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 2

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ICLG TO: OUTSOURCING 2019

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■ ■ 9.1 vital of “operators as (such entities importance”). sensitive of types certain for requirements security regarding information specific contains It 2016. the is which networks, transposition of the European Directive No. 2016/1148 dated July 6 and systems IT of security on 2018-133 No. Law the adopted parliament French the 2018, 26 February On 8.2 will indicate the client’s needs, clarify the scope of obligations of the quality expected by the customer in terms of service level. This plan The parties may provide for a quality assurance plan that defines the 10.1 the and services of nature the to geographical locationofboththecustomerandprovider. according levied is VAT 9.3 the supplyofservicesunderanoutsourcingcontract. any VATfor regime specific a establish not did law The on leakage 9.2 latter. the to transferred indirectly profits to respect with France, outside an to for apply procedure companies that are adjustment dependent can on, or that control, tax companies situated Code a provides Tax it the contract: outsourcing of 57 Article that noteworthy is it However, transfer. a such for regime tax specific no is There dependent onthesupplier. is nor control not does France in established company the if even adjustment tax France where the tax regime is privileged ( The companies. related outside jurisdiction a in established companies to applies procedure the and transfers the on information produce must criteria those meeting companies The ■ ■ 9 10 viaiiy n rslec o te rcsig ytm and systems integrity, processing services; confidentiality, the of ongoing resilience and ensure availability to ability the the pseudonymisationandencryptionofpersonaldata; requirements concerninginformationsecurity? levels andservicecredits? under theoutsourcingcontract? terminating thecontract? Tax Issues outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory What istheusualapproachwith regardtoservice What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices fetvns o tcncl n ognstoa maue for ensuring thesecurityofprocessing. measures organisational and technical of effectiveness the evaluating and assessing testing, regularly for process a incident; and data in a timely manner in the event of a personal physical or technical to access and availability the restore to ability the

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Customer Remedies

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Customer Remedies

hl idmiy h csoe wee hr i a I rights IP an is there where customer infringement claim(warrantyof“ the indemnify shall it that guarantee may provider the property, intellectual Regarding storm, (flooding, terrorist attack). disaster natural “extraordinary” a earthquake, catastrophe) or human attack (sabotage, embezzlement, or from impact; resulting and incidents implosions explosions, fires, as such incidents “ordinary” policy: insurance the from excluded expressly not damage any cover which Risks” All “Computer as such policies specific are there policies, global these to addition In operational lossesresultingfromanincident. including assets intangible and equipment for policies or policies, for adapted policies insurance commercial” “multi-risk insurance as such risks, computer out certain take to required is provider insure all the activities covered by the outsourcing transaction. The The provider must guarantee its professional civil liability and must 12.1 receiver hastherighttodemandexecutionofpendingcontracts. force on the date of the opening judgment. Only the court-appointed in contract the of terms current the under continuance their demand existing that is provision this contracts should be maintained, and it provides for the possibility to of principle the generally, More been have proceedings insolvency that commenced. fact the to due merely contract the of termination the in results that clause contractual any block Code Commercial the of L.641-11-1 and L.622-13 Articles 13.3 to exclude oragreeadditionalterminationrights. possibility the on flexibility broad rather provides law French 13.2 provided forintheagreement. conditions with accordance in or obligations, contractual its to fulfil fails party other the if contract the terminate may party Either 13.1

13 12 transaction? to seeinanoutsourcingcontract? termination rights? for damagesfromtheterminatedparty? order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement Termination Insurance

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42 France rils 2-3 n 451 f h Ciia Cd snto the of business secretsthroughactivecorruptionbyanemployee. obtaining sanction the and Code secrecy professional Criminal of violation the of offence of 445-1 and 226-13 Articles medicinal products,etc.). for authorisations marketing codes, source product software specifications, new (designs, data technical and secrets) manufacturing Intellectual the Property Code through the in protection of know-how (which includes protected are secrets technical or Information 14.2 contract. the within stipulated expressly be must services the to relate that property intellectual of aspects all and licences, user and/or rights owned prior to the effective date of the contract. Any transfer of the each they that property intellectual of rights the retains transaction outsourcing the to party each that provides typically contract The 14.1 Frieh Associés WWW.ICLG.COM set which clauses or that itequatestoanabsenceofliability. liability, all from unreasonably low limits and therefore reduce liability in such a way party a discharging of effect the have that clauses any void as treat to tend courts The of devoid party a of substance isvoid. obligation essential the deems that clause contractual any Code, Civil French the of 1170 to Article Pursuant 15.1 competition). (unfair off passing of act an to amounts know-how supplier’s the of use Any post-termination. know-how supplier’s Typically, the customer does not have any right to gain access to the 14.4 the from excluded be agreement. may they and post-termination, rights IP licensed use to continue to supplier the allow can rights implied No 14.3 if suchapossibilityisprovidedforintheagreement. supplier’sknow-how the to access gain can However,customer the © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 15 14 under nationallaw? can itmakeofit? and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty supplier's know-howpost-terminationandwhatuse To whatextentcanapartylimitorexcludeliability To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto

Liability Intellectual Property

to referring before dispute courts, exceptincaseofanemergency. a settle amicably to try must parties the that provides now law procedure civil French that note Please may alsobeinsertedintoagreements. clauses arbitration and mediation However, courts. the the referring to matter is resolution dispute of method common most The 16.1 French the Civil Code,ajudgemayreduceorincreasesuchpenalty. of 1231-5 Article to pursuant However, its obligations. fulfilling in late is or obligations its of breach in is parties the The parties may also include a penalty clause in the event that one of ■ ■ cap onliabilityisnotenforceableinthecaseof: on the Code, cap Civil French the financial of 1231-3 Article to a Pursuant liability. determine to free are parties contractual The 15.2 ih h ngtain eeuin n itruto o te contract. the of interruption and execution negotiation, the with connection in principles conventional and legal for respect implies faith good of principle The faith. good and collaboration loyalty, trust, on based sense, true the in partnership a implies Outsourcing 17.1 uh rnils ut e esnby mlmne i odr to order in implemented reasonably safeguard theinterestsofco-contractingparties. be must principles Such 16 17 used? liability? reasonableness undergenerallaw? wilful misconduct. gross negligence;or What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Dispute Resolution Good Faith

ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page43 ICLG TO: OUTSOURCING 2019 Frieh Associés as wellGDPRandinternationaldatatransferbreachcases”. projects significant and e-commerce IPITon in and matters expertise his for respected highly “is Raphaël that adds guide independent The personal datacategory. 2018 Legal Who “TelecommunicationsTechnology”& TMT”, & Media “Data and Legal Who lawyers French eight the by among category Data the in Regarded” Highly “Most as recognised listed been has Raphaël peers, and clients international from votes of process independent an per As data data transfers, and data projects) international breach, security). IT compliance, issues (GDPR IP/IT major protection on e-commerce, focus licensing, particular (software a with commercial) (corporate, ahë Dn avss raiain o bsns lw issues law business on organisations advises Dana Raphaël shop whilebeingbothveryreactiveandindirectcontactwithourclients. business-oriented approach. We advise both French and multinational corporations with their setting-up in France, their growth and their day-to-day legal n in IT anddataregulatorymatters,anacknowledgedsolution-orientedapproachtoemploymentsocialsecurityissues. Frieh Associés is a boutique corporate law firm with a made-to-measure approach to private equity and M&A transactions, with re Over the years, Frieh Associés has built a strong and reliable network of allied firms around the world, allowing us to serve o H hs lo en lce Laig ayr in Lawyer Leading elected been also has He . ad huh Lae i te 09 dto i the in edition 2019 the in Leader Thought and ,

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Who’s Who’s

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43 France OUT19_04_07_Layout 1 04/07/2019 14:46 Page 44

Chapter 8 Germany

Noerr LLP Joachim Schrey

automatically subject to the obligations of the service provider and 1 Regulatory Framework must therefore also be observed by him.

1.1 Are there any national laws or regulations that 1.3 Are there any additional legal or regulatory specifically regulate outsourcing transactions, either requirements for outsourcing transactions generally or in relation to particular types of undertaken in particular industry sectors, such as for outsourcing transactions (e.g. business process example the financial services sector? outsourcings, IT outsourcings, telecommunications outsourcings)? Outsourcing transactions in the financial or insurance industry sectors will be subject to the regulatory requirements as referred to In Germany, there are no national laws specifically regulating in question 1.1 above. outsourcing transactions, neither generally nor in relation to particular types of outsourcing transactions. However, the following The outsourcing of telecommunication services means that the are two exceptions: (a) if the services to be rendered by the supplier supplier will be subject to the regulatory regime as any other are regulated services, e.g. telecommunication services, banking or telecommunication services provider. insurance services, the supplier is subject to the applicable regulatory If the services to be outsourced include the collection, processing law as any other service provider in this field; or (b) if the customer and use of personal data, both the customer and the supplier are services are in a regulated industry, e.g. a bank or an insurance required to abide applicable data protection law (i.e. GDPR and the company, regulatory law (§ 25b German Banking Act; § 32 German German Federal Data Protection Act, “BDSG”). Insurance Supervision Act) sets out specific requirements for the outsourcing of services (as supplemented by Section AT 09 of the 1.4 Is there a requirement for an outsourcing transaction Minimum Requirements for Risk Management in Banks and to be governed by local law? If it is not to be local Financial Services Providers issued by the German Federal Banking law, is there any generally accepted norm relating to Supervisory Authority as its circular 09/2017 as of 27 October 2017, the choice of governing law? “MaRisk”). Moreover, the German Federal Banking Supervisory Authority (“BaFin”) specified detailed requirements to a bank’s IT Pursuant to Art. 3 (1) of the EC Regulation No 593/2008 on the law environment, which the service provider will have to fulfil, in its applicable to contractual obligations (“Rome I”), parties are free to circular 10/2017 as of 03 November 2017 “Banking Supervisory choose the applicable law and German courts will respect and Requirements to the Information Technology” of banks and financial accept such choice of law. There is no legal requirement that an institutions (“BAIT”) in its final edition as of 14 September 2018. outsourcing transaction must be governed by local law. In German These exceptions apply, regardless of the type of outsourcing. business practice, outsourcing transactions are generally governed by the local law of the customer. 1.2 Are there any additional legal or regulatory requirements for outsourcing transactions undertaken by government or public sector bodies? 2 Legal Structure

Outsourcing transactions in the government or public sector are 2.1 What are the most common types of legal structure subject to public procurement law; moreover, specific confidentiality used for an outsourcing transaction? obligations are required to preserve the official secret. Depending on the public task to be accomplished by the public sector body, it may In first generation outsourcing transactions, parties usually enter be subject to the security-related and reporting requirements under into (i) a (master) service agreement governing the ongoing the German Federal IT-Security Act (incorporated in the Act on the rendering of the contracted services including service levels, Federal IT Security Authority, “BSiG”) as further detailed in the governance regime, etc., (ii) an asset transfer agreement, (iii) a HR Regulation on Critical Infrastructures (“KritisVO”). If business transfer agreement if the supplier takes over the customer’s processes or IT infrastructures, which are subject to these specific employees deployed before the effective date to internally provide requirements under the BSiG as expressed in the KritisVO, are to be the services, and (iv) a migration agreement governing the transition outsourced to a service provider, these requirements are and transformation of services.

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Chapter 8 Noerr LLP Germany

In a next generation outsourcing transaction, usually assets and charging metric. Extra services and projects ordered by the customer employees are no longer transferred, so parties only enter into a from time-to-time are usually charged on a time and material basis, (master) service agreement and (if any) a migration agreement. If whereas requests for standardised services (such as IMACs, i.e. parties to an outsourcing transaction just wish to extend and slightly installations, moves, additions and changes to IT infrastructure, e.g. Germany modify the existing set of agreements, they often decide to enter into desktops, printers, servers and networks) are charged at standard an amendment agreement to the existing agreement only, in which rates per IMAC within certain thresholds. Although outsourcing they agree on the clauses to be modified and replaced, e.g. some shall be a method to make the customer’s business more profitable, annexes, attachments or exhibits in which there are details of the profit sharing models are almost never used. service descriptions, service levels, etc., by their updated versions.

5.2 What other key terms are used in relation to costs in Germany 3 Procurement Process outsourcing transactions?

Noerr LLP Joachim Schrey Although being a time-consuming and cost-intensive exercise, 3.1 What is the most common type of procurement customers often insist on benchmarking clauses to ensure that the process that is used to select a supplier? prices payable are still in line with the market price level. The shorter the term of an outsourcing agreement, however, the more If the customer is a public or governmental body or otherwise automatically subject to the obligations of the service provider and uncommon benchmarking clauses are. If benchmarking clauses are subject to public procurement law and the expected volume of 1 Regulatory Framework must therefore also be observed by him. used, the customer is generally entitled to lower market prices if service fees is above applicable thresholds, it has to apply public determined by the benchmarking service provider, whereas the procurement law. supplier is not usually entitled to higher market prices. 1.1 Are there any national laws or regulations that 1.3 Are there any additional legal or regulatory If the customer is a private entity, for compliance reasons it will also Parties also often agree on minimum volumes incentivising specifically regulate outsourcing transactions, either requirements for outsourcing transactions tender the services and select a supplier based on a provider exceeding service consumption by bonuses/kickbacks. generally or in relation to particular types of undertaken in particular industry sectors, such as for outsourcing transactions (e.g. business process example the financial services sector? selection process that includes indicative offers, the results of the outsourcings, IT outsourcings, telecommunications negotiations (at least heads of agreement) and the best and final outsourcings)? offer of the suppliers on the short list. 6 Transfer of Assets Outsourcing transactions in the financial or insurance industry sectors will be subject to the regulatory requirements as referred to In Germany, there are no national laws specifically regulating in question 1.1 above. 6.1 What formalities are required to transfer, lease or outsourcing transactions, neither generally nor in relation to 4 Term of an Outsourcing Agreement license assets on an outsourcing transaction? particular types of outsourcing transactions. However, the following The outsourcing of telecommunication services means that the are two exceptions: (a) if the services to be rendered by the supplier supplier will be subject to the regulatory regime as any other 4.1 Does national or local law impose any maximum or Although German law does not mandate a specific form, a transfer are regulated services, e.g. telecommunication services, banking or telecommunication services provider. minimum term for an outsourcing contract? or lease of movable assets and licences is a purchase or lease insurance services, the supplier is subject to the applicable regulatory If the services to be outsourced include the collection, processing agreement which is usually concluded as a written agreement; law as any other service provider in this field; or (b) if the customer and use of personal data, both the customer and the supplier are Neither national nor local law imposes any maximum or minimum written form, however, is not required as mandatory under German services are in a regulated industry, e.g. a bank or an insurance required to abide applicable data protection law (i.e. GDPR and the term for an outsourcing contract. Rather, parties are free to agree on law. In most cases, a transfer of licences, as well as the transfer of company, regulatory law (§ 25b German Banking Act; § 32 German German Federal Data Protection Act, “BDSG”). a term which they deem fit and appropriate in the individual case. maintenance and support agreements for assets transferred, requires Insurance Supervision Act) sets out specific requirements for the the consent of the contractual counter-party (i.e. licensor, outsourcing of services (as supplemented by Section AT 09 of the 1.4 Is there a requirement for an outsourcing transaction maintenance service provider). If processing of personal data is part 4.2 Does national or local law regulate the length of the Minimum Requirements for Risk Management in Banks and to be governed by local law? If it is not to be local notice period that is required to terminate an of the services to be rendered, parties will have to enter into a data Financial Services Providers issued by the German Federal Banking law, is there any generally accepted norm relating to outsourcing contract? processing agreement within the meaning of Art. 28 (3) GDPR Supervisory Authority as its circular 09/2017 as of 27 October 2017, the choice of governing law? which can be made in writing or in an electronic form (Art. 28 (9) “MaRisk”). Moreover, the German Federal Banking Supervisory GDPR); due to the principle of accountability (Art. 5 (2) GDPR) to Authority (“BaFin”) specified detailed requirements to a bank’s IT Neither national nor local law regulates the length of the notice Pursuant to Art. 3 (1) of the EC Regulation No 593/2008 on the law be abided by both parties, a data processing agreement in writing environment, which the service provider will have to fulfil, in its period that is required to terminate an outsourcing contract. applicable to contractual obligations (“Rome I”), parties are free to will be preferable. circular 10/2017 as of 03 November 2017 “Banking Supervisory choose the applicable law and German courts will respect and Pursuant to No. 7 lit. (f) of AT 09 MaRisk, parties to an outsourcing Requirements to the Information Technology” of banks and financial accept such choice of law. There is no legal requirement that an agreement in the banking and financial services industry are required institutions (“BAIT”) in its final edition as of 14 September 2018. outsourcing transaction must be governed by local law. In German to agree on termination rights and notice periods that are 6.2 What are the formalities for the transfer of land? These exceptions apply, regardless of the type of outsourcing. business practice, outsourcing transactions are generally governed “reasonable”, which means that notice periods for the supplier shall by the local law of the customer. be as long as necessary for the bank both to find a succeeding provider The transfer of land requires a notarised purchase and transfer (or re-insource the services) and to ensure an uninterrupted migration. agreement and the registration of the change in ownership in the 1.2 Are there any additional legal or regulatory requirements for outsourcing transactions land register. Before a change in ownership of land is entered into undertaken by government or public sector bodies? 2 Legal Structure the register, the purchaser has to prove that it has paid the real estate 5 Charging transfer tax.

Outsourcing transactions in the government or public sector are 2.1 What are the most common types of legal structure subject to public procurement law; moreover, specific confidentiality used for an outsourcing transaction? 5.1 What are the most common charging methods used in 6.3 What post-completion matters must be attended to? obligations are required to preserve the official secret. Depending on outsourcing transactions? the public task to be accomplished by the public sector body, it may In first generation outsourcing transactions, parties usually enter If maintenance and support agreements remain with the customer, it be subject to the security-related and reporting requirements under into (i) a (master) service agreement governing the ongoing Both input-based charging methods (a specific fee per server, GB must be ensured that the supplier is nevertheless authorised vis-à-vis the German Federal IT-Security Act (incorporated in the Act on the rendering of the contracted services including service levels, RAM capacity, working place, etc.) and output-based charging the provider to request for support services or initiate tickets on the Federal IT Security Authority, “BSiG”) as further detailed in the governance regime, etc., (ii) an asset transfer agreement, (iii) a HR methods (how many business transactions are to be supported, how support hotline. Regulation on Critical Infrastructures (“KritisVO”). If business many support calls, etc.) and hybrid-methods in between are used. If transfer agreement if the supplier takes over the customer’s If the customer draws up its balance sheet pursuant to the IFRS processes or IT infrastructures, which are subject to these specific the services outsourced are highly standardised services, an output- employees deployed before the effective date to internally provide principles, it may happen that although the supplier holds title in requirements under the BSiG as expressed in the KritisVO, are to be based charging method is generally used, whereas a tailor-made the services, and (iv) a migration agreement governing the transition specific assets, those assets cannot be balanced for the customer; outsourced to a service provider, these requirements are outsourcing solution usually comes along with an input-based and transformation of services. these consequences must of course be clarified before the asset

44 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 45 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page46

46 Germany finally selected,individualisedpersonaldatamaybeprovided. the undertaking should be provided. As soon as the supplier has been reasonably estimate the costs that it will incur due to the succeeding of current to need may supplier potential the information any their is, That etc. jobs, experiences, and qualifications employees’ benefits, other employees any agreements, bargaining and/or schemes, labour collective applicable of pension applicable number scheme, the remuneration e.g. their affected, provided, be can data protection employee data with bidders to provide to personal due data relating to identified allowed employees. Rather, only statistical not phase, is customer selection the restrictions, provider the During 7.3 here, the staff and the customer base are of much greater importance. businesses; manufacturing in than relevant less is transfer hardware a sector, service the of case the in Therefore, are differently. weighed factors said the sector), service or (manufacturing industry of the whether and assets; majority of employees are to intangible be taken over. and/or Depending on the branch tangible its of transfer business; given the of type industry; of branch consideration: into taken be must factors following the case, given a assessing When the the function(andnothingelse)iscontinuedbysupplier. before transferor the by run transaction. However, no business transfer of undertaking takes place, if the only in as transaction similar the of closing the after supplier the or by out carried be must activities same the Rather, undertaking. of transfer a as qualify concern retaining its identity. A transfer of assets going on its a own will not as continues business) transferred the (i.e. undertaking an constantly in changing national and European case law. interpreted The key issue is whether is Undertaking” of “Transfer term The 7.2 the employmentrelationshipsexistingattimeoftransfer. under duties and rights the to succeeds acquirer the Undertaking”), (“Transferof transaction legal by owner another a to passes business of part or business a if Code, Civil German 613a § to Pursuant 7.1 be must land of registered withthelandregistry. transfer the Only is law. registration German no under licences, required and assets movable of transfer a For 6.4 the for used and transferred is provision oftheoutsourcedservices. assets a the ensure of to balancing matter post-completion correct a is It transaction. transfer Noerr LLP WWW.ICLG.COM to right The void. and null is undertaking of transfer the to due an supplier succeeding of the by dismissal or employer previous the the by Code, employee Civil German (4) 613a § to Pursuant 7.4 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 7 employee forareasonconnected totheoutsourcing? provide toeachother? take place? Employment Law What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? Is acustomer/supplierallowed todismissan

mlyet s ta te upir il ae o opy ih the with comply to of have protective rulesagainstdismissalasforanyotherdismissal. conditions will supplier altered the of that option so the employment, with dismissal be a regularly as will treated employee transferring of a harmonisation of terms the employment Anyhow, agreement. bargaining another by or agreement labour collective another of provisions legal the by governed are supplier succeeding the with duties and rights the if apply not does This employee. the and supplier succeeding the between agreed is agreement labour collective that of application the agreement, labour collective another of applicability of scope the in agreement labour collective a by bound are parties both that case the not is it where or, applies longer no agreement bargaining the and duties may be changed if the collective labour agreement or the to changed be date of transfer. not Prior to the expiry of the one-year period, the rights the after may year one of end the and before employee the of disadvantage employee the and supplier acquiring the between relationship employment the of part become of a collective labour agreement or by a bargaining agreement, they Civil German sentence fourth Code, if these rights and duties are governed by to the legal provisions second (1) 613a § to Pursuant 7.5 h otorig ouin ged il ae o e nlsd to analysed be to have will agreed solution outsourcing The 8.1 these deploy otherwise employees orhowtoincentivisetheirphasingout. to how to as arrangements make should he whether or possible is dismissal a whether basis case-by-case a on assess to have will customer Protection the Employment so Act, will have to obey the general job protection rules under the German however, customer, The apply. not also will ( above) 7.4 Code question Civil German (4) 613a § under protection job specific the so and apply, not will undertaking of transfer of concept legal the that mean likely most will transaction outsourcing offshore An 7.7 employees transferred tothesupplier. the and provider for service actuary an schemes by calculated be pension must transferred finance employer’s to the accrued fulfil funds completely to position e.g., that, mean may This schemes. pension such under obligations a the in for is existed supplier scheme pension of the that ensure to arrangements make customer,to have will parties kind what on Depending arrangement. pension any under duties and also rights the business to succeeds outsourced the to succeeding supplier the applies, Code) Civil German 613a (§ regime undertaking of transfer the If 7.6 remains unaffected. however, reasons, other for relationship employment the terminate 8 existing workforce? transaction? Security Data ProtectionIssuesandInformation terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment and dataprotectionthatmayarise onanoutsourcing requirements andissuesconcerning datasecurity What arethemostmateriallegal orregulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations?

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48 Germany eotn poess ih eua rve meig, root-cause internal escalations,etc. meetings, processes, remedy of monitoring review failure, level service of regular analyses with processes reporting and monitoring contractual detailed be may remedies pro-active Such long-term apply. a is aware of critical situations to be resolved before legal remedies may become to transaction parties the help may remedies pro-active outsourcing arrangement, an As 11.2 ■ ■ ■ ■ ■ the followingremedies: have may customer the fulfil, properly to failed supplier the which service the of character the on depending and law, German Under 11.1 terminate theoutsourcingagreementforcause. service level may be a “good reason” which entitles the customer to to failed supplier fulfil the agreed the service level. longer An extreme failure to the meet the agreed and/or more the increase which credits service of system a establish to reluctant often are Parties and mayevenleaveadditionaldamageclaimsunaffected. fees payable the of reductions lump-sum as qualified be to legally are however, levels, service against underperformance an of event any exceeding damages. “Service credits” which become due in the to not but agreed payment the to entitled be only will customer the of speaking when mal-performance, or supplier’s damages non- the of event the in “penalties”, liquidated mean If however, liability). of parties, damages limitation general exceeding the such of penalty framework to the entitled the (within be exceeding also damages will they establish amount, to able is customer the however, If, incurred. damages the establish to required being 341 money in the case of non- 340, or mal-performance without the customer §§ of meaning legal German Civil Code, mean an obligation the to pay an agreed amount of the within knowing “Penalties”, without “penalties” background. on agree parties Often are alsotobedefined. etc.), reasons, maintenance for outages planned as unaffected(such level service the leave shall which situations exceptional typical as well as metrics, measuring points, measuring methods, Measuring Noerr LLP WWW.ICLG.COM party third of free indemnifications, corresponding are with rights provided property services intellectual that deliverables warranty and a if rendered claims), leeway, damage up otherwise (making rendered possible; services in performance poor for warranty a deliverables, defective for level warranty service a agreements, include can indemnities and/or warranties Typical 11.3 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? termination forcause. damage claims;and rescission fromtheagreement; defective a for paid be deliverable; to remuneration the of reduction repair orreplacementofadefectivedeliverable; What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder What arethetypicalwarrantiesand/orindemnities Customer Remedies

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Germany

OUT19_04_07_Layout 104/07/201914:46Page49 beyond anycustomer-specific know-howandinformation. post- know-how supplier’s ready to disclose their the general know-how to any succeeding supplier of not usually are use Suppliers only. migration-purposes for termination make may customer outsourcing agreement, parties usually agree on a restriction that the an of clauses management-related exit the within Rather, urnes rgrls o ay eal) rne ad h supplier’s the and granted default) any of (regardless guarantees entitled to gain access to the supplier’s know-how post-termination. use to continue to supplier the licensed IP for rightspost-termination. rights implied no are there and agreement, outsourcing the only,of termination upon expires it agreement outsourcing the of term the for supplier the to granted in §§17and18UWG. since 26 April 2019. It replaces the previously applicable standards Secrets (“GeschGehG”) Business was enacted on 18 of April 2019 and has Protection been in force the on Law the law, national into 2016 May 27 of as disclosure and use acquisition, unlawful against the on Directive party.EU Transferringthird the a to disclosure or German Unfair Competition Act (“UWG”) against unauthorised use 18 17, §§ under protected been has information confidential critical have will parties developed, are work of pieces copyrightable other under the term of possible the outsourcing agreement) licence rights. If software or for be or (perpetual exclusive of not holder the become – should law applicable itself right property intellectual the of assignment an extent the to – or rights property intellectual will have to agree which party shall become either the owner of such parties arise, rights property intellectual new which under services other or development provides supplier the that extent the to and If, harmless fromanythirdpartyinfringementclaims. supplier this the hold Toand indemnify to have supplier.will customer the the extent, to granted is only obligations contractual ICLG TO: OUTSOURCING 2019 for intent, wilful for liability party’s a law, German Under 15.1 is customer the which under Germany in law statutory no is There 14.4 is licence any that agreement outsourcing the in agreed parties If 14.3 information business and know-how undisclosed of protection business other and secrets trade know-how, 2019, April 26 Before 14.2 made available tothesourcecodeofrespectivesoftware. be also should it that extent the to and software the amend or modify change, to entitled is party other the whether on agree to its fulfilling of purposes the for and agreement outsourcing the of term the for rights property intellectual such of subject the use to Noerr LLP 15 can itmakeofit? supplier's know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? To whatextent canapartylimitorexcludeliability To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto law? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness under nationallaw? Liability

Schiedsgerichtswesen e.V. for personal injury and death can neither be excluded, nor limited. nor excluded, be neither can death and injury personal for foreseeable damages. Moreover, in and such standard agreements, a party’s typical liability of be level the neither beyond limited can nor excluded obligations contractual material of performance the in negligence ordinary for and negligence gross for agreements that the liability of the party who uses such pre-formulated standard means This context. B2B a in used if even conditions, and terms individually general not as qualify will is it parties, the between and thereafter negotiated contracts two than more for formulated pre- was i.e. agreement, standard a is agreement outsourcing the If limited. liability under the Product Liability Act can neither be excluded nor iw f h rqieet ne § 4 Gra Cvl oe a Code, an than Civil appeal enforceable contractualobligation. moral German a of 242 more is § clause behaviour” under “partnerial requirement the of In view parties, interests. reasonable party’s other the of consideration agreements, in and outsourcing fairly faith, good in act should they that mean also they which behaviour” with many “partnerial of requirement the on In agree nevertheless, overriding requirement. this from consequences legal specific the derives law case taking long-term and forth, Broad set consideration. is into practice faith customary good of requirements the to according perform to obligation general a Code, Civil German 242 § Under 17.1 ( Arbitration for Institution German the of rules the under or ICC the before proceedings arbitration on or reconciliation. If the parties agree on arbitration, they may agree agree on alternative dispute resolution such as arbitration, mediation Rather,parties choice. of method the always not is courts ordinary know-how,before industry-related litigation specific require which As outsourcing transactions are usually highly complex transactions 16.1 default) willbenullandvoid. without (liability guarantees for and Act Liability Product German the under intent, wilful for liability of limitations Only negligence. standard a as agree a financial cap on liability for ordinary (slight) and even to gross free qualify are parties above), not 15.1 question in defined does (as agreement agreement outsourcing the If 15.2 usucn areet, oee, r uuly individually standard for restrictions usually agreements willnotapply. specific that are so agreements however, negotiated agreements, Outsourcing 17 16 used? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolution liability? Are thepartiesfreetoagreeafinancialcapon reasonableness undergenerallaw?

Good Faith Dispute Resolution

etce nttto für Institution Deutsche WWW.ICLG.COM Germany

49 Germany OUT19_04_07_Layout 104/07/201914:46Page49 ICLG TO: OUTSOURCING 2019 for intent, wilful supplier’s the for and granted liability default) any party’s of (regardless guarantees a law, German Under 15.1 beyond anycustomer-specific know-howandinformation. post- know-how supplier’s ready to disclose their the general know-how to any succeeding supplier of an not usually are use Suppliers only. migration-purposes for termination of make may clauses customer management-related exit outsourcing agreement, parties usually the agree on a restriction that the within Rather, entitled to gain access to the supplier’s know-how post-termination. is customer the which under Germany in law statutory no is There 14.4 use to continue to supplier the licensed IP for rightspost-termination. rights implied no are there and agreement, outsourcing the only,of termination upon expires it agreement outsourcing the of term the for supplier the to granted is licence any that agreement outsourcing the in agreed parties If 14.3 in §§17and18UWG. since 26 April 2019. It replaces the previously applicable standards Secrets (“GeschGehG”) Business was enacted on 18 of April 2019 and has Protection been in force the on Law the law, national into information business 2016 May 27 of as and disclosure and use acquisition, unlawful against know-how undisclosed of protection the on Directive party.EU Transferringthird the a to disclosure or German Unfair Competition Act (“UWG”) against unauthorised use 18 17, §§ under protected been has information confidential critical business other and secrets trade know-how, 2019, April 26 Before 14.2 made available tothesourcecodeofrespectivesoftware. be also should it that extent the to and software the amend or modify change, to entitled is party other the whether on agree to have will parties developed, are work of pieces copyrightable other under the term of possible the outsourcing agreement) licence rights. If software or for be or (perpetual exclusive of not holder the become – should law applicable itself right property intellectual the of assignment an extent the to – or rights property intellectual will have to agree which party shall become either the owner of such parties arise, rights property intellectual new which under services other or development provides supplier the that extent the to and If, harmless fromanythirdpartyinfringementclaims. supplier this the hold Toand indemnify to have supplier.will customer the the extent, to granted is its only fulfilling obligations of contractual purposes the for and agreement outsourcing the of term the for rights property intellectual such of subject the use to Noerr LLP © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 15 can itmakeofit? and canthesebeexcludedfromtheagreement? law? under nationallaw? supplier's know-howpost-terminationandwhatuse To whatextent canapartylimitorexcludeliability To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness Liability

Schiedsgerichtswesen e.V. default) willbenullandvoid. without (liability guarantees for and Act Liability Product German the under intent, wilful for liability of limitations Only negligence. standard a as agree a financial cap on liability for ordinary (slight) and even to gross free qualify are parties above), not 15.1 question in defined does (as agreement agreement outsourcing the If 15.2 iw f h rqieet ne § 4 Gra Cvl oe a Code, an than Civil appeal enforceable contractualobligation. moral German a of 242 more is § clause behaviour” under “partnerial requirement the of In view parties, interests. reasonable party’s other the of consideration agreements, in and outsourcing fairly faith, good in act should they that mean also they which behaviour” with many “partnerial of requirement the on In agree nevertheless, overriding requirement. this from consequences legal specific the derives law case taking long-term and forth, Broad set consideration. is into practice faith customary good of requirements the to according perform to obligation general a Code, Civil German 242 § Under 17.1 ( Arbitration for Institution German the of rules the under or ICC the before proceedings arbitration on or reconciliation. If the parties agree on arbitration, they may agree agree on alternative dispute resolution such as arbitration, mediation Rather,parties choice. of method the always not is courts ordinary know-how,before industry-related litigation specific require which As outsourcing transactions are usually highly complex transactions 16.1 usucn areet, oee, r uuly individually standard for restrictions usually agreements willnotapply. specific that are so agreements however, negotiated agreements, Outsourcing limited. nor excluded, be neither can death and injury personal for foreseeable damages. Moreover, in and such standard agreements, a party’s typical liability of be level the neither beyond limited can nor excluded obligations contractual material of performance the in negligence ordinary for and negligence gross for agreements that the liability of the party who uses such pre-formulated standard means This context. B2B a in used if even conditions, and terms individually general not as qualify will is it parties, the between and thereafter negotiated contracts two than more for formulated pre- was i.e. agreement, standard a is agreement outsourcing the If limited. liability under the Product Liability Act can neither be excluded nor 17 16 liability? reasonableness undergenerallaw? used? Are thepartiesfreetoagreeafinancialcapon according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolution

Good Faith Dispute Resolution

etce nttto für Institution Deutsche WWW.ICLG.COM Germany

49 Germany OUT19_04_07_Layout 104/07/201914:46Page50

50 Germany WWW.ICLG.COM Noerr LLP © Published andreproduced withkindpermission byGlobalLegal Group,Ltd shared values, the firm’s 500+ professionals are driven by one goal: the client’s success. Listed groups and multinational com multinational and groups Listed success. client’s the goal: one by driven are professionals 500+ firm’s the values, shared sophisticated legal matters with the perfect mix of experience, excellence, passion and sound judgment, in the most efficient w Noerr stands for excellence and entrepreneurial thinking. With well-versed teams, Noerr devises and implements solutions for t medium-sized family businesses, as well as financial institutions and international investors, a all rely on the firm. Noerr’s uoen a frs ih fie i 1 cutis n a lbl ewr o tprne “et red” a frs Ner s lo well also is Noerr firms, law friends” “best top-ranked of network global a and countries 11 in offices with firms law European challenges their own and are always thinking one step ahead. The firm is committed to always going the extra mile for its clie internationally; NoerristheexclusivememberfirminGermanyforLexMundinetwork. and amemberofitsGermanmanagementteam. firm law joined Circle Magic a in he partner equity was Before Joachim 2009, in Noerr University. Frankfurt at professor honorary an is source open software issues, IT procurement compliance, as well as data protection copyright issues). He (including projects compliance IT- activities, marketing direct arrangements, processing data border law,cross- protection data as well as computing, cloud outsourcings, in IT project-work such as software development, system integrations, data, personal industries in digitalisation, Industry 4.0 and Internet-of-Things projects, of all from clients major advises exchange He etc.). policies, retention international document law, copyright issues, with a second focus on IT-compliance (e.g. data protection and privacy privacy law team, advising his clients both in IT and high-tech projects data and IT Frankfurt-based Noerr’s heads Schrey Joachim Dr. Prof. Tel: Germany D- 60313FrankfurtamMain Boersenstrasse 1 Noerr LLP Joachim Schrey URL: Email: +49 69971477241 www.noerr.com [email protected]

ICLG TO: OUTSOURCING 2019 dvisors make their clients’ nts. As one of the top ay. United by a set of he most complex and panies, large and large panies,

Germany established

OUT19_04_07_Layout 104/07/201914:46Page51 ■ The Efficiency Unit ■ ■ possible, inkeepingwiththeeconomicandfiscalobjectivesof: where services public deliver to sector private the engage should in outsourcing sector February 2017,andexpressed: public reviewed Council Legislative The Legislative Council Public Sector Transactions 1.2 to outsourcing transactions. applicable be may that guidelines and requirements certain regulate to specifically that laws any relation in 1 section of remainder the See transactions. outsourcing have not does Kong Hong 1.1 Ashurst HongKong The Efficiency Unit published its published Unit Efficiency The it that policy established an has Government the Kong, Hong “In ac 20 – etn ot o otorig s netkn by undertaken is outsourcing how out setting – 2008 March government departments, including the following steps to be taken be to steps following the including departments, government based onlyonlowest price. contract long sufficiently duration, robust tender selection and avoidance of selecting encouraged vendors also Unit Efficiency The ■ at eachphaseofanoutsourcing: ■ ■ ICLG TO: OUTSOURCING 2019 Hong Kong Chapter 9 1 rmtn bsns opruiis n jb i te private the in jobs and opportunities business promoting sector.” containing thesizeofcivilservice,and maintaining asmallandefficientgovernment, otat aaeet cniu t mntr h service the monitor to delivery andbenefitsachieved. continue – management Contract acquisition planandconductduediligence checks. delivery arrangements. service and need business the considered having after model edrn ad eeto – rpr a eald service detailed a prepare – selection and Tendering outsourcing an develop – services acquired the of Review Regulatory Framework outsourcings)? undertaken bygovernmentorpublicsectorbodies? requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory outsourcings, ITtelecommunications Are thereanynationallawsorregulationsthat outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

General Guide to Outsourcingto Guide General

The Hong Kong government indicated in November 2016 that its that 2016 November in indicated government Kong Hong The Major procuringHongKonggovernmentdepartments ■ referenced inbothSA-2andGN14): overseas) and paying Kong close attention to include Hong the following (and in are substantially (both regulators see we relevant that Issues to provisions contractual linking regulatory requirements. and regulators is for approval any whether packages” “information appropriate of preparing including – required irrespective addressed, relevant that are ensuring involves issues and arrangement regulator relevant outsourcing the material with engaging any of part key A holders ortoconformwithlegalandregulatory requirements policy to services adequate provide or obligations meet to ability its or reputation operation, business position, financial insurer’s an on impact significantly to potential the have would standards, acceptable of short falls or disrupted if which, arrangement an “… IA’s GN14,forexample,defines“materialoutsourcing”asbeing: are regulators typically concerned with “material” outsourcing arrangements. and The provider, service be unlicensed cannot an business to “core” outsourced or “licensed” the – example prime a In various regulated industries – with financial services sector being Financial Services Transactions industry sectorinquestion. and activity outsourcing the on depending apply may laws Other There arenospecificlawsgoverningbusinessprocessoutsourcing. Business Process Transactions ■ ■ ■ four majorprocuringdepartmentsare: ■ ■ ■ ■ ■ ■ ■ ■ involved. (including stored is outsourcing are overseas if and regulator), the to accessibility data customer and business Where Housing Department. Government Property Agency. Food andEnvironmentalHygieneDepartment. Leisure andCulturalServicesDepartment. opine ih esnl aa n cybersecurity-related and laws andrequirements. data personal with Compliance hte te lcne” uies cnrl ean wt the with remains control business’ “licensed” the Whether regulator. relevant the by required as provisions specific of Inclusion Exit/contingency planning. Risk/confidentiality assessmentand management. Due diligenceofsuppliers. Control overtheoutsourcedactivity. authorised institution.

Hoi TakLeung

Joshua Cole

WWW.ICLG.COM

.”

51 OUT19_04_07_Layout 104/07/201914:46Page50

50 Germany WWW.ICLG.COM Noerr LLP shared values, the firm’s 500+ professionals are driven by one goal: the client’s success. Listed groups and multinational com multinational and groups Listed success. client’s the goal: one by driven are professionals 500+ firm’s the values, shared sophisticated legal matters with the perfect mix of experience, excellence, passion and sound judgment, in the most efficient w Noerr stands for excellence and entrepreneurial thinking. With well-versed teams, Noerr devises and implements solutions for t uoen a frs ih fie i 1 cutis n a lbl ewr o tprne “et red” a frs Ner s lo well also is Noerr firms, law friends” “best top-ranked of network global a and countries 11internationally; NoerristheexclusivememberfirminGermanyforLexMundinetwork. in offices with firms law European challenges their own and are always thinking one step ahead. The firm is committed to always going the extra mile for its clie medium-sized family businesses, as well as financial institutions and international investors, a all rely on the firm. Noerr’s and amemberofitsGermanmanagementteam. firm law joined Circle Magic a in he partner equity was Before Joachim 2009, in Noerr University. Frankfurt at professor honorary an is source open software issues, IT procurement compliance, as well as data protection copyright issues). He (including projects compliance IT- activities, marketing direct arrangements, processing data border law,cross- protection data as well as computing, cloud outsourcings, in IT project-work such as software development, system integrations, data, personal industries in digitalisation, Industry 4.0 and Internet-of-Things projects, of all from clients major advises exchange He etc.). policies, retention international document law, copyright issues, with a second focus on IT-compliance (e.g. data protection and privacy privacy law team, advising his clients both in IT and high-tech projects data and IT Frankfurt-based Noerr’s heads Schrey Joachim Dr. Prof. Tel: Germany D- 60313FrankfurtamMain Boersenstrasse 1 Noerr LLP Joachim Schrey URL: Email: +49 69971477241 www.noerr.com [email protected]

ICLG TO: OUTSOURCING 2019 dvisors make their clients’ nts. As one of the top ay. United by a set of he most complex and panies, large and large panies, Germany established

OUT19_04_07_Layout 104/07/201914:46Page51 based onlyonlowest price. contract long sufficiently duration, robust tender selection and avoidance of selecting encouraged vendors also Unit Efficiency The ■ ■ ■ by undertaken at eachphaseofanoutsourcing: is outsourcing how taken be to steps following the out including departments, government setting – 2008 March its published Unit Efficiency The The Efficiency Unit ■ ■ ■ possible, inkeepingwiththeeconomicandfiscalobjectivesof: where services public deliver to sector private the engage should it that policy established an has Government the Kong, Hong “In in outsourcing sector February 2017,andexpressed: public reviewed Council Legislative The Legislative Council Public Sector Transactions 1.2 to outsourcing transactions. applicable be may that guidelines and requirements certain regulate to specifically that laws any relation in 1 section of remainder the See transactions. outsourcing have not does Kong Hong 1.1 Ashurst HongKong ICLG TO: OUTSOURCING 2019 Hong Kong Chapter 9 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 1 undertaken bygovernmentorpublicsectorbodies? outsourcings)? otat aaeet cniu t mntr h service the monitor to delivery andbenefitsachieved. continue service – detailed management Contract a prepare – acquisition planandconductduediligence checks. selection and Tendering delivery arrangements. service and need business the considered outsourcing having after model an develop – services acquired the of Review private the in sector.” jobs and opportunities business promoting containing thesizeofcivilservice,and maintaining asmallandefficientgovernment, Regulatory Framework requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory Are thereanynationallawsorregulationsthat outsourcings, ITtelecommunications outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

General Guide to Outsourcingto Guide General

■ referenced inbothSA-2andGN14): overseas) and paying Kong close attention to include Hong the following (and in are substantially (both regulators see we relevant that Issues to provisions contractual linking regulatory requirements. and regulators is for approval any whether packages” “information appropriate of preparing including – required irrespective addressed, relevant that are ensuring involves issues and arrangement regulator relevant outsourcing the material with engaging any of part key A holders ortoconformwithlegalandregulatory requirements policy to services adequate provide or obligations meet to ability its or reputation operation, business position, financial insurer’s an on impact significantly to potential the have would standards, acceptable of short falls or disrupted if which, arrangement an “… IA’s GN14,forexample,defines“materialoutsourcing”asbeing: are regulators typically concerned with “material” outsourcing arrangements. and The provider, service be unlicensed cannot an business to “core” outsourced or “licensed” the – example prime a In various regulated industries – with financial services sector being Financial Services Transactions industry sectorinquestion. and activity outsourcing the on depending apply may laws Other There arenospecificlawsgoverningbusinessprocessoutsourcing. Business Process Transactions ■ ■ ■ ■ four majorprocuringdepartmentsare: its that 2016 November in indicated government Kong Hong The Major procuringHongKonggovernmentdepartments ■ ■ ■ ■ ■ ■ ■ involved. (including stored is outsourcing are overseas if and regulator), the to accessibility data customer and business Where Leisure andCulturalServicesDepartment. Housing Department. Government Property Agency. Food andEnvironmentalHygieneDepartment. regulator. relevant the by required as provisions specific of Inclusion Exit/contingency planning. Risk/confidentiality assessmentand management. Due diligenceofsuppliers. Control overtheoutsourcedactivity. authorised institution. the with remains control business’ “licensed” the Whether cybersecurity-related and laws andrequirements. data personal with Compliance

Hoi TakLeung

Joshua Cole

WWW.ICLG.COM

.”

51 OUT19_04_07_Layout 104/07/201914:46Page52

52 Hong Kong rnils n usucn o Fnnil evcs o Market for Services Financial of Intermediaries (“ Outsourcing on the Principles endorsed has It guidelines. outsourcing published not has SFC Securities andFuturesCommission(“SFC”) the protecting interests ofitsexistingandpotentialpolicyholders for arrangements outsourcing its monitoring and formulating in account to into take to insurer authorized guidance an expects further provides “ to: relation in insurers and authorised GN14, supplements GL14 ■ ■ ■ ■ GN14’s requirementsinclude: ■ usucn arneet n opine ih h Scrte and Securities Futures (Licensing andRegistration)(Information) Rules. the with compliance in arrangement outsourcing outsourcing any such of SFC notify must they processing, for suppliers outsourced notwithstanding approved Kong, their arrangement. Hong While such entities may send relevant records to their at documents in maintained and be premises must records electronic) required (including entity’s SFC-licensed Any 2005 bytheInternationalOrganisation ofSecuritiesCommissions. ■ all to apply that outsourcing arrangementsbyanauthorisedinsurer: documents relevant two published has IA The Insurance Authority (“IA”) prior approvalbeforeengagingoutsourcingsuppliers. obtain to institutions authorised require expressly not HKMAdoes of depositorsandpotentialdepositors. of systems and interests the to consideration with business conducting and control, systems accounting adequate having including the under criteria authorisation minimum the meet to continue will they how HKMA has also stated that an authorised institution should consider ■ ■ ■ ■ They setoutvariousrequirements,including: material ■ addresses ■ Manual Policy outsourcing byauthorisedinstitutionsinthefollowingparts: Supervisory HKMA’s Hong KongMonetary Authority (“HKMA”) WWW.ICLG.COM Ashurst HongKong © Published andreproduced withkindpermission byGlobalLegal Group,Ltd fe etrn it a otorig ragmn, an information its execution. arrangement, IA the of days 30 within outsourcing arrangement varied to or new the to relating submit an should insurer into authorised entering After significantly varyingacurrentmaterialoutsourcing. or agreement outsourcing new a into entering before notice prior months’ three IA the give must insurer authorised An services. outsourced the all for accountability full and ultimate retain management and directors of board insurer’s authorised An Setting out10issuestobeaddressedwhenoutsourcing. Guideline onOutsourcing(“ 2012. Guidance Note on Outsourcing (“ outsourcing arrangement. an into entering before complete must an institution authorised that documents or questionnaires specific no are There their in agreement withsuppliers. include to institutions authorised expects HKMA that provisions contractual out set TM-G-1 and SA-2 Both entering intoanoutsourcingarrangement. and The directors major supervisory concerns for any authorised institution of outsourced activity. board the for accountability full and institution’s ultimate retain management authorised An G-1”), dated24June2003. for Principles TechnologyGeneral (“ Management Risk Outsourcing (“SA-2”),dated28December2001. akn Ordinance Banking IOSCO Principles

hn osdrn otorig – outsourcing considering when

”) that were published in February GL14”) –dated26June2017. the essential issues that the IA the that issues essential the

GN14”) – dated September

.”

TM-

■ ■ ■ to certainoutsourcingtransactions.Forexample: applicable requirements other be also may There 1.2. question See 1.3 including those listed below. Decisions in relation to outsourcing to relation in Decisions below. listed those including reasons, various for supplier a to outsource to chooses Acustomer Background –whyoutsource? 2.1 in transactions outsourcing Hong Kong. for options law governing main the From a market practice perspective – Hong Kong and Singapore are There isnosuchrequirementunderHongKonglaw. 1.4 hr ae o pcfc as oenn otorig of outsourcing governing laws specific no telecommunication services. are There Telecommunications Transactions There arenospecificlawsgoverningoutsourcingofIT services. IT Transactions overseas premises tobeapproved undersection130 SFO. the of such requiring as 130 130 section interpret not does However, section SFC the under SFC the by approved been have a third party such and at the Hong of Kong premises premises of an intermediary overseas which the at both kept contemporaneously that and being recordsdocuments identical or involve might practices these intermediaries by adopted sometimes are parties third overseas recognisesoutsourcinginvolving SFC that practices “The has statedasfollows: approved SFC address, the overseas provider’s at outsourcing an both at and records premises of maintenance the to relation In 2 example thefinancialservicessector? used foranoutsourcingtransaction? the choiceofgoverninglaw? hs my e ujc t seii sco requirements, sector specific to subject including notificationandconsultationrequirements. be may services. These cloud public including services, cloud of use the permit regulators) services financial (including Kong Hong Cloud computing – broadly speaking, laws and regulators in Kong. Hong See section8forfurtherdetails. in law privacy data primary the is (“PDPO”) privacy Data its with therelevantregulator. agreed that plans ensure with consistent to are arrangements need outsourcing also will requirements such comply with to required are the that organisations for Any events customer). insolvency any contracts (notwithstanding keeping effective and for contracts flexibility splitting agreements, and critical transferring to relation are in which require, – laws organisations– sector planning services financial certain to applicable resolution and Recovery Legal Structure undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory What arethemostcommontypesoflegalstructure law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction

te esnl aa Piay Ordinance (Privacy) Data Personal the – ICLG TO: OUTSOURCING 2019

Hong Kong

.”

OUT19_04_07_Layout 104/07/201914:46Page53 usucn tascin, oh n og og n oesa – overseas for and structures Kong legal Hong including: used in commonly both of transactions, outsourcing number a are There Typical outsourcing structures ■ ■ on anoffshoring orreshoringbasis: to implementforanyoutsourcingtransaction. reasons is a key part of determining what legal structure (and terms) ICLG TO: OUTSOURCING 2019 ■ ■ whether following, the outsource would organisationTypically, an these of consideration and – complex increasingly becoming are Ashurst HongKong One-off events strategies business maturation of development and Internal expertise, Costs Regulation “Big data” Reason Function –e.g.IT, accounting. Activity –e.g.manufacturing,procurement. Project –whetherentirelyorpartial. facilities management. repair, machine goods, of delivery e.g. – process Business

Failures inservices(particularlyforkeyor different customers. substantial mixofregulatoryobligationsfrom jurisdictions, astheyhavetomanagea that hasfocusedcustomers’ mindsonhowto to customers,regulatorsandemployees– customer-facing aspects)canbehighlyvisible solutions inawaythatcomplieswithmultiple job fortherelevantactivity(e.g.outsourcing ■ and ■ relation to: best procurethoseservices,particularlyin efforts, givensuppliers frequentlydesigntheir to outsource–e.g.forthecustomerbeable Are therematerialincentivesforthecustomer particular areabletoachieveeconomiesof clients usingcloudcomputing-basedservices, procurement agentwhohassignificantmarket the procurementofgoods,usingacentral days, costisstillakeydriver–includingin the contextofbringingbetterexpertisethese While outsourcingsarefrequentlydiscussedin areas ofnon-expertise. help inconsolidatingregulatorycompliance finding thatusingoutsourcingproviderscan jurisdiction-specific –customersarefrequently As organisations becomemorecross-borderin more usefuloutcomes. An areaofrecentinterestisthevaluedata customer’s areasofnon-expertise? to focusontheirareasofexpertise,while scale (bothincostsandsolutionsexcellence) given thatlarge cloudservicesprovidersin For example,weseeanincreasingnumberof leverage canresultinbetterdiscounts). regulations) becomeincreasinglycomplexand (including dataprivacyandpayment nature, andasregulationsinvariousareas help generatebetterqualityinformationand increasingly abletouseproprietarytools they have–andlarger providersare and “bigdata”.Manyorganisations donot outsourcing toasupplierthatspecialisesinthe gaining efficiencies andeconomiesofscaleby that isunlikelytobepracticalforasingle expertise totakefulladvantageofthedatathat have thenecessaryinternalresourcesand organisation. thesupplierbeingabletodoamoreefficient costreductions(e.g.headcountreductions);

Our comments

Indirect outsourcing outsourcing Multi-vendor outsourcing Direct/single source Structure

and directlycontractingwiththecustomer. This breaksdownmajorprojectstomore supplier, andwitheachsupplierseparately stream canbeperformedbyadifferent responsibility forsubcontractors. relevant integrationmanager’s) level regardingthesupplier’s (orthe exceptions arecreatedattheheadterms- subcontractors, particularlyifsignificant create difficulties inmanagingdown-stream with governanceandaccountability, itcan customer engagesasinglesupplier, whoin A hybridoftheabovetwomodels– key inaddressingthesedifficulties. and management(totheextentpossible)are and ensuringconsistentcontractdrafting Designing astronggovernanceframework overlapping responsibilities. streams), withreferencetopotentially project-level (asopposedtospecific ■ governed; and ■ – including: with different contracts indifferent streams associated withmanagingmultiplesuppliers There maybedifficulties andcosts best-in-class for)thoseexpertise. no singlevendoravailablethathas(oris functions. This is particularly usefulwhena specialist teamsthatfocusonparticular suppliers) –withcustomersleveraging discrete deliverables(andmultiple The projectisdividedintostreams.Each “dependent” onthesupplier. particularly wherethecustomerbecomes arrangement toadifferent supplier, ■ selection astheprojectprogresses;and goes on,leadingtore-assessmentofvendor substantial changeanddevelopmentastime relevant projectwilllikelyrequire tension canbeparticularlyimportantifthe While thisisastraightforwardstructure– by usingfixedfees. specified, scopedandplanned–including straight-forward andcanbeclearly ■ with onevendoronlyisimportant. While havingasinglesuppliermayassist collectively providetheservices. turn engagesdifferent subcontractorsto expertise orknowledge,andwherethereis project requiresdifferent kindsofdomain been enteredinto.Maintainingcompetitive vendor sourcingformorecomplexprojects. organisations frequentlyfavourmulti- governance modelassociatedwithworking The customerdirectlycontractswiththe competitive tensiononcetheagreementhas accountability –giventhepotentiallackof costs inthelongtermandensure ■ Selecting asinglesuppliermay: ■ particular supplier. ■ This structureisadoptedwhen: supplier. leadtodifficulties in exitingfromthe limitacustomer’s abilitytominimise howperformanceismeasuredatthe howdifferent vendors interactandare Wheretheservicesarerelatively Wheretheclarity, transparencyand Domainexpertiseresideswitha

Our comments

WWW.ICLG.COM Hong Kong

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52 Hong Kong ■ ■ GN14’s requirementsinclude: rnils n usucn o Fnnil evcs o Market for Services Financial of Intermediaries (“ Outsourcing on the Principles endorsed has It guidelines. outsourcing published not has SFC Securities andFuturesCommission(“SFC”) the protecting interests ofitsexistingandpotentialpolicyholders for arrangements outsourcing its monitoring and formulating in account to into take to insurer authorized guidance an expects further provides “ to: relation in insurers and authorised GN14, supplements GL14 ■ ■ ■ ■ They setoutvariousrequirements,including: material ■ addresses ■ Manual Policy outsourcing byauthorisedinstitutionsinthefollowingparts: Supervisory HKMA’s Hong KongMonetary Authority (“HKMA”) ■ ■ ■ all to apply that outsourcing arrangementsbyanauthorisedinsurer: documents relevant two published has IA The Insurance Authority (“IA”) prior approvalbeforeengagingoutsourcingsuppliers. obtain to institutions authorised require expressly not HKMAdoes of depositorsandpotentialdepositors. of systems and interests the to consideration with business conducting and control, systems accounting adequate having including the under criteria authorisation minimum the meet to continue will they how HKMA has also stated that an authorised institution should consider ■ usucn arneet n opine ih h Scrte and Securities Futures (Licensing andRegistration)(Information) Rules. the with compliance in arrangement outsourcing outsourcing any such of SFC notify must they processing, for suppliers outsourced notwithstanding approved Kong, their arrangement. Hong While such entities may send relevant records to their at documents in maintained and be premises must records electronic) required (including entity’s SFC-licensed Any 2005 bytheInternationalOrganisation ofSecuritiesCommissions. WWW.ICLG.COM Ashurst HongKong Guideline onOutsourcing(“ 2012. Setting out10issuestobeaddressedwhenoutsourcing. fe etrn it a otorig ragmn, an information its execution. arrangement, IA the of days 30 within outsourcing arrangement varied to or new the to relating submit an should insurer into authorised entering After significantly varyingacurrentmaterialoutsourcing. or agreement outsourcing new a into entering before notice prior months’ three IA the give must insurer authorised An services. outsourced the all for accountability full and ultimate retain management and directors of board insurer’s authorised An n uhrsd nttto’ bad f ietr and directors of outsourced activity. board the for accountability full and institution’s ultimate retain management authorised An G-1”), dated24June2003. for Principles TechnologyGeneral (“ Management Risk Outsourcing (“SA-2”),dated28December2001. KA xet atoie isiuin t icue n their in agreement withsuppliers. include to institutions authorised expects HKMA that provisions contractual out set TM-G-1 and SA-2 Both entering intoanoutsourcingarrangement. The major supervisory concerns for any authorised institution Guidance Note on Outsourcing (“ outsourcing arrangement. an into entering before complete must an institution authorised that documents or questionnaires specific no are There akn Ordinance Banking IOSCO Principles

hn osdrn otorig – outsourcing considering when

”) that were published in February GL14”) –dated26June2017. the essential issues that the IA the that issues essential the

GN14”) – dated September

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TM-

■ ■ ■ to certainoutsourcingtransactions.Forexample: applicable requirements other be also may There 1.2. question See 1.3 including those listed below. Decisions in relation to outsourcing to relation in Decisions below. listed those including reasons, various for supplier a to outsource to chooses Acustomer Background –whyoutsource? 2.1 in transactions outsourcing Hong Kong. for options law governing main the From a market practice perspective – Hong Kong and Singapore are There isnosuchrequirementunderHongKonglaw. 1.4 overseas premises tobeapproved undersection130 SFO. the of such requiring as 130 130 section interpret not does However, section SFC the under SFC the by approved been have a third party such and at the Hong of Kong premises premises of an intermediary overseas which the at both kept contemporaneously that and being recordsdocuments identical or involve might practices these intermediaries by adopted sometimes are parties third overseas recognisesoutsourcinginvolving SFC that practices “The has statedasfollows: approved SFC address, the overseas provider’s at outsourcing an both at and records premises of maintenance the to relation In hr ae o pcfc as oenn otorig of outsourcing governing laws specific no telecommunication services. are There Telecommunications Transactions There arenospecificlawsgoverningoutsourcingofIT services. IT Transactions 2 hs my e ujc t seii sco requirements, sector specific to subject including notificationandconsultationrequirements. be may These h ue f lu srie, nldn pbi cod services. cloud public including services, cloud of use the permit regulators) services financial (including Kong Hong Cloud computing – broadly speaking, laws and regulators in Kong. Hong See section8forfurtherdetails. in law privacy data primary the is (“PDPO”) privacy Data its with therelevantregulator. agreed that plans ensure with consistent to are arrangements need outsourcing also will requirements such comply with to required are the that organisations for Any events customer). insolvency any contracts (notwithstanding keeping effective and for contracts flexibility splitting agreements, and critical transferring to relation are in which require, – laws organisations– sector planning services financial certain to applicable resolution and Recovery Legal Structure example thefinancialservicessector? undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory used foranoutsourcingtransaction? What arethemostcommontypesoflegalstructure the choiceofgoverninglaw? law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction

te esnl aa Piay Ordinance (Privacy) Data Personal the – ICLG TO: OUTSOURCING 2019

Hong Kong

.”

OUT19_04_07_Layout 104/07/201914:46Page53 ICLG TO: OUTSOURCING 2019 – overseas for and structures Kong legal Hong including: used in commonly both of transactions, outsourcing number a are There Typical outsourcing structures ■ ■ ■ ■ on anoffshoring orreshoringbasis: whether following, the outsource would organisationTypically, an to implementforanyoutsourcingtransaction. these reasons is a key part of determining what of legal structure (and terms) consideration and – complex increasingly becoming are Ashurst HongKong © Published andreproduced withkindpermission byGlobalLegal Group,Ltd Costs One-off events Regulation “Big data” strategies business maturation of development and Internal expertise, Reason Project –whetherentirelyorpartial. facilities management. repair, machine goods, of delivery e.g. – process Business Function –e.g.IT, accounting. Activity –e.g.manufacturing,procurement.

organisation. that isunlikelytobepracticalforasingle scale (bothincostsandsolutionsexcellence) particular areabletoachieveeconomiesof given thatlarge cloudservicesprovidersin clients usingcloudcomputing-basedservices, For example,weseeanincreasingnumberof leverage canresultinbetterdiscounts). procurement agentwhohassignificantmarket the procurementofgoods,usingacentral job fortherelevantactivity(e.g.outsourcing ■ and ■ relation to: days, costisstillakeydriver–includingin the contextofbringingbetterexpertisethese areas ofnon-expertise. best procurethoseservices,particularlyin that hasfocusedcustomers’ mindsonhowto to customers,regulatorsandemployees– customer-facing aspects)canbehighlyvisible more usefuloutcomes. help generatebetterqualityinformationand increasingly abletouseproprietarytools they have–andlarger providersare expertise totakefulladvantageofthedatathat have thenecessaryinternalresourcesand customer’s areasofnon-expertise? outsourcing toasupplierthatspecialisesinthe gaining efficiencies andeconomiesofscaleby to focusontheirareasofexpertise,while to outsource–e.g.forthecustomerbeable Are therematerialincentivesforthecustomer While outsourcingsarefrequentlydiscussedin Failures inservices(particularlyforkeyor regulations) becomeincreasinglycomplexand (including dataprivacyandpayment nature, andasregulationsinvariousareas As organisations becomemorecross-borderin and “bigdata”.Manyorganisations donot An areaofrecentinterestisthevaluedata different customers. substantial mixofregulatoryobligationsfrom jurisdictions, astheyhavetomanagea solutions inawaythatcomplieswithmultiple efforts, givensuppliers frequentlydesigntheir help inconsolidatingregulatorycompliance finding thatusingoutsourcingproviderscan jurisdiction-specific –customersarefrequently thesupplierbeingabletodoamoreefficient costreductions(e.g.headcountreductions);

Our comments

outsourcing Direct/single source Indirect outsourcing outsourcing Multi-vendor Structure

“dependent” onthesupplier. particularly wherethecustomerbecomes arrangement toadifferent supplier, ■ selection astheprojectprogresses;and goes on,leadingtore-assessmentofvendor substantial changeanddevelopmentastime relevant projectwilllikelyrequire tension canbeparticularlyimportantifthe been enteredinto.Maintainingcompetitive competitive tensiononcetheagreementhas accountability –giventhepotentiallackof costs inthelongtermandensure ■ Selecting asinglesuppliermay: vendor sourcingformorecomplexprojects. organisations frequentlyfavourmulti- While thisisastraightforwardstructure– by usingfixedfees. specified, scopedandplanned–including straight-forward andcanbeclearly ■ with onevendoronlyisimportant. governance modelassociatedwithworking ■ particular supplier. ■ This structureisadoptedwhen: supplier. The customerdirectlycontractswiththe responsibility forsubcontractors. relevant integrationmanager’s) level regardingthesupplier’s (orthe exceptions arecreatedattheheadterms- subcontractors, particularlyifsignificant create difficulties inmanagingdown-stream with governanceandaccountability, itcan While havingasinglesuppliermayassist collectively providetheservices. turn engagesdifferent subcontractorsto customer engagesasinglesupplier, whoin A hybridoftheabovetwomodels– key inaddressingthesedifficulties. and management(totheextentpossible)are and ensuringconsistentcontractdrafting Designing astronggovernanceframework overlapping responsibilities. streams), withreferencetopotentially project-level (asopposedtospecific ■ governed; and ■ – including: with different contracts indifferent streams associated withmanagingmultiplesuppliers There maybedifficulties andcosts best-in-class for)thoseexpertise. no singlevendoravailablethathas(oris expertise orknowledge,andwherethereis project requiresdifferent kindsofdomain functions. This is particularly usefulwhena specialist teamsthatfocusonparticular suppliers) –withcustomersleveraging discrete deliverables(andmultiple This breaksdownmajorprojectstomore and directlycontractingwiththecustomer. supplier, andwitheachsupplierseparately stream canbeperformedbyadifferent The projectisdividedintostreams.Each leadtodifficulties in exitingfromthe limitacustomer’s abilitytominimise howperformanceismeasuredatthe howdifferent vendors interactandare Wheretheservicesarerelatively Wheretheclarity, transparencyand Domainexpertiseresideswitha

Our comments

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54 Hong Kong eeis n ah f hs pae, n te ere o hc due which to degree the diligence willcontinuethroughouttransitionandtransformation. and phases, these of each in remedies and responsibilities supplier’s and customer the including – project typical a of phases following the between relationship the into account take should agreement outsourcing an of consideration Any Phases ofatypicaloutsourcing project Ashurst HongKong WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd partnership Joint venture/ as usual” Go-live /“business Transformation Transition transfer Build, operateand Captive entity Structure Phase

live. own technologyandsolutions,toreach go- Following completionoftheabovephases. involves thenewsupplierimplementing its Implementing theendsolution–this usually house orexternal)totheappointedsupplier. scope fromtheexistingsupplier(whetherin- The transferandhandingoverofactivitiesin joint venture. establishing, operatingandexitingfroma substantial complexitiesandcoststo Any benefitsshouldbeweighedagainstthe supplier. both partiesnowhaveaninterestinthe of thesupplierandcustomer, giventhat also aimstomorecloselyaligntheinterests the entitytobemanagedindependently. It IP/know-how totheprojectanditrequires both partiesarecontributingsignificant provided inagreenfieldmarketorwhere –for example,wheretheservicesare This modelisappropriateincertaincontexts complete thework. venture orpartnershipentitywouldthen partnership arrangement. The relevantjoint and holdaninterestin,ajointventureor The customerandthesupplierenterinto, Public, large-scale infrastructureprojects The customerestablishesawholly-owned would bemanaged. disputes arisingfromsucharrangement sharing arrangementwouldworkandhow infrastructure, includinghowanyrevenue- during whichthesupplierwilloperate substantial negotiationsaroundtheperiod transferring ofrisk,therewillusuallybe from customertothesupplier. Givensuch transfer ofconstructionandoperationrisk Such acontractingstructureinvolves ownership atanagreed,laterdate. supplier wouldtransfertheinfrastructure’s split betweenthecustomerandsupplier. The from theinfrastructurepotentiallybeing period oftime,withanyrevenuegenerated would thenbeownedbythesupplierfora relevant infrastructure. The infrastructure customer) engagingasuppliertobuildthe may involvethegovernment(as expenses ofoperatingasubsidiary. subsidiary, mayjustifythecostsand That, andhavingcontroloverthe rather thanusingthecustomerentityitself. basis) maybeeasierusingsuchasubsidiary parties (whetheronafor-profit orother Providing therelevantservicestothird function withinacustomertobe“spunoff”. This modelallowsforthespecialised company orotherthirdparties. provide therelevantservicestoparent subsidiary. This subsidiarywouldthen Our comments Our comments

“off-the-shelf” services. go to need no beyond the level of specifications and services levels received from have customers many that find we and – services to able being shelf” “offthe differentto significantly are that solutions procuring customers are large they if only see albeit terms, standard such still negotiate significantly we that, said Having limited scopeofnegotiationsatfirst. customers gives which marketplace, the in agreements type terms" computing cloud large of rise "standard of number increasing an seeing are we the providers, service given – basis practical a On Standard termsfor “offtheshelf”services ■ ■ requirements arrangements relyingon: and outsourcing large-scale jurisdictions see typically we different Asia-Pacific, in involved of number the Given Master andlocalservicesagreement ht h tne poes css r cnrle ad o aiie the possibility ofawin-winrelationship. maximise to and controlled are costs process’ tender the that ensure to aims process procurement competitive and structured A ■ ■ ■ be guidedby: The process is typically run as follows – noting that this process may completed usingarequestforproposal/invitationtotenderprocess. In our experience, procurement processes in Hong Kong are generally 3.1 Specifications outsourced? – whatistobe Due diligence 3 Step process thatisusedtoselectasupplier? oenn lw n poet implementation-specific project and requirements. law governing customer’s address country-specific requirements – the including regulatory, to used and generally are LSAs countries. those supplier in subsidiaries the between arrangements financial/ parent local services agreements, which implement country-specific a including performance guaranteeatthislevel;and potentially and entities, contracting head the between agreement services master a utmr s o eprecd t en ivle i such in involved being at process. experienced not is customer the when particularly – consultants external of involvement or thereisanopeninvitationtoall;and only suppliers of list selected a to issued RFPis the whether process should beconducted; outsourcing an how government to relevant relation in any guidelines/rules – outsourcing sector public for Procurement Process What isthemostcommontypeofprocurement

some servicesin-houseorwithexisting suppliers. business sense,givenalternatives–such asretaining will continuetoassesswhethertheoutsourcingmakes Both atthisstageandtheRFP stage,thecustomer closed basis. affect whethertheRFP willbeissuedonanopenor ■ may have. state ofplayandwhatinternalimpactanyoutsourcing scope ofwork. can thenbeincludedintheRFP asbeing therequired scope fortheoutsourcingwillbe. These specifications specifications inrelationtowhattherequirements and The customershouldprepareadetailed setof ■ The customershouldcompleteaduediligenceof: Whothepotentialsuppliersmaybe. This will Whatistobeoutsourced–includingthecurrent

ICLG TO: OUTSOURCING 2019

Our comments

Hong Kong

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Ashurst Hong Kong Hong Kong

Step Our comments Step Our comments The customer will send an RFP (also sometimes Depending on the customer’s industry sector – there called an ITT) to potential suppliers. An RFP will Notification to may be notification requirements on the customer typically include: regulators before or after the agreement is signed. See question 1.2 for further details. ■ What areas are being outsourced and the customer’s requirements in relation to such outsourcing – including the required scope of work and timing. For more information on the stages of a procurement process, please ■ Information that the supplier will need to make a visit the online version of this chapter at https://iclg.com/practice- bid. Depending on the specific RFP – this areas/outsourcing-laws-and-regulations/hong-kong. information may be incomplete and be subject to

further Q&A between the supplier and the customer. Hong Kong ■ Questions in relation to the supplier and its 4 Term of an Outsourcing Agreement ability to complete the project. This may involve a Request for specific list of requirements that the supplier is proposal required to confirm whether it is able to fulfil. 4.1 Does national or local law impose any maximum or (“RFP”) / ■ Draft contract for the supplier to review/comment minimum term for an outsourcing contract? invitation to on. This is a key part of the process, as a poorly- tender drafted contract at the RFP stage can lead to (“ITT”) significant difficulties for negotiations and leverage at There is no such requirement under Hong Kong law. a later stage, with suppliers arguing that their initial RFP response was based on such draft contract and therefore resisting any new terms. 4.2 Does national or local law regulate the length of the notice period that is required to terminate an From a customer’s perspective, it is important that: outsourcing contract? ■ questions and information provided to suppliers are clear and well-structured – so that any responses can be easily evaluated and compared; and There is no such requirement under Hong Kong law. ■ answers from the suppliers are also clear – so that If the termination notice period is not set out in the relevant they can be evaluated and built into future agreement, common law will govern. negotiations. It is typical for customers to require suppliers’ answers to be binding, and for suppliers in turn to build in limited contingencies around complete 5 Charging information/further due diligence.

This involves short-listing suppliers following receipt of their responses. This stage may involve: 5.1 What are the most common charging methods used in ■ Q&A sessions with potential suppliers. outsourcing transactions? Short-listing ■ Whittling down potential suppliers – depending suppliers on the number of potential suppliers. The charging method is highly dependent on the specific ■ Use of auction processes to select suppliers – e.g. outsourcing project/transaction in question, and generally with the reverse auctions (usually for relatively straightforward objective of aligning the interests of the supplier, customer and services). project. Potential charging methods include: Following short-listing of suppliers: Charging Our comments ■ The parties will negotiate the relevant contractual method documentation. ■ The supplier may conduct further due diligence The customer pays a fixed price for goods or a on the relevant project and the customer. service, subject to acceptance by the customer. ■ The customer will typically conduct further due Fixed price This creates cost certainty for the customer, but diligence on the supplier’s (and their subcontractors’) is more likely to be objected to by the supplier ability to perform the relevant services, and how they if there is limited certainty around the scope of will integrate into the customer’s existing processes work. and systems. The additional amount may be in the form of: Negotiations and due diligence may be performed ■ A “bonus” or “gain share” amount, if with multiple short-listed suppliers. While Further due certain performance/quality criteria are met. negotiations with multiple suppliers can maintain “Gain sharing” means that a supplier can share diligence and competitive tension in the bidding process, they can negotiating in any productivity gains/cost reductions also be time-intensive and involve significant derived from the project. long-form financial cost. In particular, the customers’ internal Fixed price plus agreement teams may not have the bandwidth to complete multi- ■ A “cost” amount, if there are cost overruns an amount supplier negotiations, especially if they have their and the customer has agreed to share in some “day jobs” to perform in addition to such negotiations. of those cost overruns (this will need stringent qualifications and specifications in the Depending on the progress of due diligence, some agreement). projects may involve due diligence continuing after the long-form agreement has been signed, with ■ A “profit margin” amount – this may be a effectiveness of the agreement being subject to any fixed amount or based on a certain calculation material findings during that further due diligence formula. phase. Customers should be cautious about this – as The customer pays the supplier’s costs for leaving some areas as “agreements to agree” Cost reimbursable entering into the arrangement, plus an amount following execution of the long-form agreement may plus an amount – which may be any of the amounts referenced lead to losing negotiation leverage for settling these above. areas going forward.

ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 55 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page56

56 Hong Kong WWW.ICLG.COM transactions outsourcing in include: costs to relation in terms key Other 5.2 Ashurst HongKong © Published andreproduced withkindpermission byGlobalLegal Group,Ltd records Audit of payable amounts Adjustment of Payment terms as yougo” materials /“Pay Time and Key term Charging method outsourcing transactions? What otherkeytermsareusedinrelationtocosts

payment methods? ■ deliverable/service? payable onlyafteracceptanceofrelevant on amilestone/acceptancebasis? Will theybe ■ Addressing howrecordscanbeauditedinorder ■ customer canbeadjusted–including: Addressing howanyamountspayableby made undertheagreement–including: Addressing whenandhowpaymentswillbe audit. audits iferrorsarediscoveredinthecourseof ■ exclude minorerrorsbeingreimbursable);and may insistonaminimumerrorthreshold,to ■ records areauditable; ■ includes addressing: to ensurethatamountspayablearecorrect. This in accordancewithmilestone). dispute orforotherreasons(e.g.failuretodeliver ■ inflation onayearlybasis. ■ requirements. costs arereimbursableandevidentiary/approval ■ whethersuppliersshouldpayforthecostsof whenerrorsshouldbecorrected(suppliers howsuchauditsareconductedandwhat Howwillamountsbepaid,including Reimbursementofcosts,includingwhat Withholding payableamountsforinvoice Automaticadjustmentoffees–e.g.for Whenaretheypayable–e.g.periodically, or Whatamountsarepayable? requirements areuncertain. mechanism whenthescopeofworkand Suppliers aremorelikelytoaskforthis if theyarenotappointedonanexclusivebasis. or minimumpurchaserequirement,especially In turn,suppliersmayrequireaminimumfee price” modelovertime. breakout ofcosts,andatransferto“fixed costs, giventhepossibilityofasignificant Customers mayrequireacaponthose T&M card. frequently basedonapre-agreedunitprice/rate “time andmaterials”/“payasyougo”basis– The customerpaysforthesupplier’s costsona

Our comments Our comments

Transfer 6.1 credits levels/service Service nation” favoured “Most Benchmarking properties Other movable property rights Intellectual property Immovable property tobe 6 transferred Key term Type of license assetsonanoutsourcingtransaction? Transfer of Assets What formalitiesarerequiredtotransfer, leaseor

■ and being partofthebenchmarker’s engagement); by thebenchmarker(withsuchrequirementsthen activities, giventheycanbeofasubstantialcost. ■ competitors tothesupplier); any exclusionofcertainpartieswhoare See section10below. outsourcing transactions. are notparticularlypopularin Asia-based interpret, negotiateandenforce,asaresult In practice,suchclausescanbedifficult to offered toanycustomerforsimilarservices. provide thecustomerwithbestpricingithas Such clauseusuallyrequiresthesupplierto ■ Such clauseincludesaddressing: an independentthirdpartyonaperiodicbasis. market rate.Benchmarkingistypicallydoneby ensure thatthecustomerisnotpayingabove “benchmarked” againstsimilarsuppliers,to The customermayrequirethatfeesare purposes. assignment isrecommendedforevidential official registrydoesnotexist,awritten respectively. Department andtheMarine the Transport Department,theCivil Aviation aircrafts andvessels–mustberegisteredwith registries –e.g.transferoftitlesvehicles, ■ ■ in HongKong. Note thatcopyrightsdonotneedtoberegistered party claimovertheassetagainsttransferee. Hong Kong.Failuretoregistermayallowthird the relevantregistryinIP Departmentof and registereddesignsmustbewith ■ by oronbehalfoftheassignor. ■ duty onthetransferofimmovableproperty. ■ Land RegistrationOrdinance). purchaser ormortgageeintervenes(s3ofthe Registry oritmaybevoidifa ■ Conveyancing andPropertyOrdinance). ■ whobearsthecostsofsuchbenchmarking howsuchbenchmarkingwillbeconducted whoconductssuchbenchmarking(including Forothermovablepropertieswhere an Mustberegisteredwithdifferent official Transfer ofpatents,registeredtrademarks Anyassignmentmustbeinwritingsigned TheStampDutyOrdinanceimposesstamp RequiredtoberegisteredwiththeLand Mustbeexecutedasadeed(s4(1)ofthe ICLG TO: OUTSOURCING 2019

Our comments Our comments

bonafide

Hong Kong

OUT19_04_07_Layout 104/07/201914:46Page57 6.2 ■ of termination upon compensations certain be may there that Note ■ ■ include: considered be should that Aspects transaction. outsourcing the for – arrangements outsourcing material most particularly where the employees represent a of key commercial driver part key a is and In practice, any “transfer” of employees must be carefully managed employment contracts–e.g.redundancypayments. instead should one. new not a Employers create and contract employment existing therefore the terminate outsourcing. are on law employees by and transferred outsourcing, on employees registration completed. ICLG TO: OUTSOURCING 2019 There is no law in Hong Kong specifically governing the transfer of 7.1 See question6.1. 6.4 and paid been has duty stamp all ensure should parties The 6.3 See question6.1forfurtherdetails. Ashurst HongKong Leasing orlicensing property Immovable properties Other movable property rights Intellectual property tobe 7 leased or licensed Type of What aretheformalitiesfortransferofland? contingency planning if relevant employees (particularly key employees) donotacceptsuchtransfer. responsibility foremployerliabilities; and for such transfer; protocols communication and terms employment new Employment Law Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto?

■ official registrydoesnotexist,awrittenlicence is recommendedforevidentialpurposes. ■ ■ transferee againstthirdparties. and registeredtoprotecttheinterestsof must alsobeinwriting,signedbythelicensor ■ term notexceedingthreeyearscanbecreated Conveyancing andPropertyOrdinance).Other be requireddependingonthetypeoflease. aircrafts andvessels),noticeorregistrationmay assignment –alicenceofregisteredIP rights ■ with theLandRegistry. leases mustbeexecutedasdeedandregistered orally withoutregistration(s4(4)of Forothermovablepropertieswherean Forleasesofmovableproperty(suchas Sameastheabovediscussionregarding Onlyleasestakingeffect inpossessionfora Allleasesaresubjecttostampduty.

Our comments

Employment Ordinance Employment The However, employee information must be protected in accordance in protected be must information employee However, The PDPO governs the collection, processing, holding and use of use and holding processing, collection, the governs PDPO The Personal data 8.1 Data Protection 2019. and privacy in chapter our see data general regarding cybersecurity requirements and developments in Hong Kong, information please further For This isnotapplicable. 7.7 Kong Hong in law outsourcing. no in is relationships employment there governing 7.1, specifically section under out set As 7.6 new the situation, such In one. employment employer isatlibertytobringinnewterms. new existing a the creating terminating and by contract effected be only can Kong Hong in employees of transfer 7.1, question under out set As 7.5 the governing specifically the to According Kong Hong in law employment relationshipinoutsourcing. no is There 7.4 See section8forfurtherdetails. with thePDPOifanytransferoccurs. arrangement. the outsourcing regarding an in laws information employee Kong of transfer Hong under requirement no is There 7.3 This isnotapplicable. 7.2 payments andentitlementsforemployees. dismiss an employee by giving notice or payment or notice giving by employee an dismiss oee, n mlyr ant ims a epoe bcue of because employee pregnancy, paidsickleaveorinjuryatwork. an dismiss cannot employer an However, 8 Data ProtectionIssuesandInformation Security take place? transaction? data protectionthatmayariseon anoutsourcing requirements andissuesconcerning datasecurityand What arethemostmateriallegal or regulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw existing workforce? terms ofatransferringemployeewiththoseits provide toeachother? mlyet Ordinance Employment The International Comparative Legal Guide to: Guide Legal Comparative International The

has provisions addressing termination addressing provisions has

a epoe i fe to free is employer an , WWW.ICLG.COM

Hong Kong in lieu in

of notice. of

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56 Hong Kong WWW.ICLG.COM transactions outsourcing in include: costs to relation in terms key Other 5.2 Ashurst HongKong records Audit of payable amounts Adjustment of as yougo” materials /“Pay Time and Payment terms Key term Charging method outsourcing transactions? What otherkeytermsareusedinrelationtocosts

audit. audits iferrorsarediscoveredinthecourseof ■ exclude minorerrorsbeingreimbursable);and may insistonaminimumerrorthreshold,to ■ records areauditable; ■ includes addressing: to ensurethatamountspayablearecorrect. This Addressing howrecordscanbeauditedinorder in accordancewithmilestone). dispute orforotherreasons(e.g.failuretodeliver ■ inflation onayearlybasis. ■ requirements. costs arereimbursableandevidentiary/approval ■ customer canbeadjusted–including: Addressing howanyamountspayableby payment methods? ■ deliverable/service? payable onlyafteracceptanceofrelevant on amilestone/acceptancebasis? Will theybe ■ ■ made undertheagreement–including: Addressing whenandhowpaymentswillbe whethersuppliersshouldpayforthecostsof whenerrorsshouldbecorrected(suppliers howsuchauditsareconductedandwhat Howwillamountsbepaid,including Withholding payableamountsforinvoice Automaticadjustmentoffees–e.g.for Reimbursementofcosts,includingwhat Whenaretheypayable–e.g.periodically, or Whatamountsarepayable? requirements areuncertain. mechanism whenthescopeofworkand Suppliers aremorelikelytoaskforthis if theyarenotappointedonanexclusivebasis. or minimumpurchaserequirement,especially In turn,suppliersmayrequireaminimumfee price” modelovertime. breakout ofcosts,andatransferto“fixed costs, giventhepossibilityofasignificant Customers mayrequireacaponthose T&M card. frequently basedonapre-agreedunitprice/rate “time andmaterials”/“payasyougo”basis– The customerpaysforthesupplier’s costsona

Our comments Our comments

Transfer 6.1 credits levels/service Service nation” favoured “Most properties Other movable property rights Intellectual property Immovable Benchmarking property tobe 6 transferred Key term Type of Transfer of Assets license assetsonanoutsourcingtransaction? What formalitiesarerequiredtotransfer, leaseor

See section10below. outsourcing transactions. are notparticularlypopularin Asia-based interpret, negotiateandenforce,asaresult In practice,suchclausescanbedifficult to offered toanycustomerforsimilarservices. provide thecustomerwithbestpricingithas Such clauseusuallyrequiresthesupplierto activities, giventheycanbeofasubstantialcost. ■ and being partofthebenchmarker’s engagement); by thebenchmarker(withsuchrequirementsthen ■ competitors tothesupplier); any exclusionofcertainpartieswhoare “benchmarked” againstsimilarsuppliers,to The customermayrequirethatfeesare ■ Such clauseincludesaddressing: an independentthirdpartyonaperiodicbasis. market rate.Benchmarkingistypicallydoneby ensure thatthecustomerisnotpayingabove purposes. assignment isrecommendedforevidential official registrydoesnotexist,awritten ■ respectively. Department andtheMarine the Transport Department,theCivil Aviation aircrafts andvessels–mustberegisteredwith registries –e.g.transferoftitlesvehicles, ■ in HongKong. Note thatcopyrightsdonotneedtoberegistered party claimovertheassetagainsttransferee. Hong Kong.Failuretoregistermayallowthird the relevantregistryinIP Departmentof and registereddesignsmustbewith ■ by oronbehalfoftheassignor. ■ duty onthetransferofimmovableproperty. ■ Land RegistrationOrdinance). purchaser ormortgageeintervenes(s3ofthe Registry oritmaybevoidifa ■ Conveyancing andPropertyOrdinance). ■ whobearsthecostsofsuchbenchmarking howsuchbenchmarkingwillbeconducted whoconductssuchbenchmarking(including Forothermovablepropertieswhere an Mustberegisteredwithdifferent official Transfer ofpatents,registeredtrademarks Anyassignmentmustbeinwritingsigned TheStampDutyOrdinanceimposesstamp RequiredtoberegisteredwiththeLand Mustbeexecutedasadeed(s4(1)ofthe ICLG TO: OUTSOURCING 2019

Our comments Our comments

bonafide

Hong Kong

OUT19_04_07_Layout 104/07/201914:46Page57 ICLG TO: OUTSOURCING 2019 ■ ■ ■ include: considered be should that Aspects transaction. outsourcing the for – arrangements outsourcing material most particularly where the employees represent a of key commercial driver part key a is and In practice, any “transfer” of employees must be carefully managed employment contracts–e.g.redundancypayments. of termination upon compensations certain be may there that Note instead should one. new not a Employers create and contract employment existing therefore the terminate outsourcing. are on law employees by and transferred outsourcing, on employees There is no law in Hong Kong specifically governing the transfer of 7.1 See question6.1. 6.4 and paid been has duty stamp all registration completed. ensure should parties The 6.3 See question6.1forfurtherdetails. 6.2 Ashurst HongKong Leasing orlicensing © Published andreproduced withkindpermission byGlobalLegal Group,Ltd properties Other movable property rights Intellectual property Immovable property tobe 7 leased or licensed Type of employees) donotacceptsuchtransfer. contingency planning if relevant employees (particularly key responsibility foremployerliabilities; and for such transfer; protocols communication and terms employment new Employment Law Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland?

is recommendedforevidentialpurposes. official registrydoesnotexist,awrittenlicence ■ be requireddependingonthetypeoflease. aircrafts andvessels),noticeorregistrationmay ■ transferee againstthirdparties. and registeredtoprotecttheinterestsof must alsobeinwriting,signedbythelicensor assignment –alicenceofregisteredIP rights ■ ■ term notexceedingthreeyearscanbecreated ■ with theLandRegistry. leases mustbeexecutedasdeedandregistered Conveyancing andPropertyOrdinance).Other orally withoutregistration(s4(4)of Forothermovablepropertieswherean Forleasesofmovableproperty(suchas Sameastheabovediscussionregarding Onlyleasestakingeffect inpossessionfora Allleasesaresubjecttostampduty.

Our comments

hr i n lw n og og pcfcly oenn the governing specifically the to According Kong Hong in law employment relationshipinoutsourcing. no is There 7.4 See section8forfurtherdetails. with thePDPOifanytransferoccurs. accordance in protected be must information employee However, arrangement. the outsourcing regarding an in laws information employee Kong of transfer Hong under requirement no is There 7.3 This isnotapplicable. 7.2 The PDPO governs the collection, processing, holding and use of use and holding processing, collection, the governs PDPO The Personal data 8.1 Data Protection 2019. and privacy in chapter our see data general regarding cybersecurity requirements and developments in Hong Kong, information please further For This isnotapplicable. 7.7 Kong Hong in Ordinance law Employment The outsourcing. no in is relationships employment there governing 7.1, specifically section under out set As 7.6 new the situation, such In one. employment employer isatlibertytobringinnewterms. new existing a the creating terminating and by contract effected be only can Kong Hong in employees of transfer 7.1, question under out set As 7.5 payments andentitlementsforemployees. of because employee pregnancy, paidsickleaveorinjuryatwork. an dismiss cannot employer an However, payment or notice giving by employee an dismiss 8 employee forareasonconnectedtotheoutsourcing? provide toeachother? take place? transaction? existing workforce? Security Data ProtectionIssuesandInformation Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw data protectionthatmayariseon anoutsourcing requirements andissuesconcerning datasecurityand What arethemostmateriallegal or regulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment mlyet Ordinance Employment The International Comparative Legal Guide to: Guide Legal Comparative International The

has provisions addressing termination addressing provisions has

a epoe i fe to free is employer an , WWW.ICLG.COM

Hong Kong in lieu in

of notice. of

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58 Hong Kong ■ ■ their regulatedentitiesareexpectedtocomplywith.Forexample: that guidance and programmes circulars, various released all have More recently, the various financial sector regulators in Hong Kong example, for Principles for Technology RiskManagement. – arrangements General on outsourcing focuses 2003) June in (released TM-G-1 note guidance the of security the on requirements general include institutions) authorised their (for HKMA the from manual policy supervisory above-referenced The their by measures cybersecurity relevant regulatedentities. on focused increasingly to been applicable have particular in requirements regulators services specific financial and cybersecurity, have may sectors Certain There isnospecificcybersecurity-relatedlawinHongKong. 8.2 ■ an outsourcingtransaction.Specifically, itproposes: how data privacy can be respected, and the PDPO complied with, in Processors published the has Kong Hong of Data Personal for Commissioner Privacy The to complywiththerequirementsofPDPO. party,third a to means other or contractual adopt must user data the data personal of transfer involves outsourcing the If data. personal Ashurst HongKong WWW.ICLG.COM ■ ■ ■ ■ ■ The HKMA hasalsostatedthat: © Published andreproduced withkindpermission byGlobalLegal Group,Ltd requirements concerninginformationsecurity? ee o Hn Kn bns hog tre ra: (1) areas: platform toallow thesharingofcyberthreatintelligence. three a launching (3) and programme; through certification and training a banks Kong establishing a common risk-based framework; (2) launching Hong Cybersecurity of a level launched HKMA the Fortification Initiative – which aims to raise 2016, the cybersecurity March In for customerdataprotection. measures control key various out setting and confidentiality data’s customer protecting of importance the of institutions their authorised to reminding circular, update Protection” Data an “Customer released HKMA the 2014, October In ■ ■ ■ ■ an the PDPO: in provisions with compliance facilitate to order in non-exclusive agreement outsourcing following the Including Are thereindependentlegaland/orregulatory uh usucn, h csoe i sil conal fr the breach. for accountable still is customer the outsourcing, such from arising data personal of infringements any are there If in enforceable both jurisdictions,soastoadequatelyprotectthedata. is contract the that ensure should the customer involved, is data of transfer or outsourcing overseas If with suppliers reputable robust policiestoprotectpersonaldata. only engage should Customers h PP my olw n te akn lcne a be may licence banking the revoked. and follow may non- PDPO of the case of sanctions In criminal guidance, HKMA’s with addressed. compliance been the have that HKMA concerns satisfy PDPO should institution authorised An the supplier willprotectthepersonaldata. to outsourcing access and/or an the that ensure must institution authorised the data, customer storage into involves enters that institution arrangement authorised an If upir ade ad trs esnl aa n the and data personal stores consequence ofviolation. and handles supplier the outsourcing of the company’s right to inspect how the prohibition ofunauthorisedusedata;and destruction ofdataafteraperiod; security measurestoprotectdata; – representing the Commissioner’s views in relation to relation in views Commissioner’s the representing – Outsourcing the Processing of Personal Data to Data

■ ■ sale ofcapitalassets)whenit: the from arising profits (excluding profits its on tax pay to required business is considered to be a tax resident in Hong Kong and a will be taxation, of principle source territorial a applies Kong Hong As for This 7.5% and respectively. change would not affect 8.25% any remaining businesses, profits beyond HK$2 million. to unincorporated earned and million corporations HK$2 first the of rate tax profits the lowered has Department Revenue Inland the 2018, corporations is 16.5%, and for other taxpayers is 15%. Since 1 April that arise in or are derived from Hong Kong. The profits tax rate for in Hong Kong – including profits tax, which can be levied on profits businesses to applicable potentially are that taxes various are There 9.3 There isno VAT applicableinHongKong. 9.2 as except assets, of transfer described above,orforthetransferofemployees. the on imposed taxes no are There Hong Kongortransferofstock. of transfer or sale the immovable property in Hong Kong, lease of immovable property in involves transfer the unless duty, with stamp charged not generally are business outsourced of Transfers 9.1 report on the Cathay Pacific Airways Data Breach Incident in 2018. its of 2019) June (in release recent the includes This Kong. Hong in regime PDPO the under falling entities all to applicable be will that front cybersecurity the on work various continued has Kong Hong of Data Personal for Commissioner Privacy the Separately, ■ ■ ■ ■ 9 under theoutsourcingcontract? terminating thecontract? a pois hc aie n r r drvd rm uh trade, such from derived profession orbusiness carriedoninHongKong. are or in arise which profits has carries onatrade,professionorbusiness inHongKong;and Tax Issues What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring 2020. January 1 on force into come will Insurer, Authorised an of out the minimum standards of cybersecurity that are expected of part as outlining the technology These infrastructure setup of assessment the virtual bank. cybersecurity a performing including arrangements. security requirements have been embedded into the application process, have frameworks information bank virtual appropriate those 2019) early that in ensuring approved include been having applications first the (with Kong Hong in banks virtual for HKMA’srequirements Hong Kongbankingindustry. the in practitioners cybersecurity for standards competency competency framework on cybersecurity – which sets out the In January 2019, the HKMA issued an update to the enhanced baseline 20 reduce andmitigatehackingrisks. implement to trading to and resilience cybersecurity their enhance to requirements internet in engaged Internet persons registered with or licensed all Associated requires which – Trading Risks Hacking Mitigating Reducing and for Guidelines issued SFC the 2017, October In The IA’sThe revised Guideline on Cybersecurity on Guideline ICLG TO: OUTSOURCING 2019

Hong Kong

(GL20), setting (GL20),

OUT19_04_07_Layout 104/07/201914:46Page59 evcs ut et, ih evc ceis en pybe f the subject ofsubstantialnegotiations. if payable being the frequently are These levels. service credits the meet not does supplier service with meet), the that must standards services objective (i.e. levels service with accordance Kong andwhetherprofitsarederivedfromHongKong. A servicelevelagreementshouldaddressthefollowingmatters: ICLG TO: OUTSOURCING 2019 in services performs supplier the that require may Customers 10.1 It is a question of fact as to whether a business is carried on in Hong Ashurst HongKong are payable How servicecredits Termination rightsor Sole remedy/refund failing tomeetservice other consequencesof for non-performance levels improvements Automatic Automatic paymentof service credits service credits Service levelsand performance Reporting of Measurement 10 levels andservicecredits? What istheusualapproachwithregardtoservice Topic Service Levels

as acashamountupondemandbythe payable, butoccasionallymaybepayable as arefund/creditonthenextinvoice Service creditsarefrequentlyreimbursed time limitsforsuchclaiming). services overtime. also improvesitsperformanceofthe the intentionofensuringthatsupplier service levels(therebyexcludingany remedy inrelationtothefailuremeet service creditsbethesoleandexclusive ■ damages forbreachofcontract). services notperformed(i.e.treatedas service creditsaretreatedasrefundsfor ■ the marketpracticesinspecificindustries. customer. This isfrequentlydependenton supplier (and,ifso,whetherthereareany to “claim”theservicecreditsfrom credits attachtosomeoralloftheservice Whether anybreachesofservicelevelsor should improvefromtimetotime,with Whether servicelevelsandcredits damages claiminrelationtosuchfailure). automatically orwhetherthecustomerhas interface. such reportingisautomatic/viaanonline levels. credits are,includingwhetherservice supplier ofcertaincostsincurredby the consequences (e.g.paymentbythe entire agreement/affected servicesorother or regularbreaches–willleadtoany service credits–particularlyforpersistent Whether servicecreditsarepayable reported tocustomer–includingwhether performances willberecordedand ramifications attachedtothesupplier whether thereareconsequences/ indicators ortargets, dependingon sometimes calledkeyperformance service creditsattachedtothemare ■ ■ provider’s costs). customer, suchasalternativeservice rights forthecustomertoterminate How servicelevelandcredit levels havebeensatisfied. Criteria formeasuringwhethertheservice failing tomeetthem. Servicelevelsthatdonothave Whattheservicelevelsand Suppliersinturnmayrequirethat Customersmayrequirethatany

Our comments

with theaimofprotectingitsowninterests,includefollowing: to, attention particular pay should customer the that clauses Other Other waysofprotectingthecustomer’s interest any suspend project beingsignificantlylimited. or terminate to rights supplier’s the with customer, be appropriately treated as mutual rather than one-sided in favour of Depending on the context, some of the above termination rights may ■ ■ ■ ■ ■ ■ ■ ■ affiliates, supplier’s the by ■ acts/omissions to subcontractors orguarantors(ascontextrequires): apply also should rights termination below the whether consider to need will Customers customer. the of favour the in rights termination of following all or some see we transaction, specific the on Depending Termination rights (and includingthesespecificprovisions)favouringthecustomer. a seeing generally services agreements outsourcing seen many have we market”, “buyer’s with and dynamics market’s the given in Asia, times recent In projects. outsourcing for customer the and the supplier the between negotiations any in contention of of topics prime one are customer the for remedies and rights Termination 11.2 ■ ■ ■ include: situation a such in customer the for remedies law, general Under 11.1 ■ ■ ■ 11 essety aln t me ciia srie ees data or levels, breach ofspecificmaterialrepresentationsandwarranties. breaches, regularly service cybersecurity/confidentiality/IP-related e.g. critical meet privacy/ – to rights failing persistently termination specific Other Force majeure. Applicable laws/regulatory-requiredtermination. Supplier’s changeofcontrol. Breach ofparentfinancial/performanceguarantee. prior togo-liveand“businessasusual”phase. Failing to complete transformation/transition phases on time, Failing tomeetspecificmilestones/long-stopdates. Insolvency. notice/cure periodforremediablebreaches). Material breach (immediate for irremediable breaches, with a of thecourt). discretion the at (available performance/injunction Specific Termination. Damages. Representations, warranties and indemnities – see question see – indemnities and warranties Representations, vns ad nuig ht hr are there customer’s that the protect ensuring interests in such scenario, to e.g. being able to source alternative and place in – provisions appropriate events majeure Force outright termination. and disruption, allows the parties to recover prolonged a situation rather than relying on a suffering are services critical mission- where relevant particularly is This cost. supplier’s to the at scenarios, able certain in providers the alternative being from source or of services, place relevant in the in provide step to to supplier able being i.e. – rights Step-in 11.3 forfurtherdetails. What additionalprotectionscouldbeincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder contract documentationtoprotectthecustomer?

Customer Remedies

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59 Hong Kong OUT19_04_07_Layout 104/07/201914:46Page58

58 Hong Kong WWW.ICLG.COM ■ ■ their regulatedentitiesareexpectedtocomplywith.Forexample: that guidance and programmes circulars, various released all have More recently, the various financial sector regulators in Hong Kong example, for Principles for Technology RiskManagement. – arrangements General on outsourcing focuses 2003) June in (released TM-G-1 note guidance the of security the on requirements general include institutions) authorised their (for HKMA the from manual policy supervisory above-referenced The their by measures cybersecurity relevant regulatedentities. on focused increasingly to been applicable have particular in requirements regulators services specific financial and cybersecurity, have may sectors Certain There isnospecificcybersecurity-relatedlawinHongKong. 8.2 ■ an outsourcingtransaction.Specifically, itproposes: how data privacy can be respected, and the PDPO complied with, in Processors published the has Kong Hong of Data Personal for Commissioner Privacy The to complywiththerequirementsofPDPO. party,third a to means other or contractual adopt must user data the data personal of transfer involves outsourcing the If data. personal Ashurst HongKong ■ ■ ■ ■ The HKMA hasalsostatedthat: ■ ■ ■ ee o Hn Kn bns hog tre ra: (1) areas: platform toallow thesharingofcyberthreatintelligence. three a launching (3) and programme; through certification and training a banks Kong establishing a common risk-based framework; (2) launching Hong Cybersecurity of a level launched HKMA the Fortification Initiative – which aims to raise 2016, the cybersecurity March In for customerdataprotection. measures control key various out setting and confidentiality data’s customer protecting of importance the of institutions their authorised to reminding circular, update Protection” Data an “Customer released HKMA the 2014, October In ■ ■ an the PDPO: in provisions with compliance facilitate to order in non-exclusive agreement outsourcing following the Including requirements concerninginformationsecurity? Are thereindependentlegaland/orregulatory utmr sol egg ol rptbe upir with suppliers reputable robust policiestoprotectpersonaldata. only engage should Customers uh usucn, h csoe i sil conal fr the breach. for accountable still is customer the outsourcing, such from arising data personal of infringements any are there If in enforceable both jurisdictions,soastoadequatelyprotectthedata. is contract the that ensure should the customer involved, is data of transfer or outsourcing overseas If ragmn ta ivle soae n/r ces o the supplier willprotectthepersonaldata. to outsourcing access and/or an the that ensure must institution authorised the data, customer storage into involves enters that institution arrangement authorised an If h PP my olw n te akn lcne a be may licence banking the revoked. and follow may non- PDPO of the case of sanctions In criminal guidance, HKMA’s with addressed. compliance been the have that HKMA concerns satisfy PDPO should institution authorised An upir ade ad trs esnl aa n the and data personal stores consequence ofviolation. and handles supplier the outsourcing of the company’s right to inspect how the prohibition ofunauthorisedusedata;and destruction ofdataafteraperiod; security measurestoprotectdata; – representing the Commissioner’s views in relation to relation in views Commissioner’s the representing – Outsourcing the Processing of Personal Data to Data

■ 9 a pois hc aie n r r drvd rm uh trade, such from derived profession orbusiness carriedoninHongKong. are or in arise which profits has carries onatrade,professionorbusiness inHongKong;and Tax Issues What othertaxissuesmayarise? under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring 2020. January 1 on force into come will Insurer, Authorised an of out the minimum standards of cybersecurity that are expected of part as outlining the technology These infrastructure setup of assessment the virtual bank. cybersecurity a performing including arrangements. security requirements have been embedded into the application process, have frameworks information bank virtual appropriate those 2019) early that in ensuring approved include been having applications first the (with Kong Hong in banks virtual for HKMA’srequirements Hong Kongbankingindustry. the in practitioners cybersecurity for standards competency competency framework on cybersecurity – which sets out the In January 2019, the HKMA issued an update to the enhanced baseline 20 reduce andmitigatehackingrisks. implement to trading to and resilience cybersecurity their enhance to requirements internet in engaged Internet persons registered with or licensed all Associated requires which – Trading Risks Hacking Mitigating Reducing and for Guidelines issued SFC the 2017, October In The IA’sThe revised Guideline on Cybersecurity on Guideline ICLG TO: OUTSOURCING 2019

Hong Kong

(GL20), setting (GL20),

OUT19_04_07_Layout 104/07/201914:46Page59 ICLG TO: OUTSOURCING 2019 A servicelevelagreementshouldaddressthefollowingmatters: the subject ofsubstantialnegotiations. if payable being the frequently are These levels. service credits the meet not does supplier service with meet), the that must standards in services objective services (i.e. levels performs service supplier with the accordance that require may Customers 10.1 Kong andwhetherprofitsarederivedfromHongKong. It is a question of fact as to whether a business is carried on in Hong Ashurst HongKong © Published andreproduced withkindpermission byGlobalLegal Group,Ltd levels failing tomeetservice other consequencesof Termination rightsor improvements Automatic for non-performance Sole remedy/refund are payable How servicecredits service credits Automatic paymentof performance Reporting of Measurement service credits Service levelsand 10 levels andservicecredits? What istheusualapproachwithregardtoservice Topic Service Levels

provider’s costs). customer, suchasalternativeservice supplier ofcertaincostsincurredby the consequences (e.g.paymentbythe entire agreement/affected servicesorother rights forthecustomertoterminate or regularbreaches–willleadtoany service credits–particularlyforpersistent Whether anybreachesofservicelevelsor services overtime. also improvesitsperformanceofthe the intentionofensuringthatsupplier should improvefromtimetotime,with Whether servicelevelsandcredits damages claiminrelationtosuchfailure). service levels(therebyexcludingany remedy inrelationtothefailuremeet service creditsbethesoleandexclusive ■ damages forbreachofcontract). services notperformed(i.e.treatedas service creditsaretreatedasrefundsfor ■ the marketpracticesinspecificindustries. customer. This isfrequentlydependenton as acashamountupondemandbythe payable, butoccasionallymaybepayable as arefund/creditonthenextinvoice Service creditsarefrequentlyreimbursed time limitsforsuchclaiming). supplier (and,ifso,whetherthereareany to “claim”theservicecreditsfrom automatically orwhetherthecustomerhas Whether servicecreditsarepayable interface. such reportingisautomatic/viaanonline reported tocustomer–includingwhether performances willberecordedand How servicelevelandcredit levels havebeensatisfied. Criteria formeasuringwhethertheservice failing tomeetthem. ramifications attachedtothesupplier whether thereareconsequences/ indicators ortargets, dependingon sometimes calledkeyperformance service creditsattachedtothemare ■ levels. credits attachtosomeoralloftheservice credits are,includingwhetherservice ■ Servicelevelsthatdonothave Whattheservicelevelsand Suppliersinturnmayrequirethat Customersmayrequirethatany

Our comments

■ ■ ■ with theaimofprotectingitsowninterests,includefollowing: to, attention particular pay should customer the that clauses Other Other waysofprotectingthecustomer’s interest any suspend project beingsignificantlylimited. or terminate to rights supplier’s the with customer, be appropriately treated as mutual rather than one-sided in favour of Depending on the context, some of the above termination rights may ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ lo pl t at/msin b te upirs affiliates, supplier’s the by ■ acts/omissions to subcontractors orguarantors(ascontextrequires): apply also should rights termination below the whether consider to need will Customers customer. the of favour the in rights termination of following all or some see we transaction, specific the on Depending Termination rights (and includingthesespecificprovisions)favouringthecustomer. a seeing generally services agreements outsourcing seen many have we market”, “buyer’s with and dynamics market’s the given in Asia, times recent In projects. outsourcing for customer the and the supplier the between negotiations any in contention of of topics prime one are customer the for remedies and rights Termination 11.2 include: situation a such in customer the for remedies law, general Under 11.1 11 contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? vns ad nuig ht hr are there customer’s that the protect ensuring interests in such scenario, to e.g. being able to source alternative and place in – provisions appropriate events majeure Force outright termination. and disruption, allows the parties to recover prolonged a situation rather than relying on a suffering are services critical mission- where relevant particularly is This cost. supplier’s to the at scenarios, able certain in providers the alternative being from source or of services, place relevant in the in provide step to to supplier able being i.e. – rights Step-in 11.3 forfurtherdetails. question see – indemnities and warranties Representations, data or levels, breach ofspecificmaterialrepresentationsandwarranties. breaches, regularly service cybersecurity/confidentiality/IP-related e.g. critical meet privacy/ – to rights failing persistently termination specific Other Force majeure. Applicable laws/regulatory-requiredtermination. Supplier’s changeofcontrol. Breach ofparentfinancial/performanceguarantee. prior togo-liveand“businessasusual”phase. Failing to complete transformation/transition phases on time, Failing tomeetspecificmilestones/long-stopdates. Insolvency. of thecourt). discretion the at (available performance/injunction Specific Termination. Damages. notice/cure periodforremediablebreaches). Material breach (immediate for irremediable breaches, with a What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder

Customer Remedies

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60 Hong Kong ■ ■ ■ Typical indemnitiesgivenbythesupplierinclude: give to customers substantial indemnitiesunderoutsourcingagreements. for Asia-Pacific in uncommon relatively is It Indemnities representations inenteringtheagreement. appropriate, be may particularly where the customer has relied heavily on warranties pre-agreement and representations Additional ■ ■ ■ ■ ■ ■ ■ ■ the by given supplier include: warranties and representations additional Typical ■ ■ ■ include: Typical mutual representations and warranties given by both parties Representations andwarranties 11.3 Ashurst HongKong WWW.ICLG.COM We havereferencedotherrelevantareasthroughoutthischapter. ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd that areincludedinanoutsourcingcontract? supplier? the by offered terms and pricing the on effect an have that order to maintain competitive tension going forward, and will supplier,the than in other parties third from services procure Exclusivity of the supplier – will the customer be permitted to the given times. important recent in seen particularly have we that is changes geopolitical increasing This addressed. be being services the affect received by the customer – consider how that such changes should laws applicable in Changes the agreementwhereappropriate. terminating and plans exit/recovery implementing services, infringing partorreplacethe part; the modify part, infringing the using continue to customer for right the procure to required be will supplier the items, certain to infringing any subject are there if e.g. – qualifications and processes usually is indemnity Such rights. IP of validity and non-infringement use, to right the to relation in not is guarantor) and affiliates insolvent. appropriate any (and it the on services tobeprovided;and effect material a has which pending is of litigation no use customer’s the rights ofanythirdparty; and proprietary or services, IP infringe not will services, and deliverables of provision its it willmaintainrelevantequipment/softwareingoodorder; personnel withalldueskill,careanddiligence; of number sufficient a professional trained and qualified experienced, appropriately using services the perform will it the enter to approvals and agreement; licences regulatory all has it can and perform theservicestorequiredstandards; services the on diligence due all completed has it its RFP responseisaccurateandcomplete; agreements orcourtorders. party third any relevant breach not does agreement the any into entering and agreement the into transactions; and enter to capacity laws; jurisdiction’s relevant the under incorporated duly is it that What arethetypicalwarrantiesand/orindemnities other assurance–e.g.aperformancebond/deposit? some or guarantee, performance or financial a provide entity other or entity parent a will – guarantee Parent/performance

■ ■ There willlikelybenegotiationsinrelationto: ■ ■ ■ ■ 12.1 a triain ihs ht h pris a o my o have, See question11.2 forfurther details. not may or may parties depending ontheagreement’s the specific drafting. that what rights out termination set law expressly to agreements for common to have. addition parties in both is rights This termination practice good is It 13.1 ■ ■ outsourcing most outsourcing transactionsincludethefollowing: covering in included see policies typically we that policies Insurance arrangements. insurance has practice, market as and, well-developed is market insurance Kong Hong The

technology providedbytherelevantsupplier. the underlying the regarding visibility/understanding clear having not involving been insurers the and risk” “high as transactions viewed being technology have emerging insurers outsourcing where reluctant to provide insurance, due to various factors – including the seen sector cryptocurrency/blockchain have we the where technologies example, for – coverage provide emergingto slow been has sector insurance certain see do we However, ■ ■ ■ ■ ■ 12 13 usatal dpnet n h csoe’ poiin of provision customer’s the certain IP. is on indemnity dependent IP is substantially above performance supplier’s the the where negotiated frequently e.g. – indemnities mutual as appropriate more are such above indemnities specific whether give also subcontractors indemnities; and and the affiliates whether e.g. – supplier’s indemnities above the of coverage the the supplier’s negligence,misconductorwilfulact. of out arising damage property or injury personal death, any and fraud; or negligence gross misconduct, wilful supplier’s the laws; any of breach supplier’s e.g. the from arising fines any or personnel, – account supplier’s the with supplier’s associated amounts employment-related the for amounts specific laws-related clauses; applicable privacy,and cybersecurity,data confidentiality of breach of specific material clauses – e.g. the supplier’s breach transaction? for damagesfromtheterminated party? Professional indemnityinsurance. Kong law). Hong under (required insurance compensation Employees’ order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement in cybersecurityincidentsinternationally. increase marked the with attention, significant gaining been has insurance of type insurance. This liability Cybersecurity Business interruptioninsurance. Property insurance. Product liabilityinsurance. Public liabilityinsurance. Insurance Termination

ICLG TO: OUTSOURCING 2019

Hong Kong

OUT19_04_07_Layout 104/07/201914:46Page61 eadn cnietaiy n tae ert biain. Relevant confidentiality provisions typicallyinclude: obligations. secret trade terms and contractual confidentiality on regarding agree can agreement service the to Parties ■ ■ ■ ■ protect different IP including: common the by protected are Kong Hong in secrets Trade Kong. ■ following issuesinrelationtoIP foranoutsourcingtransaction: In general, parties to an outsourcing transaction should consider the contractual negotiation.Seequestion11.2 forfurtherdetails. ICLG TO: OUTSOURCING 2019 that Kong Hong in laws property intellectual various are There law ofconfidence. Hong in laws confidentiality or secret trade specific no are There 14.2 ■ ■ ■ ■ is beingusedandhoweachpartywillown/licensethatIP. IP that how involved, IPis what transaction, the for on, depend will The particular outsourcing agreement’s IP provisions and protections 14.1 No, butseesection15forpossibleexceptionstothis. 13.3 through rights termination agree or exclude can parties the Yes, 13.2 Ashurst HongKong ■ 14 Registered DesignsOrdinance. Copyright Ordinance. Patents Ordinance. Trade MarksOrdinance. out set expressly unless party, other the to IP pre- existing party’s either of transfer no be will there that Specify o ute ehne rtcin f P n ohr proprietary other and IPrights. the of protection enhance further use to to is required or expires is agreement terminated, andifsohowtheywillbelicensedtocustomer. IP the after supplier deliverables/services any Whether of theIP is maybeanexitstrategy). whether IP created consider to licence sufficient or whether – ownership is required (e.g. if future sale unlimited perpetual, perspective a receiving customer’s the From existing IP andentirelynewIP. party’seither from derived is IPthat new the differentiate to need parties the whether including rights, such to relation in outsourcing the of transaction – part consider ownership and as cross-licensing position created be will rights IP new If duration, e.g. – licence all beaddressed. that should usage rights’ licensed the of on purpose and geography restrictions any with along licensed, be will that rights IP the for provide Clearly otherwise undertheagreement. osdr prpit cnietaiytae ert provisions secret confidentiality/trade appropriate Consider critical confidentialinformationprotectedbylocallaw? Are know-how, trade secretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight termination rights? Can thepartiesexcludeoragreeadditional to seeinanoutsourcingcontract? Intellectual Property

buyer-friendly marketforservices. a remains generally Asia that noting and – question in transaction Limitation of liability clauses vary widely depending on the relevant 15.1. question in out set exclusions and limitations the to subject Yes– 15.2 ■ ■ a party: to the Control of Exemption Clauses Ordinance – which sets out that A party can limit or exclude its liability under an agreement, subject 15.1 of confidence. law common the to pursuant confidential, information confidential party’s other relevant the keep to the required be may in parties both agreement, obligations confidentiality specific any Besides how post-termination,unlessotherwisesetoutintheagreement. supplier’sknow- the to access gain cannot customer the general, In 14.4 rights post-termination,unlessotherwisesetoutintheagreement. IP licensed use to right any have not does generally supplier The 14.3 ■ ■ ■ ■ ■ 15 uh raoal t hv be, nw t o i the in personal injuryasaresultofnegligence. or to or death for liability excluding or limiting from prohibited is known been, have contemplation of the parties when to the contract was made; and and reasonably fair ought are was terms such reasonable having regard to the circumstances what which were, or unless obligations, from contractual its of part or whole perform different to not contractual or expected, reasonably a render substantially to entitled performance be to claim or of contract, breach to relation in liability its exclude or limit cannot supplier’s know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? liability? Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexclude liability can itmakeofit? To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto under nationallaw? iig ofdnil nomto wt ay hr party third such information);and any storing with for systems separate using information, confidential information not (e.g. confidential deployed mixing be to mechanisms protection specific any including – duty such of requirements the establishing setting outthedurationofsuchduty; out inalist; information such set information confidential keep to exceptions with confidential, to duty contractual a establishing secrets andotherbusinesscriticalconfidentialinformation; defining confidential information to include know-how, trade specifying the permitted use of the above information within information above the of use permitted the specifying the scopeofIP licence.

Liability

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■ defining confidential information to include know-how, trade 13.2 Can the parties exclude or agree additional secrets and other business critical confidential information; termination rights? ■ establishing a contractual duty to keep such information confidential, with exceptions to confidential information set Yes, the parties can exclude or agree termination rights through out in a list; contractual negotiation. See question 11.2 for further details. ■ setting out the duration of such duty; ■ establishing the requirements of such duty – including any 13.3 Are there any mandatory local laws that might specific protection mechanisms to be deployed (e.g. not override the termination rights that one might expect mixing confidential information with any third party to see in an outsourcing contract? confidential information, using separate systems for storing such information); and Hong Kong No, but see section 15 for possible exceptions to this. ■ specifying the permitted use of the above information within the scope of the IP licence.

14 Intellectual Property 14.3 Are there any implied rights for the supplier to continue to use licensed IP rights post-termination and can these be excluded from the agreement? 14.1 How are the intellectual property rights of each party protected in an outsourcing transaction? The supplier generally does not have any right to use licensed IP The particular outsourcing agreement’s IP provisions and protections rights post-termination, unless otherwise set out in the agreement. will depend on, for the transaction, what IP is involved, how that IP is being used and how each party will own/license that IP. 14.4 To what extent can the customer gain access to the In general, parties to an outsourcing transaction should consider the supplier’s know-how post-termination and what use following issues in relation to IP for an outsourcing transaction: can it make of it? ■ Specify that there will be no transfer of either party’s pre- existing IP to the other party, unless expressly set out In general, the customer cannot gain access to the supplier’s know- otherwise under the agreement. how post-termination, unless otherwise set out in the agreement. ■ Clearly provide for the IP rights that will be licensed, along Besides any specific confidentiality obligations in the relevant with any restrictions on that licence – e.g. duration, agreement, both parties may be required to keep the other party’s geography and purpose of the licensed rights’ usage should confidential information confidential, pursuant to the common law all be addressed. of confidence. ■ If new IP rights will be created as part of the outsourcing transaction – consider ownership and cross-licensing position in relation to such rights, including whether the parties need 15 Liability to differentiate the new IP that is derived from either party’s existing IP and entirely new IP. ■ From the customer’s perspective – consider whether 15.1 To what extent can a party limit or exclude liability receiving a perpetual, unlimited licence to created IP is under national law? sufficient or whether ownership is required (e.g. if future sale of the IP may be an exit strategy). A party can limit or exclude its liability under an agreement, subject ■ Whether any supplier IP is required to use the to the Control of Exemption Clauses Ordinance – which sets out that deliverables/services after the agreement expires or is a party: terminated, and if so how they will be licensed to customer. ■ cannot limit or exclude its liability in relation to breach of ■ Consider appropriate confidentiality/trade secret provisions contract, or claim to be entitled to render a contractual to further enhance protection of IP and other proprietary performance substantially different from what was rights. reasonably expected, or not to perform whole or part of its contractual obligations, unless such terms are fair and reasonable having regard to the circumstances which were, or 14.2 Are know-how, trade secrets and other business ought reasonably to have been, known to or in the critical confidential information protected by local law? contemplation of the parties when the contract was made; and ■ is prohibited from limiting or excluding liability for death or There are no specific trade secret or confidentiality laws in Hong personal injury as a result of negligence. Kong. Trade secrets in Hong Kong are protected by the common law of confidence. 15.2 Are the parties free to agree a financial cap on There are various intellectual property laws in Hong Kong that liability? protect different IP including: ■ Trade Marks Ordinance. Yes – subject to the limitations and exclusions set out in question ■ Patents Ordinance. 15.1. ■ Copyright Ordinance. Limitation of liability clauses vary widely depending on the relevant ■ Registered Designs Ordinance. transaction in question – and noting that Asia generally remains a Parties to the service agreement can agree on contractual terms buyer-friendly market for services. regarding confidentiality and trade secret obligations. Relevant confidentiality provisions typically include:

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62 Hong Kong oenne n dsue eouin ehns ivlig both involving mechanism resolution parties’ managementpersonnel,priortocourt/arbitrationresolution. dispute and governance not regularly. Parties generally prefer providing for a comprehensive but dispute time, to time from for provided is mediation experience, as our In Kong used Hong widely the and are resolution mechanismsforoutsourcingagreements. system Centre court Arbitration the International both Kong, Hong In 16.1 and being treateddifferently infavourofthecustomer. customer with and exceptions supplier’s liability positions (including any liability caps) frequently key to the subject under payable agreement), or paid fees the of multiple agreed an to (e.g. It is market practice for both parties to limit its liability in some way Ashurst HongKong WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 16 used? What arethemainmethodsofdisputeresolution Dispute Resolution

■ ■ under HongKongcontractlaw. We notethat: There is no overriding requirement to act in good faith and act fairly 17.1 17 reasonableness undergenerallaw? elns ad 2 a ipid r xrs “od faith” “good express or commercial implied general an requirement maybeenforceable. certain (2) faith” and in “good dealings; exist implied may an (1) requirement that: acknowledged recent times in have overseas Singapore, and various UK that including note jurisdictions, jurisdictions’ we law respect, other that such common In by decisions. in influence to law subject the be may of area area this of Kong’sinterpretation evolving Hong so and jurisdictions, an is this and Kong; Hong in enforceable be may – possible where criteria objective including and means it what specifying including – form some in faith” “good requires that clause contract a according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Good Faith

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Hong Kong

OUT19_04_07_Layout 104/07/201914:46Page63 ICLG TO: OUTSOURCING 2019 Ashurst HongKong referral relationships that enable us to offer the reach and insight of a global network, combined with the knowledge and under and knowledge the with combined network, global a of insight and reach the offer to us enable that relationships countri referral 16 in offices 26 have currently We years. 200 almost spanning history rich a with firm law global leading a is Ashurst world’s mostsuccessfuldigitaleconomycompanies.We particularlyfocuson: We believe our legal expertise is impeccable, reflected in our experience with technology-focused transactions worldwide, worki and whenevertheyneedus. markets. With over 400 partners and a further 1,450 lawyers working across 10 different time zones, we are able to respond to ■ ■ ■ We work with clients across the spectrum – from large to small, in different industries and all parts of the world, all revolvi ■ ■ ■ ■ ■ and office Kong Hong Ashurst the of Partner Managing is Joshua related publications. lawyer, and is the author of various M&A and telecommunications law- by named been has Joshua on build businesses agreements andspectrumacquisitions/licensing. network including telecommunications Asia, in matters advises regulatory and also commercial He countries. Asian East South other and Philippines the Korea, Myanmar, Japan, acquisitions, disposals and joint ventures involving Hong Kong, China, international high-profile of number a on advised has He retail. and pharmaceutical resource, and energy services, financial including – corporate and commercial matters, to clients in TMT and other sectors on related TMTadvising and experience of years 20 over has Joshua leads ourDigitalEconomypracticein Asia. Most importantly, wefocusonhelpingyougrowandbesuccessful –nomatterwhatstageofbusinessyouareat. issues arisingfromtheintersectionof technology andlaw. Being approachable,practicalandcommerciallyminded. Taking amulti-disciplinaryapproach andworkingasateam. Always focusingonpeople–ahuman-firstapproach. Transparency andefficiency inourcosts. Diversity ofpersonnel. Always innovatingtoprovidethemosteffective andefficient service. Clarity andtransparencyincommunication. Understanding ourclientsandtheirindustry-specificissues.

Email: Tel: Hong Kong 1 ConnaughtPlace 11/F JardineHouse Ashurst HongKong Joshua Cole URL:

Chambers Asia Pacific Chambers Asia

[email protected] +852 28468989 www.ashurst.com

as a leading TMT leading a as

etr sc a fnnil evcs isrne entertainment, insurance, services, financial as education andretail.Hispracticeincludesadvisingon: such sectors other to TMT from spanning start-ups, IP-related to corporations and multinational technology on experience of matters across Asia. He has advised a broad spectrum of clients from wealth a brings Hoi ■ ■ and is regularly quoted by the media on (including technology law-related topics. technology frequently, through writes He contracts). smart and tasks innovation legal of automation service legal in interest Hoi works closely with the Ashurst Advance team – with a particular a with – team Advance Ashurst the with closely works Hoi ■

evcs cod optn, aa ete and centre data computing, BAU and commercial agreements; projects; cloud infrastructure telecommunications/network technology and B2C use and services; B2B licensing, of content launch/expansion development; and technology arrangements; nldn: usucn, rcrmn, upy n distribution and supply procurement, outsourcing, including: JVs; andrestructurings; otat, riiil nelgne n esot) n aiu industry sectors. various in e-sports) and intelligence smart artificial contracts, blockchain, (e.g. businesses and technologies emerging yescrt; aa rvc ad i dt arneet; and arrangements; data big and privacy data cybersecurity; rnato srcuig cnrc datn ad eoitos – negotiations and drafting contract structuring, transaction M/Pdt-oue croae rnatos icuig M&As; including: – transactions corporate TMT/IP/data-focused M-eae ise – nldn: itc; cryptocurrencies; fintech; including: – issues TMT-related URL: Email: Tel: Hong Kong 1 ConnaughtPlace 11/F JardineHouse Ashurst HongKong Hoi Tak Leung

www.ashurst.com [email protected] +852 28468982

ng around the complex legal

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Ashurst Hong Kong Hong Kong

Joshua Cole Hoi Tak Leung Ashurst Hong Kong Ashurst Hong Kong 11/F Jardine House 11/F Jardine House 1 Connaught Place 1 Connaught Place Hong Kong Hong Kong

Tel: +852 2846 8989 Tel: +852 2846 8982 Email: [email protected] Email: [email protected] URL: www.ashurst.com URL: www.ashurst.com

Joshua is Managing Partner of the Ashurst Hong Kong office and Hoi brings a wealth of experience on technology and IP-related Hong Kong leads our Digital Economy practice in Asia. matters across Asia. He has advised a broad spectrum of clients from multinational corporations to start-ups, spanning from TMT to other Joshua has over 20 years of experience advising on TMT and related sectors such as financial services, insurance, entertainment, corporate and commercial matters, to clients in TMT and other sectors education and retail. His practice includes advising on: – including financial services, energy and resource, pharmaceutical and retail. He has advised on a number of high-profile international ■ transaction structuring, contract drafting and negotiations – acquisitions, disposals and joint ventures involving Hong Kong, China, including: outsourcing, procurement, supply and distribution Japan, Myanmar, Korea, the Philippines and other South East Asian arrangements; technology and content licensing, use and countries. He also advises telecommunications businesses on development; launch/expansion of B2B and B2C technology commercial and regulatory matters in Asia, including network build services; cloud computing, data centre and agreements and spectrum acquisitions/licensing. telecommunications/network infrastructure projects; and BAU commercial agreements; Joshua has been named by Chambers Asia Pacific as a leading TMT lawyer, and is the author of various M&A and telecommunications law- ■ TMT/IP/data-focused corporate transactions – including: M&As; related publications. JVs; and restructurings; and ■ TMT-related issues – including: fintech; cryptocurrencies; cybersecurity; data privacy and big data arrangements; and emerging technologies and businesses (e.g. blockchain, smart contracts, artificial intelligence and e-sports) in various industry sectors. Hoi works closely with the Ashurst Advance team – with a particular interest in legal service innovation through technology (including automation of legal tasks and smart contracts). He writes frequently, and is regularly quoted by the media on technology law-related topics.

Ashurst is a leading global law firm with a rich history spanning almost 200 years. We currently have 26 offices in 16 countries and a number of referral relationships that enable us to offer the reach and insight of a global network, combined with the knowledge and understanding of local markets. With over 400 partners and a further 1,450 lawyers working across 10 different time zones, we are able to respond to our clients wherever and whenever they need us. We believe our legal expertise is impeccable, reflected in our experience with technology-focused transactions worldwide, working with some of the world’s most successful digital economy companies. We particularly focus on: ■ Being approachable, practical and commercially minded. ■ Taking a multi-disciplinary approach and working as a team. ■ Understanding our clients and their industry-specific issues. ■ Clarity and transparency in communication. ■ Always innovating to provide the most effective and efficient service. ■ Diversity of personnel. ■ Transparency and efficiency in our costs. ■ Always focusing on people – a human-first approach. We work with clients across the spectrum – from large to small, in different industries and all parts of the world, all revolving around the complex legal issues arising from the intersection of technology and law. Most importantly, we focus on helping you grow and be successful – no matter what stage of business you are at.

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Chapter 10 PSA India

■ Cons: conflicts between JV partners, and similar 1.4 Is there a requirement for an outsourcing transaction disadvantages as captive centre. to be governed by local law? If it is not to be local law, is there any generally accepted norm relating to India the choice of governing law? 3 Procurement Process Dhruv Suri Under contract law, outsourcing parties can agree on foreign law as the contract’s governing law, if the chosen law has close nexus with 3.1 What is the most common type of procurement process that is used to select a supplier? the contract and parties. However, courts can disregard such choice in light of overriding statutory requirements, consumer protection, India employment concerns and public policy. If both parties are Indian, Common procurement processes up to the execution of binding Indian law must be the governing law. Nonetheless, parties can contracts comprise the following steps: agree that specific clauses (like data protection and anti-corruption) ■ Identifying outsourcing goals, requirements and risks – The PSA Arya Tripathy shall be governed by foreign law. customer delineates the goals (like economies of scale, tax concessions, and synergies), the requirements (technical, infrastructural, resources, operating processes) and 2 Legal Structure associated risks (could be operational, strategic, reputational, financial and contractual) of outsourcing. (IRDAI) and the outsourcing of insurance services is as per These also help the customer to identify the optimal model. 1 Regulatory Framework IRDAI (Outsourcing of Activities by Indian Insurers) 2.1 What are the most common types of legal structure ■ Short listing and identification of supplier – In alignment Regulations, which lists out the prohibited outsourcing used for an outsourcing transaction? with goals, requirements and the risk matrix, the customer activities and prescribes compliances for insurers and shortlists the suppliers. The customer conducts due diligence 1.1 Are there any national laws or regulations that outsourcers. specifically regulate outsourcing transactions, either Some of the commonly used outsourcing forms include: on shortlisted suppliers to determine their suitability. ■ Defence – In defence procurement from foreign vendors in Depending on scope and model, various aspects are generally or in relation to particular types of ■ Third party outsourcing – purchase of services based on excess of a certain value, the vendor is obligated to offset a evaluated, including financial credibility, human resources, outsourcing transactions (e.g. business process contract terms with the supplier and without the customer’s fixed % of the value through prescribed routes. One route is technical expertise, service levels, pending disputes, and past outsourcings, IT outsourcings, telecommunications ownership stake; for example payroll management services to agree for provision of eligible services (like maintenance, records. outsourcings)? from an ERO solutions service provider. repair, overhauling, engineering, designing, testing, R&D ■ Negotiations – After identifying the supplier, parties vis-à-vis defence products) from Indian offset partners ■ Pros: structural simplicity, cost efficiency, lesser tax There is no national law that specifically regulates outsourcing negotiate the key terms. Some of the material terms are scope through direct purchases, foreign investments, or non-equity issues. transactions. Multiple regulations govern different aspects based on of services, mode of delivery, payment method, parties’ investments, and these outsourcing methods are regulated by ■ Cons: minimal control, implementation risks, obligations, reciprocal promises, confidentiality and data the industry, parties’ jurisdiction, preferred structure, and the Ministry of Defence’s offset guidelines. confidentiality and IP concerns. protection rights, performance monitoring, service levels, outsourcing scope. Some laws that generally interplay are: ■ Export promotion – In order to encourage service exports, the ■ Project – a turn-key contract where the supplier designs, standard operating processes, IP, indemnification, limitation ■ Indian Contract Act – contract essentials, performance, government has notified designated areas as export-oriented completes and delivers a project as per agreed milestones; for of liabilities, termination rights, post-termination obligations, termination, rights and damages. units and special economic zones. Outsourcing companies example, vendor to set-up and operationalise communication governing law and dispute resolution. ■ Companies Act – establishment, operation, management, based in these areas obtain various tax incentives, provided network and infrastructure. ■ Execution – Once negotiations are completed, parties execute restructuring, and dissolution of companies. they comply with requirements under the Foreign Trade & ■ Pros and cons: similar to third party outsourcing. binding contracts and perform their respective obligations. Development Regulation Act, Foreign Trade Policy, Special ■ Foreign Exchange Management Act – foreign investment, ■ Captive centres – the customer directly or indirectly through While the contract is being performed, a customer typically retains presence in India and foreign exchange. Economic Zone Act, export-import regulations and state specific rules. another group entity establishes a wholly-owned subsidiary periodic and event-specific monitoring, audit and inspection rights ■ Income-Tax Act – taxation of income, profits and capital (WOS), exercises direct operational and management control to exercise supervision. These are exercised through supplier gains. in such WOS, and in turn, the WOS provides outsourced reporting obligations, documentary access, interviews with the ■ GST Act – taxation on provision of services. 1.2 Are there any additional legal or regulatory services to the customer as well as third parties; for example, supplier’s representatives, and in some cases, site inspection as well. requirements for outsourcing transactions MNCs setting up GICs for IT/ITES services to the group and ■ Information Technology Act – data processing, transfer, undertaken by government or public sector bodies? its clients. Where contracting parties are related entities such as in captive protection and privacy. ■ Pros: direct control, data protection and confidentiality, IP models, the typical stages of the procurement process indicated ■ Transfer of Property Act – transfer of immovable property. Outsourcing by public sector enterprises (PSUs) and government ownership. above are not necessary. Between related entities, the process is customer driven, although caution is required in certain aspects such ■ Labour laws – several state and central legislations regulating bodies is mostly tender driven, and each case has its specific non- ■ Cons: increased cost, taxation risk as permanent employment matters. negotiable requirements. Additionally, outsourcing by the Central establishment, related party transactions and transfer as the captive’s employees, potential taxation, corporate ■ Specific Relief Act – specific performance of contracts. Government ministries, departments and subordinate bodies is pricing concerns, cultural and social differences. compliance, transfer pricing impact, financial consolidation and anti-corruption practices. ■ IPR laws – protection of intellectual property (IP) and rights. regulated by the Ministry of Finance’s General Financial Rules, ■ Build operate transfer (BOT) – the supplier builds and Apart from these, outsourcing in certain sectors is regulated through 2017. In order to promote MSMEs, the Public Procurement Policy operates the customer’s outsourcing unit as per the special laws. Some illustrations are below: notified under the MSME Act mandates central ministries, customer’s specifications (unlike a project model) and 4 Term of an Outsourcing Agreement performance goals, followed by transfer of the unit to the ■ Business process – Business process outsourcers providing departments and PSUs to set a 25% annual procurement target from MSMEs. Further, guidelines are also issued by the Central customer on an agreed date, event and prices as per terms of voice and data/application services such as call centres, tele- the BOT contract; for example, a foreign company Vigilance Commission and Directorate General of Supplies and 4.1 Does national or local law impose any maximum or trading, tele-medicine, tele-banking, and e-commerce must contracting a software developer to BOT an ITES unit. obtain “other service provider” registration from the Disposals for ensuring transparency in public procurements. minimum term for an outsourcing contract? Department of Telecommunications and comply with Furthermore, certain ministries like defence, railways and telecom, ■ Pros: cost efficiency by capitalising on technical expertise and reduced execution risks, and similar advantages as reporting regulations. and some states such as Tamil Nadu, Karnataka and Andhra Pradesh No, the term and its renewal are agreed contractually. captive centre. ■ Financial services – Banks and financial institutions are have their independent procurement manuals. regulated by the Reserve Bank of India (RBI). Barring core ■ Cons: unit transfer process, and similar disadvantages as banking and management functions, activities such as captive centre. 4.2 Does national or local law regulate the length of the recruitment, payroll, and customer query can be outsourced 1.3 Are there any additional legal or regulatory ■ Joint venture company (JV) – two parties collaborate to set notice period that is required to terminate an and further, sub-contracted, subject to adherence with RBI requirements for outsourcing transactions up a JV for synergies, and in turn the JV provides services to outsourcing contract? directions and the Guidelines on Managing Risks and Code undertaken in particular industry sectors, such as for JV partners and third parties. example the financial services sector? of Conduct in Outsourcing of Financial Services. ■ Pros: cost efficiency from synergies and similar No, there is no law that prescribes the length of notice period. ■ Insurance – The insurance sector is regulated by the advantages as captive centre. Insurance Regulatory and Development Authority of India See question 1.1 above.

64 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 65 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page65 ■ ■ ■ ICLG TO: OUTSOURCING 2019 ■ ■ Some ofthecommonlyusedoutsourcingformsinclude: 2.1 shall begovernedbyforeignlaw. can parties Nonetheless, agree that specific clauses law.( governing the be must law Indian Indian, are parties policy.both public If and concerns employment protection, consumer requirements, statutory overriding of light in the contract and parties. However, courts can disregard such choice the contract’s governing law, if the chosen law has close nexus with law,contract Under as law foreign on agree can parties outsourcing 1.4 PSA © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 2 h BT otat fr xml, frin company foreign a example, for contracting asoftwaredevelopertoBOT anITESunit. contract; BOT the the the and of terms per as prices and to event date, agreed an on customer unit per model) the of transfer project as by followed goals, a performance unit (unlike outsourcing specifications customer’s customer’s the operates ■ ■ ul oeae transfer operate Build ■ ■ its clients. MNCs setting up GICs for IT/ITES services to the group and outsourced provides WOS services to the customer as well as third parties; for example, the turn, in and WOS, such in (WOS), exercises direct operational and management control subsidiary wholly-owned a establishes entity group another centresCaptive ■ network andinfrastructure. example, vendor to set-up and operationalise communication completes and delivers a project as per agreed milestones; for ■ JV partnersandthirdparties. JVa up synergies,JVfor the turn to in services and provides company venture Joint the choiceofgoverninglaw? used foranoutsourcingtransaction? Project ■ ■ from anEROsolutionsserviceprovider. services management payroll example for stake; ownership on customer’s the without based and supplier the services with terms contract of purchase – outsourcing party Third Legal Structure law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot What arethemostcommontypesoflegalstructure Is therearequirementforanoutsourcingtransaction captive centre. as disadvantages similar and process, transfer unit Cons: captive centre. as advantages similar and risks, execution reduced and Pros: cost efficiency by capitalising on technical expertise os icesd ot txto rs a permanent transfer as and risk transactions pricing concerns,culturalandsocialdifferences. party taxation related cost, establishment, increased Cons: ownership. Pros: direct control, data protection and confidentiality, IP Pros andcons:similartothirdpartyoutsourcing. rs cs efcec fo snris n similar and synergies from efficiency advantages ascaptivecentre. cost Pros: os mnml oto, mlmnain risks, implementation control, minimal confidentiality andIP concerns. Cons: tax lesser efficiency, issues. cost simplicity, structural Pros: a unky otat hr te upir designs, supplier the where contract turn-key a –

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67 India OUT19_04_07_Layout 104/07/201914:46Page68

68 India olcin rcit pseso, trg, r n ohr anr of manner ( other information personal in dealing any or storage, possession, receipt, collection, concerning obligations protection data substantive and procedural ■ ■ ■ ■ relevant the ■ of Some PI. health sensitive requirements undertheIT Rulesare: as mental treated and are physical conditions information, financial as such passwords, PI of kinds Certain person. natural a of identification to Personal Data Protection Bill, 2018 ( 2018 draft Bill, Technology’sProtection Data Personal Information and Electronics of Ministry the an Thus, entities for data privacy breaches private and its consequent harm. Further, against parties. remedies judicial private appropriate seek against can individual right horizontal a recognised and state Court against enforceable right Supreme fundamental a Indian as privacy informational the 2017, and in Additionally, sharing information streamlining retention policies,andappointingdataprotectionofficers. privacy management, implementing audits, contact inventorisation, security data information including conducting requirements, stricter the and with processing business align to practices existing their revamp to had companies, IT/ITES specifically Data companies, General outsourcing ( Union European Regulation the Protection of implementation With or Data Personal Sensitive ( and 2011 Rules, Information) Procedures and Security (Reasonable Practices Technology Information the specifically, rnfr cnietaiy poesn pooo, ehooia and technological data protocol, ownership, processing data confidentiality, concerning transfer, contracts covenants outsourcing extensive most regime, contain regulatory the from Apart breaches. for officers corporate on liability personal imposes and penalties substantial for provides also It PI. processing for compliances and conditions principles, Data rigorous a significantly contains and of Authority, Protection establishment is proposes GDPR, effect, EU the by extraterritorial influenced contemplates Bill PDP Information the by ( governed Act is Technology security and protection Data 8.1 PSA WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 and natureofbusiness. security physical and control measures commensurating with its information assets operational containing technical, programme managerial, security information documented reasonable comprehensive a implement through procedures and practices must security PI processing organisations the samelevelofdataprotectionasIndia;and or with consent, provided the transferee’s jurisdiction affords contract of performance for allowed is transfer cross-border compliance; legal for or consent with be must party third a to disclosure collection, for agency; obtained retention be data and recipients intended must purposes, processing consent of case PI, in and sensitive contract lawful under processed be can PI easily accessibleformat; an in followed practices security reasonable and usage, and collection of purpose collected, PI of types communicating any organisation processing PI must provide a privacy policy transaction? Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory

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68 India odtos r tetd s estv P. oe f h relevant the ■ of Some PI. health sensitive requirements undertheIT Rulesare: as mental treated and are physical conditions information, financial as such passwords, PI of kinds Certain person. natural a of identification to of manner ( other information personal in dealing any or storage, possession, receipt, collection, concerning obligations protection data substantive and procedural ■ ■ ■ ■ rcie ad rcdrs n Sniie esnl aa or Data Personal Sensitive ( and 2011 Rules, Information) Procedures and Security (Reasonable Practices Technology Information the specifically, Personal Data Protection Bill, 2018 ( 2018 draft Bill, Technology’sProtection Data Personal Information and Electronics of Ministry the an Thus, entities for data privacy breaches private and its consequent harm. Further, against parties. remedies judicial private appropriate seek against can individual right horizontal a recognised and state Court against enforceable right Supreme fundamental a Indian as privacy informational the 2017, and in Additionally, sharing information streamlining retention policies,andappointingdataprotectionofficers. privacy management, implementing audits, contact inventorisation, security data information including conducting requirements, stricter the and with processing business align to practices existing their revamp to had companies, IT/ITES specifically Data companies, General outsourcing ( Union European Regulation the Protection of implementation With WWW.ICLG.COM Information the by ( governed Act is Technology security and protection Data 8.1 PSA rnfr cnietaiy poesn pooo, ehooia and technological data protocol, ownership, processing data confidentiality, concerning transfer, contracts covenants outsourcing extensive most regime, contain regulatory the from Apart breaches. for officers corporate on liability personal imposes and penalties substantial for provides also It PI. processing for compliances and conditions principles, Data rigorous a significantly contains and of Authority, Protection establishment is proposes GDPR, effect, EU the by extraterritorial influenced contemplates Bill PDP 8 easily accessibleformat; an in followed practices security reasonable and usage, and collection of purpose collected, PI of types communicating any organisation processing PI must provide a privacy policy estv P, osn ms b otie fr collection, for agency; obtained retention be data and recipients intended must purposes, processing consent of case PI, in and sensitive contract lawful under processed be can PI compliance; legal for or consent with be must party third a to disclosure the samelevelofdataprotectionasIndia;and or with consent, provided the transferee’s jurisdiction affords contract of performance for allowed is transfer cross-border and natureofbusiness. security physical and control measures commensurating with its information assets operational containing technical, programme managerial, security information documented reasonable comprehensive a implement through procedures and practices must security PI processing organisations Security Data ProtectionIssuesandInformation transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory

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■ ■ ■ ■ Service Level ( Service Agreements 10.1 ■ PSA ICLG TO: OUTSOURCING 2019 ■ namely: remedies, multiple has customer the breaches, supplier the case In 11.1 or customer those against accumulated bythecustomer. set-off the be then to can that given credits own credits its accumulate the extinguish to allowed is supplier the agreements, drafted creatively some In for credits. service allow factor fee variable a involving agreements outsourcing Most SLA. the under norms performance the to conform to fails supplier the if supplier, the the to payable by amounts the from deducted customer are upon that amounts essentially expire are credits Service They termination. and/or performance oftheservices. penalty for provide also SLAs breach, any of case In progressing. is project the how on based revised and updated periodically are SLAs upon. agreed and service negotiated prepared, is draft for initial the which pointers on based levels, initial the levels, proposes typically service customer matters. The specifications, important other and service, support, effective of for commitments nature the to capture freedom full have parties determine all the key commercial terms of an SLA. Generally, they and transaction, outsourcing any © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 10 os rsn ot f bec. hrfr, f h contract the “ not and if Therefore, breach. breach, prove to needs party aggrieved the LDs, for provides a of out arising loss the of pre-estimate a be to deemed are LDs consequential, “ always are India in damages h camn hs o rv bec ad “ and breach prove to has claimant the avoiding tax. of intent sole the with into entered been have may view, its in that, arrangements all disregard completely to authorities Criminal case compromised, being IP or injunction isthemostsought-after remedy. breached being information to perform a certain act. Where there is a risk of confidential can seek an injunction restraining or directing the other party prtoa ceio t iiit islec proceedings insolvency initiate to creditor operational at aren t sbtttd efrac, r hr the where or performance, contract is,byitsnature,determinable. substituted to aggrieved the agreeing as party such arise, not do circumstances certain provided contract, the of performance direct to courts allows It Act. Relief Specific the under governed is performance Injunction contracts, parties agree on liquidated damages ( damages liquidated on agree parties contracts, most in However, Contract Act. the under accrues damages pcfc performance Specific amount soclaimedasdamages. general lawifthesupplierbreachescontract? levels andservicecredits? Insolvency criminal breachoftrust,andfinancial embezzlement. fraud, for as such proceedings criminal initiate to position a eea at-viac rule anti-avoidance General Damages and penalties and Damages What istheusualapproachwithregardtoservice What remediesareavailabletothecustomerunder

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70 India the Indiantrademarkregistry. it, upon the transfer or licence, as the case worked may be, should be registered with have who those including any independent consultants. With respect to trademarks, all by assigned specifically their be to has in invention new any no therefore, is and, this assignment there automatic concerned, are patents confirming as far the As clauses of terms. employment all have that important employees is it supplier’s Thus, employer. the with vests contract. the through protected always are These information. confidential know-how,for protection statutory no is there No, and secrets trade 14.2 know-how and formulae, codes, object and source Further, under Indian law, ownership of all copyrightable work ( not, If registration. stringent representationandwarrantiesoughttobetaken. for filed or registered either is IP its all that to either the belonging customer or supplier. The customer should try and ensure and non-transferable as or acknowledged transferred, specifically licensed, either are copyrights and trademarks as information and protected contractually. On the other hand, IP such confidential as covered usually is transaction the during IP disclosed Any or both. contractually or authority, protected relevant be the with can registration it through IP, of nature the on Based 14.1 to carrytradeandbusiness,consequently, ruledinvalid. Prolonged factors. relevant one’son restrictions as viewed right be to likely more are durations other and term contract customer’s business, services, of nature the on depending interest, party’s a safeguard to essential is that duration reasonable a for be should For avoided. instance, post-termination non-compete best and be non-solicitation clauses are clauses to one-sided clauses hence, and related reasonable, post-termination and contractual termination override require that laws local termination rights. Nevertheless, general contracting law principles mandatory no are There 13.3 solicitation obligations. non- and non-compete post-termination and transition, smooth for assistance reasonable rights, contractual of suspension period, cure default mandatory period, notice modality, delivery notice as such rights, termination additional include or exclude can parties Yes, 13.2 dispute andclaimfordamages. a in result wilful to likely is grounds and these on Termination negligence misconduct. misrepresentation, and and fraud control of ownership, change bankruptcy, contract, of breach majeure, for termination on agree to parties for common is it Further, PSA WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 termination rights? law? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? critical confidentialinformation protectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional

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70 India the Indiantrademarkregistry. it, upon the transfer or licence, as the case worked may be, should be registered with have who those including any independent consultants. With respect to trademarks, all by assigned specifically their be to has in invention new any no therefore, is and, this assignment there automatic concerned, are patents confirming as far the As clauses of terms. employment all have that important employees is it supplier’s Thus, employer. the with vests WWW.ICLG.COM contract. the through protected always are These information. confidential know-how,for protection statutory no is there No, and secrets trade 14.2 know-how and formulae, codes, object and source Further, under Indian law, ownership of all copyrightable work ( not, If registration. stringent representationandwarrantiesoughttobetaken. for filed or registered either is IP its all that to either the belonging customer or supplier. The customer should try and ensure and non-transferable as or acknowledged transferred, specifically licensed, either are copyrights and trademarks as information and protected contractually. On the other hand, IP such confidential as covered usually is transaction the during IP disclosed Any or both. contractually or authority, protected relevant be the with can registration it through IP, of nature the on Based 14.1 to carrytradeandbusiness,consequently, ruledinvalid. Prolonged factors. relevant one’son restrictions as viewed right be to likely more are durations other and term contract customer’s business, services, of nature the on depending interest, party’s a safeguard to essential is that duration reasonable a for be should For avoided. instance, post-termination non-compete best and be non-solicitation clauses are clauses to one-sided clauses hence, and related reasonable, post-termination and contractual termination override require that laws local termination rights. Nevertheless, general contracting law principles mandatory no are There 13.3 solicitation obligations. non- and non-compete post-termination and transition, smooth for assistance reasonable rights, contractual of suspension period, cure default mandatory period, notice modality, delivery notice as such rights, termination additional include or exclude can parties Yes, 13.2 dispute andclaimfordamages. a in result wilful to likely is grounds and these on Termination negligence misconduct. misrepresentation, and and fraud control of ownership, change bankruptcy, contract, of breach majeure, for termination on agree to parties for common is it Further, PSA 14 law? critical confidentialinformation protectedbylocal Are know-how, tradesecretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty to seeinanoutsourcingcontract? override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight termination rights? Can thepartiesexcludeoragreeadditional

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OUT19_04_07_Layout 104/07/201914:46Page71 rnil o go fih n raoalns wie enforcing while reasonableness and faith contracts. good of the recognise principle precedents judicial multiple and right, contractual aggrieved party to claim damages, even in the absence of an express an allows requirement faith good The faith. good in act to parties contracting requires Act Contract the of principle underlying The 17.1 exercise exclusivejurisdictiontoadjudicatethedispute. shall court which mentions contract the cases, such In arbitration. invoking of instead litigate to prefer parties instances, rare few a In PSA ICLG TO: OUTSOURCING 2019 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd PSA has carved a special niche in the Indian legal market by the high quality of its advice, responsiveness and client commitme client and responsiveness advice, its of quality high the by market legal PSAIndian the in niche special a carved has a lawyerwith33yearsofexperienceinthreecontinents. PSA is a full service business law firm with offices in New Delhi and Chennai while working pan India seamlessly. The firm was Capital, RealProperty, IP and TMT. Equ Private Outsourcing, & Acquisitions, Mergers Employment, and Labour Compliance, & Investigations Defence, Anti-Corruption & Resol Dispute Competition, Projects, & Infrastructure Laws, Commercial M&A, Corporate, General include areas practice broad The d is team legal Our succeed. clients our dynamic withtheabilityandtrainingto thinkout-of-the-boxandthatmakesititsbusinesstoknowtheclients’ business. help that solutions legal innovative on focus a with coupled mindset global a is firm Indian StartupExchangeProgram( German with Ambassador an is and forum lawyer tech global a Law, Dhruv also regularly writes for border transactions”and“negotiations”. “cross- as such subjects on schools law leading at lectures” “expert given also has He India. across spaces co-working and incubators and insolvency Dhruv regularly speaks and conducts legal trainings and workshops at employment, and laws, exchange bankruptcy, labour disputes,etc. foreign property, GDPR, and intellectual protection data structuring, regulatory,business and compliance M&A, corporate/commercial, as as such areas practice of range well a across start-ups stage growth as to early office), family investors, angel financial funds, companies, (venture 500 investors and 100 Fortune advised has and group practice firm’sstart-up/VC/PE the heads He Chennai. and Delhi New Dhruv Suri is a Partner at PSA, a full-service law firm with its offices in 17 reasonableness undergenerallaw? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer

Good Faith Email: Tel: India New Delhi110001 15 BarakhambaRoad 14 A&B Hansalaya PSA Dhruv Suri URL:

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eias ad a as pbihd aiu atce i reputed in articles various published also and international andnationaljournalsoncontemporarylegaltopics. conferences has at Firm and the seminars, represented has She Association. Bar Inter-Pacific and India – Lawyers Women of Society of member Firm’s the to contributes significantly Arya spoken at public forums on comparative data protection jurisprudence. leading for trainings regulatory protection IT/ITES multi-national companies, organised data round table sessions and and conducted has compliances, She pricing aspects. transfer contracting, has project She impact. social advised global corporations in setting up and IT/ITES captive units, turnkey manufacturing, in heavy clients automobiles, advising on focused is and specific industries like healthcare, pharmaceuticals, defence, IT/ITES, She labour regulatory, matters. privacy, law environment and and corporate protection general data M&A, governance, domestic and cross-border as various such advises and PSA at law,business of aspects diverse on clients international and domestic Associate Principal is Tripathy Arya URL: Email: Tel: India New Delhi110001 15 BarakhambaRoad 14 A&B Hansalaya PSA Arya Tripathy www.psalegal.com [email protected] +91 11 43500521

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Chapter 11 Italy Marco Blei

Portolano Cavallo Luca Gambini

Providers of outsourcing services to the public administration must 1 Regulatory Framework comply with specific rules governing the public connectivity system (the Digital Administration Code – Legislative Decree No. 82/2005, 1.1 Are there any national laws or regulations that and the related technical rules issued by the Agency for Digital Italy specifically regulate outsourcing transactions, either (Agenzia per l’Italia Digitale – AGID)). generally or in relation to particular types of outsourcing transactions (e.g. business process outsourcings, IT outsourcings, telecommunications 1.3 Are there any additional legal or regulatory outsourcings)? requirements for outsourcing transactions undertaken in particular industry sectors, such as for example the financial services sector? Under Italian law, outsourcing agreements are not specifically regulated, save for certain specific rules set out in certain highly (A) Overview regulated sectors. Generally, the rules applicable to such Outsourcing by financial services firms (including banking, agreements are included in the Italian Civil Code, and in particular: payment, investment and insurance entities) is thoroughly regulated (a) the general provisions concerning contracts (e.g. contracts’ and governed by similar principles across the relevant sectors. requisites, effects, interpretation, assignment – see Articles 1321 et seq. of the Civil Code); and (b) the provisions concerning supply Consistently with the EU framework, outsourcing shall not result in contracts (see Articles 1559 et seq. of the Civil Code) and works and the outsourcer becoming a letter-box entity (i.e. by delegating to the service contracts (see Articles 1655 et seq. of the Civil Code). service provider its core business), or in posing threats to the service level provided to customers. Particular rules apply to certain types of outsourcing transactions: (A) IT transactions Moreover, specific measures shall be implemented to comply with local outsourcing regulations relating to: (i) contractual clauses to The outsourcing of IT and cloud services, to the extent it entails be set out (e.g. to ensure business continuity in case of early processing of personal data, is subject to the provisions set out by termination); (ii) internal policies and procedures to be approved by the Regulation (EU) 679/2016 and by the Italian Data Protection the financial services firm’s management body; and (iii) the Code (Legislative Decree No. 196/2003) as recently amended by appointment of an outsourcing function-holder. Legislative Decree no. 101 of 2018 (see question 8.1 below). Further regulatory provisions are triggered when the outsourcing In addition, the Italian Data Protection Authority (Garante per la covers internal control functions (i.e. Compliance, Risk protezione dei dati personali) has issued several resolutions on data Management and Internal Audit), or “critical activities” – which, if protection impacting also on outsourcing services. provided inefficiently, could result in the failure of the firm Additional requirements apply when IT and cloud services are providing the financial services to meet the licensing requirements. outsourced by financial services firms (see question 1.3 below). The outsourcing of critical activities is thus subject to a prior (B) Telecommunications approval by Regulators and the relevant agreement shall include Telecommunication services are regulated by the Electronic additional mandatory clauses. Communications Code (Legislative Decree No. 259/2003) and by As to current supervisory trends, Competent Authorities are also the resolutions issued by the Italian Communications Authority closely monitoring intra-group arrangements and cyber and IT risks (Autorità per le Garanzie nelle Comunicazioni – AGCOM) and the associated with outsourcing of tech and cloud services, by Ministry of Economic Development (Ministero dello Sviluppo increasingly conducting local market surveys. Economico – MISE). Below are summarised the main relevant regulations. (B) Banking and payment services firms 1.2 Are there any additional legal or regulatory The Bank of Italy has competence over the outsourcing of certain requirements for outsourcing transactions functions by banks and payment institutions, among others. undertaken by government or public sector bodies? The regulatory framework is based upon the following: Outsourcing contracts in the public sector are regulated by the Code a) Bank of Italy Circular No. 285 of 17 December 2013, which on Public Contracts (Legislative Decree No. 50/2016). sets out comprehensive rules on the banking business and

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Chapter 11 Portolano Cavallo Italy

corporate governance, including outsourcing measures (see Transfer outsourcing arrangement, whereby, to ensure business Part I, Title V, Chapter 8, Section IV and Section VI). continuity, the customer transfers certain assets and/or personnel to b) Bank of Italy Supervisory Instructions on Payment and the supplier. Electronic Money Institutions of 17 May 2016, which covers Simple outsourcing arrangement, whereby the relationship Italy outsourcing by payment service firms (see Chapter VI, between the customer and the supplier is regulated by a simple Section II and Section III). services agreement. Marco Blei c) Bank of Italy Circular No. 288 of 3 April 2015, which regulates outsourcing by non-bank financial institutions (see Captive entity, whereby the customer sets up a wholly-owned Title III, Section V and Section VI). subsidiary and outsources several business processes and activities to this subsidiary. (C) Investment and asset management firms Italy

The Bank of Italy and the National Commission on Listed Companies and Securities Exchanges (CONSOB) have joint 3 Procurement Process Portolano Cavallo Luca Gambini competence over the outsourcing of certain functions by investment services providers and asset managers. 3.1 What is the most common type of procurement Indeed, the main piece of regulation relevant to outsourcing is the process that is used to select a supplier? Bank of Italy and CONSOB joint Regulation of 29 October 2007, as subsequently amended (so called “Joint Regulation”). Providers of outsourcing services to the public administration must 1 Regulatory Framework In case of outsourcing between private parties, the procurement comply with specific rules governing the public connectivity system EU rules directly applicable to alternative investment fund process generally consists of the following steps which may slightly (the Digital Administration Code – Legislative Decree No. 82/2005, managers also apply to local players (see EU Regulation No. vary depending on the value and complexity of the outsourcing: 231/2013). 1.1 Are there any national laws or regulations that and the related technical rules issued by the Agency for Digital Italy ■ Request for Information (“RFI”): the customer requests specifically regulate outsourcing transactions, either (Agenzia per l’Italia Digitale – AGID)). (D) Insurance companies information from several potential suppliers with the aim to generally or in relation to particular types of The Regulator having competence over the outsourcing of certain evaluate the market options for the outsourcing, understand outsourcing transactions (e.g. business process functions by insurers is the Institute for Insurance Supervision the capabilities of each supplier and shortlist them, etc. outsourcings, IT outsourcings, telecommunications 1.3 Are there any additional legal or regulatory requirements for outsourcing transactions (IVASS). ■ Request for Proposal (“RFP”): based on the information outsourcings)? received during the RFI phase, the customer sends a formal undertaken in particular industry sectors, such as for All the outsourcing matters are governed by the recently enacted example the financial services sector? request outlining the services to a selected list of providers. Under Italian law, outsourcing agreements are not specifically IVASS Regulation No. 38 of 3 July 2018, which provides for the In most of the cases, a draft outsourcing agreement is overall corporate governance measures to be adopted by insurers. attached to the RFP. Within the deadline set forth in the RFP, regulated, save for certain specific rules set out in certain highly (A) Overview regulated sectors. Generally, the rules applicable to such Peculiarly to insurers, specific regulatory requirements apply to the the prospective providers provide the customer with their Outsourcing by financial services firms (including banking, agreements are included in the Italian Civil Code, and in particular: outsourcing of the Actuarial Function, pursuant to the Solvency II commercial and technical offers, including their comments to payment, investment and insurance entities) is thoroughly regulated (a) the general provisions concerning contracts (e.g. contracts’ framework. the draft outsourcing agreement. and governed by similar principles across the relevant sectors. requisites, effects, interpretation, assignment – see Articles 1321 et Conversely, no specific regulations apply to the outsourcing carried ■ Due Diligence: the customer selects one or more suppliers seq. of the Civil Code); and (b) the provisions concerning supply Consistently with the EU framework, outsourcing shall not result in out by insurance intermediaries. based on their offers and comments on the draft outsourcing contracts (see Articles 1559 et seq. of the Civil Code) and works and the outsourcer becoming a letter-box entity (i.e. by delegating to the agreement. Due diligence is conducted on the selected suppliers, as well as site visits and management and service contracts (see Articles 1655 et seq. of the Civil Code). service provider its core business), or in posing threats to the service employee interviews, in order to better define the scope of the level provided to customers. 1.4 Is there a requirement for an outsourcing transaction Particular rules apply to certain types of outsourcing transactions: to be governed by local law? If it is not to be local outsourcing services and their capability levels. In a transfer (A) IT transactions Moreover, specific measures shall be implemented to comply with law, is there any generally accepted norm relating to outsourcing, the due diligence is also aimed at identifying the local outsourcing regulations relating to: (i) contractual clauses to the choice of governing law? assets and employees to be transferred. The outsourcing of IT and cloud services, to the extent it entails be set out (e.g. to ensure business continuity in case of early processing of personal data, is subject to the provisions set out by ■ Negotiation: the customer conducts negotiation with the termination); (ii) internal policies and procedures to be approved by There is no requirement for an outsourcing agreement to be selected supplier. Sometimes, in order to reduce the costs, the Regulation (EU) 679/2016 and by the Italian Data Protection the financial services firm’s management body; and (iii) the governed by Italian law; therefore, the choice of the law governing speed up the finalisation of the procurement process and Code (Legislative Decree No. 196/2003) as recently amended by appointment of an outsourcing function-holder. the agreement is a matter of negotiation. increase competition among the suppliers, the negotiation is Legislative Decree no. 101 of 2018 (see question 8.1 below). carried out with several shortlisted suppliers. Further regulatory provisions are triggered when the outsourcing There is no generally accepted rule relating to the governing law. In addition, the Italian Data Protection Authority (Garante per la covers internal control functions (i.e. Compliance, Risk However, it is obviously advisable that the governing law and the The above-mentioned procurement process is generally adopted by protezione dei dati personali) has issued several resolutions on data Management and Internal Audit), or “critical activities” – which, if jurisdiction are coherent, and therefore that the law governing the medium-large companies and in relation to at least medium-sized protection impacting also on outsourcing services. provided inefficiently, could result in the failure of the firm agreement is that of the country where contractual disputes would deals. Additional requirements apply when IT and cloud services are providing the financial services to meet the licensing requirements. be potentially litigated. In the public sector, the procurement process is subject to a strict outsourced by financial services firms (see question 1.3 below). The outsourcing of critical activities is thus subject to a prior regulation set forth in the Code on public contracts (Legislative (B) Telecommunications approval by Regulators and the relevant agreement shall include Decree No. 50 of 2016). additional mandatory clauses. 2 Legal Structure Telecommunication services are regulated by the Electronic Communications Code (Legislative Decree No. 259/2003) and by As to current supervisory trends, Competent Authorities are also 4 Term of an Outsourcing Agreement the resolutions issued by the Italian Communications Authority closely monitoring intra-group arrangements and cyber and IT risks 2.1 What are the most common types of legal structure (Autorità per le Garanzie nelle Comunicazioni – AGCOM) and the associated with outsourcing of tech and cloud services, by used for an outsourcing transaction? Ministry of Economic Development (Ministero dello Sviluppo increasingly conducting local market surveys. 4.1 Does national or local law impose any maximum or Economico – MISE). Below are summarised the main relevant regulations. The most common outsourcing structures are the following: minimum term for an outsourcing contract? (B) Banking and payment services firms Multi-sourcing, whereby a customer enters into contracts with 1.2 Are there any additional legal or regulatory The Bank of Italy has competence over the outsourcing of certain different suppliers for the provision of different services. The Italian law does not provide for any minimum or maximum term for requirements for outsourcing transactions functions by banks and payment institutions, among others. customer can take advantage of each supplier’s specialisation, but outsourcing agreements. Therefore, the term of the agreement is undertaken by government or public sector bodies? shall also coordinate and ensure interfaces between the different freely determined by the parties. The regulatory framework is based upon the following: suppliers. Outsourcing contracts in the public sector are regulated by the Code a) Bank of Italy Circular No. 285 of 17 December 2013, which Joint venture or partnership, whereby the customer and the on Public Contracts (Legislative Decree No. 50/2016). sets out comprehensive rules on the banking business and supplier set up either a contractual or a corporate joint venture.

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who mayobjecttothesubleasewithin 30daysforjustcause. and (ii) proper notification is provided by the tenant to the landlord, allowed, or transferred as well is (see Law No. 392 of 27 July 1978, Article principle 36), in consent leased is of part is property the which business the (i) that provided landlord’s the of absence the Generally speaking, the sublease of immovable business premises in lease orlicence,aswelloftheassetconcerned. the of features specific to according apply may formalities Some notice oftheassignment. the to granted is cause assigned party by law during a period of three months starting from just for withdrawal of right a However, intuitu personae ate, ih xeto big ae ny n eain o certain to ( relation agreements in of only categories made being exception with third to parties, transferred is that business a in included agreements the of transfer the for needed is party assigned the by consent prior No the unless party, agreement alreadyallowsthepossibilityofassignment. assigned the of acceptance formal the requires Assignment of contracts to third parties (as the outsourcers may be) Key contracts latter regard,specialrulesapplytoregisteredproperties). any require not this in (however, registration does to subject it is property formality,nor specific movable of license or lease The and the in relevant publicregister. recorded boats be shall cars, agreement the as case, this In (such aeroplanes). property registered concerns oral. it when be writing may in be to and needs property property movable formalities of transfer the However, special movable require of not do transfer generally the contemplating Agreements Movable property UIBM). ( Patents and Trademarks Office ( rights IP of Italian the before registration to subject be can trademarks) patents, transfer/license the concerning Agreements of enforceabilityincasecourtdisputes. degree limited a has but possible is agreement oral an of means by 22 April 1941). Therefore, the transfer of software IP rights/software licences and of rights 633 No. 110,Law (Section writing in provided be IPshall licences transferring agreement any of Evidence IP rightsandlicences 6.1 the with compliance relevant applicablelawsandregulations. in always are services the that ensure to as the (and corresponding services price adjustments) in the the event of regulatory changes, of amendment automatic the for providing clauses include may services) healthcare and insurance financial, ( services regulated of outsourcing the to relating Agreements or CEOsmusttrytoreachanamicablesolutionthedispute. before bringing the case to court, that the parties’ are respective providing managing directors procedures, disagreements escalation to possible subject litigation, generally and disputes prevent To on, agreeing and with, dealing of changes tothescopeandlevelofservices. task the with entrusted and 6 license assetsonanoutsourcingtransaction? Transfer of Assets What formalitiesarerequiredtotransfer, leaseor ).

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80 Italy WWW.ICLG.COM the services. of complexity the on depending vary may committees such of role number of committees and relevant members, level of authority and ( thereto the in raised connection by be may different which out issues possible carried with appoint deal service to and the supplier parties monitor to the order in contracts, committees outsourcing most In 16.1 and asindicatedintheanswertoquestion15.1. caps, obviously subject to the restrictions provided for by Italian law liability for provide usually agreements outsourcing Indeed, Yes. 15.2 Civil Code). of fraud, wilful misconduct or gross negligence (Article 1229 of the Under Italian law, it is forbidden to limit contractual liability in case 15.1 customers andalsoaftertheterminationofagreement. other for know-how such use can supplier the that sure makes This supplier. the by the owned is in services supplier contractual the the of by performance developed not is that know-how any that On the other hand, the supplier usually makes sure in the agreement Portolano Cavallo © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 16 15 used? liability? under nationallaw? What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexcludeliability Dispute Resolution Liability

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OUT19_04_07_Layout 104/07/201914:46Page81 ICLG TO: OUTSOURCING 2019 Portolano Cavallo Portolano Cavallo was founded in 2001 by partners Manuela Cavallo and Francesco Portolano, and provides legal advice to compani complex and evolving sectors. It is a leader in the digital, media and technology sectors, in addition to being recognised in recognised being to addition in sectors, technology and media digital, the in leader a is It sectors. evolving and complex Marco also advises and assists clients mainly in patent and know-how the onlinemagazine on sciences life and IP on articles publishes regularly he and abroad, and Italy in both seminars, and conferences at speaks frequently He unfair commercialpractices. and advertisement misleading competition, unfair copyrights, design, trademarks, concerning disputes in as well as proceedings, litigation co-marketing agreements,aswellclinicaltrialsagreements. and distribution supply, manufacturing, pharmaceuticals and rights, property intellectual of transfer and license use, development, the to relating agreements of negotiation and drafting includes expertise His non- and contentious in players sciences contentious matters. life other and medical pharmaceutical, devices advised has Marco career, 16-year his In practice groups. IP and Sciences Life Cavallo’s Portolano in counsel a is Blei Marco In alltheseareas,PortolanoCavalloisrecognisedbymultiplelegalItalianand internationalrankingsandawards. transactions technology from and issues, cyber-security regulatory issues. and privacy protection, data to employment from property, intellectual fashion/luxury fields. The firm’s practice areas range from litigation to M&A and venture capital, from emerging companies to the exploitation and pro Marco is currently serving in the INTA Parallel Imports Committee – Committee Imports INTAParallel the in serving currently is Marco Visit https://www.portolano.it/en/professionisti/marco-blei/ Property (AIPPI)andoftheLicensingExecutivesSociety(LESItaly). International the of Group Intellectual of Protection the for Association Sub-committee on Commingling Goods, and is a member of the Italian

AboutPharma Email Tel: Italy 20123 Milan Piazza Borromeo,12 Portolano Cavallo Marco Blei URL:

[email protected] +39 02722341 www.portolano.it/en .

Visit https://www.portolano.it/en/professionisti/luca-gambini/ at secondment on been has Morrison &FoersterLLP he inNew York City. and DC Washington in firm law a outsourcing and IT transactions. Prior to joining the firm, he completed an internship with of aspects contractual the all and on Italian clients advising foreign sector IT the in experience strong gained also devices, pharmaceutical, and digital/information technology. Luca has biotechnology,medical including and industries, technology and sciences life investors of spectrum the for across development of acting stages all at transactions, companies capital venture and equity private M&A, cross-border and domestic in practice corporate his focuses He and M&A and sector sciences governance inthe2018 life the in practitioner practice groups since January 2018. Luca has been ranked as leading Luca has been a partner in Portolano Cavallo’s Life Sciences and M&A Who’s WhoLegal URL: www.portolano.it/en Email: [email protected] Tel: +3902722341 Italy 20123 Milan Piazza Borromeo,12 Portolano Cavallo Luca Gambini

guide.

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the life sciences and sciences life the tection of all forms of

o nirs and antitrust to

es operating in

. Italy

81 Italy OUT19_04_07_Layout 104/07/201914:46Page80

80 Italy WWW.ICLG.COM the services. of complexity the on depending vary may committees such of role number of committees and relevant members, level of authority and ( thereto the in raised connection by be may different which out issues possible carried with appoint deal service to and the supplier parties monitor to the order in contracts, committees outsourcing most In 16.1 and asindicatedintheanswertoquestion15.1. caps, obviously subject to the restrictions provided for by Italian law liability for provide usually agreements outsourcing Indeed, Yes. 15.2 Civil Code). of fraud, wilful misconduct or gross negligence (Article 1229 of the Under Italian law, it is forbidden to limit contractual liability in case 15.1 customers andalsoaftertheterminationofagreement. other for know-how such use can supplier the that sure makes This supplier. the by the owned is in services supplier contractual the the of by performance developed not is that know-how any that On the other hand, the supplier usually makes sure in the agreement Portolano Cavallo 16 15 used? What arethemainmethodsofdisputeresolution liability? Are thepartiesfreetoagreeafinancialcapon under nationallaw? To whatextentcanapartylimitorexcludeliability Dispute Resolution Liability

eiw f rc, osbe eas. The delays). possible price, of review e.g.

ICLG TO: OUTSOURCING 2019

Italy

OUT19_04_07_Layout 104/07/201914:46Page81 ICLG TO: OUTSOURCING 2019 Portolano Cavallo © Published andreproduced withkindpermission byGlobalLegal Group,Ltd Portolano Cavallo was founded in 2001 by partners Manuela Cavallo and Francesco Portolano, and provides legal advice to compani complex and evolving sectors. It is a leader in the digital, media and technology sectors, in addition to being recognised in recognised being to addition in sectors, technology and media digital, the in leader a is It sectors. evolving and complex In alltheseareas,PortolanoCavalloisrecognisedbymultiplelegalItalianand internationalrankingsandawards. transactions technology from and issues, cyber-security regulatory issues. and privacy protection, data to employment from property, intellectual The firm’s practice areas range from litigation to M&A and venture capital, from emerging companies to the exploitation and pro fashion/luxury fields. the onlinemagazine on sciences life and IP on articles publishes regularly he and abroad, and Italy in both seminars, and conferences at speaks frequently He unfair commercialpractices. and advertisement misleading competition, unfair copyrights, design, trademarks, concerning disputes in as well as proceedings, litigation Marco also advises and assists clients mainly in patent and know-how co-marketing agreements,aswellclinicaltrialsagreements. and distribution supply, manufacturing, pharmaceuticals and rights, property intellectual of transfer and license use, development, the to relating agreements of negotiation and drafting includes expertise His non- and contentious in players sciences contentious matters. life other and medical pharmaceutical, devices advised has Marco career, 16-year his In practice groups. IP and Sciences Life Cavallo’s Portolano in counsel a is Blei Marco Visit https://www.portolano.it/en/professionisti/marco-blei/ Property (AIPPI)andoftheLicensingExecutivesSociety(LESItaly). International the of Group Intellectual of Protection the for Association Sub-committee on Commingling Goods, and is a member of – the Italian Committee Imports INTAParallel the in serving currently is Marco

AboutPharma Email Tel: Italy 20123 Milan Piazza Borromeo,12 Portolano Cavallo Marco Blei URL:

[email protected] +39 02722341 www.portolano.it/en .

Who’s WhoLegal URL: www.portolano.it/en Email: [email protected] Tel: +3902722341 Italy 20123 Milan Piazza Borromeo,12 Portolano Cavallo Luca Gambini

guide.

WWW.ICLG.COM

the life sciences and sciences life the tection of all forms of

o nirs and antitrust to

es operating in

. Italy

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Chapter 12 Anderson Mōri & Tomotsune Japan

There are no criminal penalties for breach of the above provisions under the Medical Care Act. 4.2 Does national or local law regulate the length of the notice period that is required to terminate an c) Legal services transactions outsourcing contract? There are no legal restrictions on the outsourcing of legal services Japan from lawyers to outsourcing agents, such as translators, and even No, there is no requirement on the length of the notice period that is other lawyers. required to terminate an outsourcing contract under Japanese laws. In Japan, lawyers are self-regulated and are not governed by a regulatory agency. From a financial perspective, law firms are operated entirely from client fees and other revenues collected from 5 Charging Japan members. d) Debt collection 5.1 What are the most common charging methods used in Anderson Mōri & Tomotsune Takashi Nakazaki Under the Lawyer Act, dispute resolution services can only be outsourcing transactions? operated by lawyers. Debt collection usually goes together with disputes and thus, debt collection outsourcing should only be made The most common charging method used in outsourcing to lawyers or debt collection servicers approved by the government transactions is a calculation based on the number of staff allocated under the Act on Special Measures Concerning Claim Management to the outsourcing and the number of days such staff provide these companies, and publicly publishes manuals in relation to such and Collection Businesses. services. 1 Regulatory Framework inspections. These inspection manuals include points for inspection, which function as guidance for financial institutions. In relation to outsourcing, the following points will be inspected: 1.4 Is there a requirement for an outsourcing transaction 5.2 What other key terms are used in relation to costs in 1.1 Are there any national laws or regulations that to be governed by local law? If it is not to be local outsourcing transactions? specifically regulate outsourcing transactions, either ■ how the financial institution plans and implements law, is there any generally accepted norm relating to generally or in relation to particular types of outsourcing; the choice of governing law? The delivery schedule and the location where the outsourcing outsourcing transactions (e.g. business process ■ how the financial institution controls risks related to process is performed are important in relation to costs in outsourcings, IT outsourcings, telecommunications outsourcing; and outsourcings)? There is no requirement for an outsourcing transaction to be outsourcing transactions. ■ how the financial institution resolves problematic issues. governed by local law. Also, there is no generally accepted norm

There are no national laws that specifically regulate outsourcing However, even if the FSA identifies concerns in relation to the relating to the choice of governing law. transactions. Outsourcing is not specifically recognised as a above, there are no criminal penalties, although the FSA may take 6 Transfer of Assets commercial or operational concept and is therefore not specifically these points into consideration when deciding whether to make an order, including an order for the business to submit a business 2 Legal Structure regulated under Japanese law. As to telecommunications 6.1 What formalities are required to transfer, lease or improvement plan. outsourcings, any telecommunications carrier or agent shall, before license assets on an outsourcing transaction? the conclusion of a contract of services for general consumers, The manuals described above refer to the security standards for 2.1 What are the most common types of legal structure explain the service contents, such as the type of service, the name of computer systems. When outsourcing, financial institutions must used for an outsourcing transaction? There are no formalities required to transfer, lease or license assets the telecommunications carrier, points of contact for the comply with these standards and ensure that outsourcing agents on an outsourcing transaction. telecommunications carrier including business hours, and the comply with these standards. The most common types of legal structure used for an outsourcing content of telecommunications services to users. The In 2001, the Bank of Japan, the central bank of Japan that supervises transaction are: (i) entrusting certain work to a third party by a 6.2 What are the formalities for the transfer of land? telecommunications carrier (or agent) shall deliver documents the banking industry, published a paper on risk control for the delegation agreement, a service agreement or a subcontract containing the above matters and make subsequent verbal outsourcing of financial institution activities. This paper covers the agreement in IT outsourcing and BPO; and (ii) the supply of explanations to potential users if necessary. In relation to business following topics: temporary labour by a temporary labour agreement in BPO. For This is not applicable. process outsourcings and IT outsourcings, there are no additional ■ how to establish risk control systems when commencing local public services such as libraries and prisons, PPP (Public legal or regulatory requirements for business process transactions. Private Partnership) and PFI (Private Finance Initiative) models are outsourcing; 6.3 What post-completion matters must be attended to? used. ■ how to monitor risks after the commencement of 1.2 Are there any additional legal or regulatory outsourcing; and This is not applicable. requirements for outsourcing transactions ■ how to deal with accidents occurring during outsourcing. 3 Procurement Process undertaken by government or public sector bodies? The paper includes suggestions as to how to carry out outsourcing 6.4 How is the transfer registered? for financial institutions. It does not prescribe penalties. The Bank Most public sector services may be outsourced with the exception of of Japan will take the paper into consideration when overseeing 3.1 What is the most common type of procurement certain services operated only by public authorities such as tax process that is used to select a supplier? This is not applicable. bank operations. levying and family registration (“koseki”) control. For example, b) Medical services transactions water supply is provided by local government agencies acting as the The most common type of procurement process that is used to select 7 Employment Law public water supplier. Under the Water Supply Act, a water supplier Under the Medical Care Act, hospital managers must comply with a supplier is tendering. may outsource water supply management to other water suppliers standards determined by the Ministry of Health, Labour, and

that meet certain economic and technical requirements. Welfare of Japan (MHLW) when they outsource the following 7.1 When are employees transferred by operation of law? medical services: 4 Term of an Outsourcing Agreement ■ examination of samples; 1.3 Are there any additional legal or regulatory There is no relevant labour and employment legislation for requirements for outsourcing transactions ■ sterilisation of medical care equipment; 4.1 Does national or local law impose any maximum or outsourcing transactions. In the context of outsourcing, labour and undertaken in particular industry sectors, such as for ■ food service to patients in a hospital; minimum term for an outsourcing contract? employment law would not apply to a change in initial or example the financial services sector? ■ transportation of patients between hospitals; subsequent service providers, or transfers of undertakings or parts of ■ maintenance of specific medical care equipment; No, there is no requirement on maximum or minimum terms for an undertakings. a) Financial services ■ maintenance of gas equipment for medical care; outsourcing contract under Japanese laws. The Financial Service Agency (FSA), which regulates the financial service industry, regularly implements inspections of financial ■ cleaning beds and clothes for patients; and institutions, such as banks, securities firms and insurance ■ cleaning facilities for medical care.

82 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 83 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 1 04/07/2019 14:46 Page 82 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 83

Chapter 12 Anderson Mōri & Tomotsune Japan

84 Japan information: personal to respect with guidelines following the issued has PPC Personal InformationProtection Committee well asthe APPI. data of as guidelines applicable the with comply issues these and it to apply guidelines whether verify the should handler information on An protection. authority supervisory comprehensive the independent be an (PPC), Committee by Protection Information Personal issued will guidelines common guidelines the by the replaced many and After abolished amendments, the information. of personal implementation safeguarding to regard with handler information an of responsibilities the detail more in out set issued areas that fall under the jurisdiction of that agency. the has Such guidelines in information agency personal of treatment government the regarding each guidelines APPI, current the Under the to amendments APPI wereimplementedfrom30May2017. the and 2015, in amended largely was APPI governs the protection of information that is personal in nature. The (APPI) amended) as 2003, of 57 No. (Law Information Personal of With reference to personal data protection, the Act on the Protection 8.1 This isnotapplicable. 7.7 This isnotapplicable. 7.6 This isnotapplicable. 7.5 employee forareasonconnectedtotheoutsourcing. an dismiss to customer/supplier a allowing legislation no Wehave 7.4 the to other partyofanoutsourcingcontract. information employee provide to requirement no is There 7.3 This isnotapplicable. 7.2 Anderson Mōri&Tomotsune WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 transaction? existing workforce? employee forareasonconnectedtotheoutsourcing? provide toeachother? take place? Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw

the Amended APPI commences. of enforcement after offshore transferred is involved data personal the if subject data the of consent obtain must handler information the APPI, amended the under for information personal requirements of the protection meet not does party third the and obtained not was consent such If APPI. amended the of enforcement upon sufficient under the amended APPI. No separate consent is required amended the APPI, this of prior consent for enforcement offshore an transfer is the regarded as to to prior data obtained was personal party the third offshore transfer rules to consent subject’s the data the If under specified acceptable been an promulgated bythePPC. have of countries examples no far, So white-listed the system. CBPR APEC the of is framework international one transfers, offshore obtained for guidelines the to According information. has personal of handling handler the information concerning frameworks international the the on based recognition that or APPI amended the under information personal the of protection with the for accord requirements data the personal of the practices handling handler the information that means standards” adequate “similarly According to the published enforcement rules of the amended offshore APPI, or domestic a whether of transfer isinvolved. regardless above (iii) to (i) party third a transfer is necessary. for The current APPI does not consent require consent for no Japan, within outsourcing data through handling or entities several by use joint transfer, business or merger of way by undertaken is transfer data the if amended APPI, specified in the enforcement rules of the amended APPI. Under the as protection privacy for standards adequate similarly has established data personal the receiving party third the or APPI amended the of rules enforcement the under white-listed is the country foreign unless data, personal of handling the of outsourcing or (iii) and merger of way entities; several by data personal of by use joint (ii) transfer; business transfers offshore (i) including: country foreign a in located party third a to provided whose be information will subject data personal data any an of consent that prior the obtain provides must handler specifically APPI amended The introduced internationaltransferregulations. newly- to attention pay should you amendments, the to relation In agency shouldalsobeobeyed. government each by issued guidelines relevant the regard, this In under the APPI. handler information the of required is that protection of level the to subject is agents outsourcing the of possession the in data personal of handling personal data. Further, the the information handler must ensure that the to respect with agents outsourcing the supervise appropriately must handler information the agents, outsourcing to outsourced is data personal of management the where Under APPI, on transfer. services prohibition general the of purposes the for parties third as regarded management not are agents outsourcing Such handler. information the of use of data providing purpose the achieve to necessary extent the to agents) (outsourcing contractors external to respect with available is exemption An transfer). (the on limitation subject data the of consent prior the obtains it unless group, personal data to any third party, including other companies within its when Under the APPI, an information handler may obligations not transfer or provide verification book-keeping; transferring personaldatatoathirdparty;andbigprocessing. of transfer data; offshore the personal rules; general the regarding: guidance The guidelines were published on 30 November 2016. They contain ■ Guidelines onPersonalInformationProtection.

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OUT19_04_07_Layout 104/07/201914:46Page85 ■ information handler: the by taken be to recommended are measures following the Also, Anderson Mōri&Tomotsune ICLG TO: OUTSOURCING 2019 ■ telecommunication ■ the in information industry andthebroadcastingindustry: the to personal respect of with guidelines protection following Japan the of issued Communication has and (MIC) Affairs Internal of Ministry The Ministry ofInternal Affairs andCommunicationsofJapan ■ issued thefollowingguidelinesinrespectofpersonalinformation: and WelfareLabour Health, of Ministry (MHLW)The Japan of the has of characteristics Ministry ofHealth,Labour and Welfare the on depending information handler’s business. vary may subject data the to disclosure of level The extent. what to and outsourced be will data personal their that fact the of subject data the inform should handler transparency,information of the interests the in and consumers, as such subject, data the of rights the protect to order In ■ ■ usat o h Gieie fr PI sud y h FA the FSA, ■ the by issued APPI for following measuresshouldbetaken bytheinformationhandler: Guidelines the to Pursuant FSA Guidelines Industry. Financial the the in issued Information Personal has of Protection (FSA) on Guideline Japan of Agency Services Financial The Financial Services Agency © Published andreproduced withkindpermission byGlobalLegal Group,Ltd ade sol ass te usucn aets adig of personal datainanappropriateandtimelymanner. handling agent’s outsourcing the assess should handler measures control required by the security APPI. Where the need arises, the the information to equivalent least, very the the for at are, agent measures outsourcing the by control implemented data personal security the that handler ensure information should The agents: outsourcing of Selection udln fr adig f esnl nomto i the in Information Personal Broadcasting Business. of Handling for the Guideline in Information Personal Telecommunication of Business;and Handling for Guideline the in Information Personal Medical andNursingCareBusinessIndustry. of Handling for Guideline should handler exercise ahigherlevelofsupervision. information the data, the personal of leakage outsourced the of result a as incurred be may damages sub- the by secondary that risk high a is there Where agent. properly outsourcing handled not is data personal the and agent outsourcing the by outsourced further is data personal agent, it may have to bear responsibility in the case where the outsourcing the over supervision appropriate and necessary the which agreement. to Where the information handler does not exercise extent outsourcing the the with accordance in handled is data personal review mutually should agent outsourcing the and handler information The data: personal Monitoring of the state of the outsourcing agent’s handling of security the concerning control measures. them between duty shared the of all bear to agent damages arising outsourcing from any claim by a the data subject in disregard requiring as such outsourcing agent the on obligation unfair an impose not should it position, bargaining the dominant a Where in is handler information agent. outsourcing the to outsourced was that handler will monitor the state of handling of the personal data information outsourcing the that provision a The include should agreements agreements: outsourcing of Conclusion agent, including the company organisation to be developed be to organisation company the including agent, outsourcing the selecting for standards and criteria Establish

for importantdatatobelocatedin Japan. certain critical infrastructure communication, service, the Guidelines require a server and Among water. and information rail petroleum, medical, logistics, government, supply, power gas electric card, finance, credit supply, chemical, airport, aviation, sectors as service such infrastructure critical on focus Guidelines These Risk the Critical Infrastructure. Ensuring and Infrastructure in for Assurance Mission of Concept the on Critical Based Guide Assessment Principles of Safety Security Information Establishing the for Protection, Infrastructure Guidelines Critical for Policy Cybersecurity the issued Cabinet the of Headquarters Strategic Cybersecurity The the Also, measures. guidelines indicaterisksrelatedtosupplychain. technological and operational physical and and measures organisational include cloud which by providers taken service be to measures security information the specify the issued Information Security Guidelines for Cloud Communication Service. The Guidelines and Affairs Internal of Ministry The 8.2 be subjecttoafineofup¥300,000. also will itself handler information the event, an such In ¥300,000. or to up of fine a or months’ officerimprisonment six to up either of penalty responsible the order, maximum a to subject be may handler information the of employee government this properly to not does respond handler information the If activity. violating the cease to handler information the order may PPC the violated, recognised that important individual rights are on the verge of being is it and advice government to respond information properly not the does that handler event the In activity. violating the cease to handler information the advise may ministry) government (relevant field business handler’s information given a overseeing agency the In the event of a violation of any provisions of the APPI, the PPC or ■ ■ requirements concerninginformationsecurity? Are thereindependentlegaland/orregulatory h otorig gn t esr te esnl aa s being is handled properly. data personal the ensure to agent outsourcing the of activities the review and supervise monitor, Periodically ■ ■ ■ ■ the followingprovisions: including data, personal the of handling proper the ensure to Execute an outsourcing agreement with the outsourcing agent must beperiodicallyreviewed. standards and criteria The standards. and criteria these with accordance in agent outsourcing appropriate an select must developed by the outsourcing agent. be The information to handler data personal the of control security concerning internal rules and policy basic the and agent outsourcing the by damage tothepersonaldata. the outsourcing agent’s liability for any leakage, loss of or the the termsandconditionsofsub-outsourcing; and agent personal the to data; outsourcing damage or loss the leakage, of prevention to outsourced are the of use agent’s that services the than other purpose any for data personal outsourcing the of prohibition the outsourcing agentonthehandlingofpersonaldata; the from reports receive to and properly, handled being is data personal the that ensure to agent outsourcing the monitor and supervise to right handler’s information the

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86 Japan hs srie ees a b boe dw it tre categories: three into supplier’s down broken period. the be performance can other levels measure service some These or levels month a service over performance Typically, vendors. service IT to outsourcing while agreement outsourcing an of part a as (SLA) agreement level service Wea include or conclude usually 10.1 receives fromanoffshore provider. Indirect taxes are not chargeable on the services a customer in Japan 9.3 claim a tax deduction on the consumption tax imposed on such cost. to an outsourcing agent are subject to taxation and the company may subject to taxation. On the other hand, the fees that a company pays not are employees own its to relation in costs labour company’sA 9.2 permanent a of treaties. treatment and tax relevant the in found provisions on definition depend may establishment The precedence. take should theoretically treaties tax laws, tax domestic Japanese and treaties tax between conflicts are there If countries. between concluded are treaties tax taxation, double international avoid To of out carrying construction work(foracertainperiodoftime). the or agent an branch, a as summarised be may establishment permanent in a Act, Tax establishment Corporate the permanent Under a Japan. have to not corporations foreign for general, in beneficial, more is it Therefore, taxes. self-assessed pay to required are and income sourced domestic their of respect in taxation Japanese to subject become agents foreign such Japan, When foreign outsourcing agents have a permanent establishment in of non-existence sourced income. domestic such or of type the and existence income sourced domestic the such establishment, of type the permanent Japan, in establishment permanent a has agent outsourcing foreign the whether as such taxation, their affect that factors various are there agents, outsourcing foreign to relation In question relatesonlytoordinarycorporations. this in analysis the However, taxes. corporate pay to required are etc.) association, incorporated general without or company liability limited associations company, stock a (e.g., corporations ordinary and associations, status corporate cooperative organisations, charitable corporations, public including corporations, All source. the at withheld is that corporation the of tax income of amount the due at the time the corporation files its tax return may be reduced by tax corporate of amount The self-assessment. through determined is corporations, of income the on imposed is which tax, Corporate 9.1 Anderson Mōri&Tomotsune WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 9 terminating thecontract? levels andservicecredits? under theoutsourcingcontract? Tax Issues What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring

Service Levels

cul upir efrac de nt et h contracted the meet not does performance standardforaservicelevel. performance supplier actual if credit a receives customer the where mechanism, credit service levels. We also find that many IT outsourcing agreements include a service sample and levels; service event levels; service continuous ee sadrs te evc poie i lal t py h penalty the pay amount tothecustomer. to liable is provider service the standards, level service the meet to fails supplier the case In protection. customer We often see financial penalties within a service level agreement for 11.2 even iftheagreementhasnotbeenterminated. made be can damages for Claims default. of time the at supplier the by foreseen been have could and by caused is which damage the to limited is compensation of scope and The agreement damages. outsourcing monetary relevant the under obligations its of The customer may claim against the supplier’s specific performance 11.1 aae, nes h cnrc epesy eess h terminating the party fromliability. releases expressly contract the unless damages, for claim to party other the for right a to rise Terminationgive will 13.1 cyber riskinsuranceandIT businessprocessinsurance. An outsourcing company should consider data protection insurance, foreign such and vendors havesomefailuresintheirperformance. vendor IT country foreign a to work operation an and work development where system outsource vendors IT incidents many Also, many been data. personal and information secret leaked have has agent outsourcing there policies, control internal and policies protection data strict has company an outsourcer that case the in even Japan, In and development. leaking system in data errors of risks higher be will there outsourcing, IT In 12.1 is notsocommon. this although tasks, outsourced perform to capability sufficient has We sometimes see clauses which warrant that the outsourcing agent 11.3 11 13 12 contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? for damagesfromtheterminated party? transaction? that areincludedinanoutsourcingcontract? What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcing agreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities Customer Remedies Termination Insurance

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Japan

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fairness orreasonableness underJapaneselaw. act in good faith and to act fairly according to some objective test of to supplier and customer a for requirement overriding no is There 17.1 disputes shouldberesolvedbyarbitrationprocedures. legal all that specify to provisions resolution dispute for common is it transactions, international For outsourcer. and outsourcee the between disputes presence, over jurisdiction court exclusive headquarter the have should a has dispute provider service city relevant a a in the located where require court, a that providers specifies that service provision resolution outsourcing large Some We havetypicaldisputeresolutionprovisionsasfollows: 16.1 party isaconsumerwhosubjecttoprotection. Yes, the parties are free to agree a financial cap on liability, unless a 15.2 to anoutsourcingcontractunderJapaneselaw. party a of liability excluding or limiting on requirement no is There 15.1 supplier’s know-howpost-termination. the to access gain to customer the for permitted not generally is It 14.4 licensed IP rightspost-termination. use to continue to supplier the for rights implied no are there No, 14.3 Act. Prevention Competition Unfair the under confidential protected are information critical business other and secrets trade Know-how, 14.2 17 16 15 can itmakeofit? supplier's know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? according tosomeobjectivetest offairnessor and suppliertoactingoodfaith andtoactfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolutionused? liability? Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexclude liability To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocallaw? Are know-how, tradesecretsandotherbusiness reasonableness undergeneral law? under nationallaw? Good Faith Dispute Resolution Liability

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86 Japan WWW.ICLG.COM categories: three into supplier’s down broken period. the be performance can other levels measure service some These or levels month a service over performance Typically, vendors. service IT to outsourcing while agreement outsourcing an of part a as (SLA) agreement level service Wea include or conclude usually 10.1 receives fromanoffshore provider. Indirect taxes are not chargeable on the services a customer in Japan 9.3 claim a tax deduction on the consumption tax imposed on such cost. to an outsourcing agent are subject to taxation and the company may subject to taxation. On the other hand, the fees that a company pays not are employees own its to relation in costs labour company’sA 9.2 permanent a of treaties. treatment and tax relevant the in found provisions on definition depend may establishment The precedence. take should theoretically treaties tax laws, tax domestic Japanese and treaties tax between conflicts are there If countries. between concluded are treaties tax taxation, double international avoid To of out carrying construction work(foracertainperiodoftime). the or agent an branch, a as summarised be may establishment permanent in a Act, Tax establishment Corporate the permanent Under a Japan. have to not corporations foreign for general, in beneficial, more is it Therefore, taxes. self-assessed pay to required are and income sourced domestic their of respect in taxation Japanese to subject become agents foreign such Japan, When foreign outsourcing agents have a permanent establishment in of non-existence sourced income. domestic such or of type the and existence income sourced domestic the such establishment, of type the permanent Japan, in establishment permanent a has agent outsourcing foreign the whether as such taxation, their affect that factors various are there agents, outsourcing foreign to relation In question relatesonlytoordinarycorporations. this in analysis the However, taxes. corporate pay to required are etc.) association, incorporated general without or company liability limited associations company, stock a (e.g., corporations ordinary and associations, status corporate cooperative organisations, charitable corporations, public including corporations, All source. the at withheld is that corporation the of tax income of amount the due at the time the corporation files its tax return may be reduced by tax corporate of amount The self-assessment. through determined is corporations, of income the on imposed is which tax, Corporate 9.1 Anderson Mōri&Tomotsune 10 9 Tax Issues levels andservicecredits? What istheusualapproachwithregardtoservice What othertaxissuesmayarise? under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring

Service Levels

cul upir efrac de nt et h contracted the meet not does performance standardforaservicelevel. performance supplier actual if credit a receives customer the where mechanism, credit service levels. We also find that many IT outsourcing agreements include a service sample and levels; service event levels; service continuous ee sadrs te evc poie i lal t py h penalty the pay amount tothecustomer. to liable is provider service the standards, level service the meet to fails supplier the case In protection. customer We often see financial penalties within a service level agreement for 11.2 even iftheagreementhasnotbeenterminated. made be can damages for Claims default. of time the at supplier the by foreseen been have could and by caused is which damage the to limited is compensation of scope and The agreement damages. outsourcing monetary relevant the under obligations its of The customer may claim against the supplier’s specific performance 11.1 aae, nes h cnrc epesy eess h terminating the party fromliability. releases expressly contract the unless damages, for claim to party other the for right a to rise Terminationgive will 13.1 an where incidents many been data. personal and information secret leaked have has agent outsourcing there policies, control internal and policies protection data strict has company an outsourcer that case the in even Japan, In and development. leaking system in data errors of risks higher be will there outsourcing, IT In 12.1 is notsocommon. this although tasks, outsourced perform to capability sufficient has We sometimes see clauses which warrant that the outsourcing agent 11.3 prto wr t a oeg cuty T edr n sc foreign such and vendors havesomefailuresintheirperformance. vendor IT country foreign a to work operation and work development system outsource vendors IT many Also, cyber riskinsuranceandIT businessprocessinsurance. An outsourcing company should consider data protection insurance, 13 12 11 contract documentationtoprotectthecustomer? What additionalprotectionscouldbeincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder for damagesfromtheterminated party? terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcing agreement transaction? order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin that areincludedinanoutsourcingcontract? What arethetypicalwarrantiesand/orindemnities Termination Insurance Customer Remedies

ICLG TO: OUTSOURCING 2019

Japan

OUT19_04_07_Layout 104/07/201914:46Page87 ICLG TO: OUTSOURCING 2019 against indemnity any whether and infringement isrequired. parties the by be considered always must clauses exit relevant and agreement outsourcing property rights in case of any dispute that arises. Termination of the and/or not to omit to determine breaches jurisdiction and enforcement of intellectual alleged or important also is It licences. existing or assignments such of infringements any identify to important is it Furthermore, ascertained. and identified be must employees interested the organisation by and any intellectual property used rights of third parties or property of intellectual agreements licensed or licensing assigned Any as identified. be must property such intellectual the with agreements associated other or outsourcing is Contracts potential plan the outsourcing to customer final providers. the the by before communicated undertaken be should the audit and enquiry diligence due property intellectual improve an Therefore, and risks, enterprise. the by offered service or product the of competitiveness property-related intellectual mitigate to properly order in to property intellectual their parties of records both keep and identify for essential is it speaking, Practically in anoutsourcingcontract. is distributed are rights these how specify clearly to advised generally it rights, property intellectual the owns party which determine difficultis to it and patents, as such rights property intellectual new create to together contributions some make parties both since case, this In property. intellectual create or improve collaboratively will parties both transaction, outsourcing the during hand, other the On the transaction. entering after own they property intellectual the and transaction the outsourcing an to prior in owns party one that property property intellectual the – intellectual transaction of kinds two are There 14.1 the of application the to Etc., on Subcontract Proceeds, Act (SecretaryGeneralNoticeNo.18of2003). guidance Subcontract provide of Subcontractors Payment in Delay against (1) the Act of of the Application on Guidelines The Subcontract Act. the category the under provided as contract service (4) or contract, creation under product within the regulated information-based falls (3) contract, as be repair (2) it contract, manufacturing also to where will referred Act It 1956; Subcontract of below). Act” 120 “Subcontract No. (Act to Etc., Proceeds, Subcontractors Subcontract of Payment in Delay against Act subcontracting enterprises and subcontractors as provided under the main between transactions of category the within falls it where Act Subcontract the under regulated is transaction a Japan, In contract. outsourcing an in see to expect might one that rights termination the override will that laws local mandatory relevant no are There 13.3 This isnotapplicable. 13.2 Anderson Mōri&Tomotsune © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? termination rights? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional Intellectual Property

15.1 supplier’s know-howpost-termination. the to access gain to customer the for permitted not generally is It 14.4 licensed IP rightspost-termination. use to continue to supplier the for rights implied no are there No, 14.3 Act. Prevention Competition Unfair the under confidential protected are information critical business other and secrets trade Know-how, 14.2 fairness orreasonableness underJapaneselaw. act in good faith and to act fairly according to some objective test of to supplier and customer a for requirement overriding no is There 17.1 disputes shouldberesolvedbyarbitrationprocedures. legal all that specify to provisions resolution dispute for common is it transactions, international For outsourcer. and outsourcee the between disputes presence, over jurisdiction court exclusive headquarter the have should a has dispute provider service city relevant a a in the located where require court, a that providers specifies that service provision resolution outsourcing large Some We havetypicaldisputeresolutionprovisionsasfollows: 16.1 party isaconsumerwhosubjecttoprotection. Yes, the parties are free to agree a financial cap on liability, unless a 15.2 to anoutsourcingcontractunderJapaneselaw. party a of liability excluding or limiting on requirement no is There 15 17 16 can itmakeofit? and canthesebeexcludedfromtheagreement? critical confidentialinformationprotectedbylocallaw? reasonableness undergeneral law? liability? under nationallaw? To whatextentcanapartylimitorexclude liability supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto Are know-how, tradesecretsandotherbusiness according tosomeobjectivetest offairnessor and suppliertoactingoodfaith andtoactfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolutionused? Are thepartiesfreetoagreeafinancialcapon Liability Good Faith Dispute Resolution

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Japan

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88 Japan WWW.ICLG.COM Anderson Mōri&Tomotsune © Published andreproduced withkindpermission byGlobalLegal Group,Ltd the largest international firms in Japan which was best known for serving overseas companies doing business in Japan since the since Mimura A Japan Sakai Bingham in and transactions; business finance international doing in expertise its companies for well-known overseas particularly TomotsuneKimura, serving & for known best was which Japan in firms international largest the Japan: in firms law & leading TomotsuneMōri three And Anderson of combination winning the by formed firm law full-service a is code), telecommunications,labourandgeneralcorporatelaw. source open and development software copyright, digital computer forensics, (including areas related technology other and pre-paid computing and cards cloud names, domain e-commerce, as credit such issues law cyber cards), (including services trademarks, and payment copyright licensing, including information property protection, intellectual data of security, areas the in experience broad with Tomotsune& Mōri Anderson at counsel special is TakashiNakazaki Jakarta Desk. Bangk and City Minh Chi Ho Singapore, Shanghai, Beijing, Nagoya, Osaka, in offices our Tokyoin officeby main supported Our is acr negotiating and drafting around theglobe. communicating, with experienced and bi-lingual are lawyers our of majority The Japan. in firms law the of one as reputation our and communities legal and business international the serving of tradition long our of proud are We international insolvency/restructuringandcrisis-managementfirm.

Email: Tel: Japan Tokyo 100-8136 Chiyoda-ku Otemachi ParkBuilding1-1-1 Anderson Mōri& Tomotsune Takashi Nakazaki URL:

[email protected] +81 367751086 www.amt-law.com/en

ICLG TO: OUTSOURCING 2019 largest full-service largest erson Mori, one of one Mori, erson izawa, a premier a izawa, oss borders and borders oss ok, as well as a as well as ok, early 1950s; early Japan

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88 Japan WWW.ICLG.COM Anderson Mōri&Tomotsune Jakarta Desk. Bangk and City Minh Chi Ho Singapore, Shanghai, Beijing, Nagoya, Osaka, in offices our Tokyoin officeby main supported Our is acr negotiating and drafting around theglobe. communicating, with experienced and bi-lingual are lawyers our of majority The Japan. in firms law the of one as reputation our and communities legal and business international the serving of tradition long our of proud are We international insolvency/restructuringandcrisis-managementfirm. the since Mimura A Japan Sakai Bingham in and transactions; business finance international doing in expertise its companies for well-known overseas particularly TomotsuneKimura, serving & for known best was which Japan in firms international largest the Japan: in firms law & leading TomotsuneMōri three And Anderson of combination winning the by formed firm law full-service a is code), telecommunications,labourandgeneralcorporatelaw. source open and development software copyright, digital computer forensics, (including areas related technology other and pre-paid computing and cards cloud names, domain e-commerce, as credit such issues law cyber cards), (including services trademarks, and payment copyright licensing, including information property protection, intellectual data of security, areas the in experience broad with Tomotsune& Mōri Anderson at counsel special is TakashiNakazaki

Email: Tel: Japan Tokyo 100-8136 Chiyoda-ku Otemachi ParkBuilding1-1-1 Anderson Mōri& Tomotsune Takashi Nakazaki URL:

[email protected] +81 367751086 www.amt-law.com/en

OUT19_04_07_Layout 104/07/201914:46Page89 eta amnsrto ad nenl oenne n h financial the in governance of internal principles and regulatory administration the central down lays Act”), Sector Financial The Act of 5 April 1993 on the financial sector, as amended (“the a) 1.3 bodies, notablyinviewofthenatureandvaluecontract. specific for requirements in relation to provides the award of service agreements which by public procurement, public on 2018 April 9 the by of regulated Act is activities sector public of outsourcing The 1.2 a) 1.1 NautaDutilh AvocatsLuxembourg services couldapply. and network communications electronic on 2005 May amended 30 of the Law of requirements electronic the of public, the provision to the communications entails outsourcing the if However, transactions. telecommunications to apply regulations specific No c) question 1.3). under transactions” services “financial below see sector, the financial in outsourcing IT (e.g. regulations some specific in to are subject but sectors particular), in Code Luxembourg Civil the general (and law by contract regulated typically are transactions IT b) question 1.3) orlabourregulations(e.g.supplyofpersonnel). under below out set as regulations sector financial (e.g. transactions. process business sector-specificregulations certain to however,subject can, be They to apply regulations specific No ICLG TO: OUTSOURCING 2019 Luxembourg Chapter 13 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 1 outsourcings)? example thefinancialservices sector? undertaken bygovernmentorpublicsectorbodies? Financial servicestransactions Business processtransactions Regulatory Framework undertaken inparticularindustry sectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory Are thereanynationallawsorregulationsthat outsourcings, ITtelecommunications outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either Telecommunications transactions IT transactions

■ in Act Sector relation tooutsourcing: Financial the of application and interpretation the the in authority on Circulars several released regulatory also furthermore has sector, financial Luxembourg the is which CSSF”), The secrecy bound byanon-disclosureagreement. professional the by obligation must be subject to a professional secrecy obligation or be covered information confidential to access having persons the Furthermore, entities. subcontracting such of establishment of country the (iii) and outsourcing; such of context the within transmitted information of type the (ii) services; Such acceptance should extend to: (i) the outsourcing of the relevant parties. the between upon agreed in modalities the or law the with accordance clients the of acceptance is there a and place is in there contract service provided allowed, also now is companies foreign and (external and intra-group) to non-regulated Luxembourg companies By virtue of Article 41 of such Financial Sector Act, any outsourcing covers which specialised PFS,investmentfirmsandsupportPFS. “PFS” so-called and institutions credit of which consists sector, financial the of professionals to applies and sector ■ ■ authorisation from theCSSFincaseofmaterialoutsourcing: prior obtain and register a keep shall infrastructure computing cloud a on relying outsourcing an out carry to intends payment PFS, institution, institution, e-money institution and credit investment fund manager which Any intervention). manual no measured and service), plus two specific CSSF criteria (no access to data/systems; elasticity rapid pooling, resource access, network broad self-service, on-demand (i.e. criteria NIST 5 the of meaning even when partially, based on a cloud computing solution within the is, that scheme outsourcing IT every to applies Circular Cloud The ■ omsin e uvilne u etu Financier Secteur du Surveillance de Commission optn ifatutr, s pae b Crua 19/714 Circular by (“the CloudCircular”). updated as infrastructure, computing cloud a on relying outsourcing IT regarding 17/654 Circular and PFSsotherthaninvestmentfirms; and accounting institutions e-money and institutions payment to contains and applies but Circular this administrative 12/552, Circular of those to provisions outsourcing; outsourcing identical IT on and organisation 17/656 Circular applies tocreditinstitutionsandinvestmentfirms; internal of which have administration, been updated by Circular 17/655; this Circular central the governance and risk management, the outsourcing provisions on 12/552 Circular PFS”. “support to instruments financial in markets on 2007 July 13 of Act the by introduced amendments the to relating details Circular 08/350, as amended by Circular CSSF 13/568 on the

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90 Luxembourg WWW.ICLG.COM EU countries. the of one of law the to subject be shall provider service computing cloud the with signed contract service the infrastructure, cloud a on based sector financial the in arrangement outsourcing an of case In tender specifications. the in included requirements the of one typically is it transactions, There is no general legal requirement, but in relation to public sector 1.4 to subject breach oftheirsecrecyobligations. are that assure that their outsourcing arrangements do not lead to a potential professions fashion, must etc.) lawyers, professionals, (healthcare general secrecy professional more a In d) contractual documentationwithsuchregulatedprofessionals. obligatory items that must be covered in the contract and in the pre- of list a in foresees also act The met. are conditions said the that guarantees whom to outsourcing the professionals, archiving and digitalisation regulated of category new a introduces also act same in terms of the integrity and the authenticity are complied with. The conditions equivalence some if value probative of loss any without paper documents to be digitalised and stored in an electronic format allows archiving electronic on 2015 July 25 of Act amended The Outsourcing c) any issued not however Circulars liketheCSSF. has CAA The secrecy. Commissariat aux Assurances Sector Act as insurance companies are also regulated, notably by the sector insurance the Financial the in foreseen on those to requirements similar for provides 2015 December 7 of Act amended The b) its and II) (MiFID call-recording. 2014 May outsourcing when 2018 May 30 of law 15 implementing Luxembourg of 2014/65/EU Directive EBA the with comply also must Lastly,sector financial the in companies Such 2017. top oftheCSSFOutsourcingCircularsrequirements. to back on requirements of layer significant a dating form guidelines outsourcing institutions financial by providers service cloud of use EBAthe the for and guidelines 2006 outsourcing to back date which arrangements outsourcing on guidelines current on were which Guidelines Authority Banking released on 25 February 2019 and which revise and replace both the European revised the of the arrangements by complemented are Circulars Outsourcing CSSF above-mentioned the level, EU At ■ ■ ■ that theoutsourcing: ensure particular in must sector financial the of professionals The the regulatory principles of central administration and sound governance. infringing without particular, in activities IT-related the activities, outsource may defines providers service CSSF financial which the under conditions Circulars, above-mentioned the Through NautaDutilh AvocatsLuxembourg © Published andreproduced withkindpermission byGlobalLegal Group,Ltd the choiceofgoverninglaw? Other Electronic archiving Insurance sector of thecustomer’s confidentialinformation. financial the of professional sector which ensures its the quality and guarantees the protection by controlled strictly is specifications; and and levels service including agreement an in formalised is a with consistent by theboardofdirectors; is validated and and assessment risk assessment a on based policy risk predefined a on based is law, isthereanygenerally acceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction

(“CAA”), and subject to professional

■ Disadvantages: ■ ■ ■ ■ contract(s) Advantages: application several or one (statement ofworks/serviceorders). with along agreement This type of outsourcing is generally arranged through a framework the services. customer’s the perform to employees and infrastructure own its on using or premises directly an intervening is party contractor, third The independent services. provide to supplier party third a Description of structure: the customer enters into an agreement with ■ ■ ■ ■ ■ Disadvantages: ■ ■ ■ Advantages: or venture joint partnership withthesupplierforoutsourcedactivity. a up sets customer the structure: of Description 1. 2.1 3. ■ ■ ■ Disadvantages: ■ ■ ■ ■ the Advantages: of one to this purpose. for of up activities set specifically group is or exists a certain already which subsidiaries of outsources part and is customer companies the structure: of Description ■ 2. ■ 2 Less control. Flexibility. Benefit fromtheknow-howofaspecialisedsupplier. Cost savingforcustomer. Quick implementation. Complex exit. Lack offlexibility. calculated. carefully be to need costs recurring and costs) (sunk Start-up Time toimplement. Complex toimplement. Possibility toprovideservicesthirdparties. Improvement ofquality. Control ontheoutsourcedactivity. used foranoutsourcingtransaction? Service contractwithathirdparty Legal Structure Joint-venture orpartnership Lack offlexibility. calculated. carefully be to need costs recurring and costs) (sunk Start-up Time toimplement. Ability tomanageday-to-dayoperations. Specialisation inthespecificfieldsofservices. of handling the for intellectual propertyandconfidentialinformation. procedures implementing in Control the providing employees the services. over particular in Control What arethemostcommontypesoflegalstructure Loss ofknow-how. aa eg cnlso o dt poesn areet in Service contractwithasubsidiary agreement processing data of accordance with Article 28oftheGDPR). conclusion (e.g. personal data of transmission the to due issues protection Data

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94 Luxembourg an erosionoftheeffect ofthecontract. the that extent the to amount of such service credits is not so limited that it law boils down to Luxembourg under valid general, in exclusive and sole the non- remedy to of so-called any “service credits”. Such limitation of levels liability is, limit service to (certain) try of will attainment who supplier the by drafted and usually schedule a as agreement the to attached (“SLA”) agreement level service specific a in for provided typically are levels Service 10.1 pricing transfer proper a with the provide documentation uponrequest. authorities to able tax be must Luxembourg and their parties of related nature with length dealings arm’s the demonstrate to have taxpayers In accordance with Article 56 related entities between should correspond to arm’s place length market taking conditions. transactions domestic and cross-border All 9.3 which istaxablefor VAT purposes(ifany). activity its to linked directly are services these if services on paid to VAT.subject input Consequently,VATdeduct may customer the transactions the of purpose the for used goods/services to relation to VATsubject Persons input VATdeduct to entitled are in incurred exemptions apply. or rates tax reduced unless 17%, of rate a VAT at to an outsourcing arrangement) located in Luxembourg will be subject from arising services (e.g. services of supply any rule, general a As law). the VATof meaning the within activity economic an basis regular a of performance the and/or services by a person subject to VAT goods (i.e. a person that carries out on of supply the to VAT applies 9.2 350,000. EUR exceeds (ii) and total, sheet balance their of 90% securities and “cash at bank” of such entity (i) represents more than in Luxembourg where the sum of fixed financial assets, transferable located entities corporate all by payable and due notwithstanding is 31 year). preceding the of December on ANWTminimum 4,815 EUR of held assets the on (based year each January 1 of as wealth net company’sworldwide the on assessed is tax This 500m). EUR exceeding base taxable the on apply would 0.05% of rate (a 500m EUR to up base taxable a on 0.5% of rate annual the at (“NWT”) tax wealth net to subject is company Luxembourg a Furthermore, NautaDutilh AvocatsLuxembourg WWW.ICLG.COM ewe ER 3 ad U 3,0, eedn o ter total their on depending 32,100, balance sheet. EUR and 535 EUR between ranging NWT a to liable are companies Luxembourg Otherwise, © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 levels andservicecredits? under theoutsourcingcontract? What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices Service Levels

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■ ■ ■ ■ ■ to guarantees additional following protect thecustomer: the include can parties The 11.2 ■ law ifthesupplierbreachescontract: The following remedies are available to the customer under general 11.1 ■ ■ the the customermaybespecified: and coverage to request simple upon of adherence of proof provide amount to requirement the whereby liabilities, potential relevant its cover to companies insurance reputable with policies insurance following the maintain to required usually are Suppliers 12.1 ■ ■ ■ The suppliermust: 11.3 ■ ■ ■ ■ 11 12 contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? transaction? that areincludedinanoutsourcingcontract? prn cmay urne (hn h sple i the is supplier the (when subsidiary ofaparentcompany). guarantee company parent A h rgt o te utmr o ui ad ecmr the benchmark and audit to customer supplier’s performance. the for right The SLA). the by breaches certain supplier (e.g. non-attainment of service levels set forth in the of event the in penalties Specific A predefinedexitarrangement,includingrecoveryofdata. breaches. of events/types certain of case in rights termination Specific The customer may ask for termination for breach of contract. A professionalindemnity insurancepolicy. A publicliabilityinsurancepolicy. Ensure continuityofservice. Comply withtheprovisionsofcontract. Comply withallapplicableregulations. What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities there isnobadfaithonhispart. to an external cause that cannot be attributed to him, provided due was non-performance the that establish cannot supplier the when courts the before damages seek may customer The skills andknow-how). assets, tangible the all of resumption the organise to inserted another by replaced being service supplier provider; furthermore, a reversibility clause is usually the with continue to (e.g. step-in rights clause/schedule can be included exit in order to enable an a project in forth set obligations the Honour right software IP warranty clause). a (e.g. functionality an of terms in guarantees is Offer there where infringement claim. customer the Indemnify Customer Remedies Insurance

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OUT19_04_07_Layout 104/07/201914:46Page95 ■ ■ ■ ■ party, forthefollowingreasons: party without giving rise to a claim for damages from the terminated Under general contract law, the contract can be terminated by either 13.1 ■ ■ ■ NautaDutilh AvocatsLuxembourg ICLG TO: OUTSOURCING 2019 professional ceasesitsactivities. regulated the because terminated is outsourcing data of storage the electronic the if and digitalisation followed the for professional be regulated a with to agreement procedure specific a down lays also archiving electronic on 2015 July 25 of Act the Finally, or returned are deleted attheendofagreement. data personal such that requires GDPR the data, being personal of processing the risk requiring arrangements outsourcing For problems financial having unenforceable. institution financial a authority conditions, and clauses that foresee regulatory the termination of a contract for Luxembourg the certain under services the of continuity require also may sector,(“CSSF”) financial the In provider ofdistanceIT services orcloudcomputingsolutions. bankrupt a from data recover to client a allow to intended is right non-fungible this of company.introduction bankrupt The a from and assets movable “intangible” back claim to right a introduce to order in 2013 in amended was Code Commercial the of 567 Article help distressedcompaniescontinuetheiractivities. to tools customised new provide to intends bill draft such 6539); n° (Bill discussion under currently is legislation bankruptcy the of modernisation and continuity business on bill draft ALuxembourg 13.3 for termination exclude cannot parties perpetual convenience incasesofcontractswithunlimitedduration. prohibits the law Luxembourg commitments, since Nevertheless, be. may case the as contract, the to added or excluded be therefore can rights. The termination rights mentioned under question 13.1 above The parties may decide to exclude or agree to additional termination 13.2 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 13 to seeinanoutsourcingcontract? termination rights? for damagesfromtheterminatedparty? which doesnothaveafixed-term. which can be defined contractually) in the event of a contract notice prior reasonable (with convenience for Termination Termination forbreach(pleaserefertoquestion11.1 above). Mutual agreement. Term ofthecontract(fixed-termcontract). IT liabilityinsurance. Product liabilityinsurance. Employers’ liabilityinsurance. terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional Termination

confidentiality oftradesecretsthroughoutlegalproceedings,etc.). innovative of of preservation of principle scope; personal broader secret”; “trade position a legal mean the Luxembourgin business doing companies of definition clear a (e.g. however in will improvement law, significant Luxembourg under implemented be to yet secrets) is which disclosure, and use acquisition, unlawful (trade against information business and know-how undisclosed of protection the on 2016 June 8 of 2016/943 (EU) Directive The Luxembourg UnfairCompetition Act againstcompetitors. employees and their new employers, and/or on the basis of the 2002 by infringements secrets virtue of Article 309 trade of the Luxembourg Criminal Code against (ex) against act may companies Yes, 14.2 rights development ofatailor-made product. IP the with the involves outsourcing varies, the if customer the to outsourcing belonging typically of course rights the the of in ownership created of the allocation in contractual for The provided expressly contract. be should or rights licence such Any of transfer agreement. or outsourcing owned the rights to property prior developed intellectual the of ownership party retains each that provides usually clause property intellectual The 14.1 ■ are validtotheextentthatthey: clauses liability of exclusion or law,limitation Luxembourg Under 15.1 otherwise unless post-termination, provided intheagreement. know-how supplier’s the to access gain to right any have not does customer the principle, In 14.4 use (limitedscope,duration,fees,etc.). post-termination such for allow to parties the between concluded be to needs agreement licensing separate a or clause specific a No, 14.3 14 15 law? protected inanoutsourcingtransaction? under nationallaw? can itmakeofit? and canthesebeexcludedfromtheagreement? h cnrc o is sec) i big nesod that understood being it “normal” faults(butnotforserious faults); for liability essence), of exclusion the accepts its law case Luxembourg of contract the deprive not do they that (meaning obligations essential its of one tarnish not do or contract the of effects the erode not do critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty To whatextentcanapartylimitorexcludeliability supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto Intellectual Property Liability

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96 Luxembourg hs n, jrsito ad plcbe a cas i typically is clause law applicable and included intheagreement. jurisdiction a end, this to and, practice standard the remains however, still, courts the via CEPANI).centre arbitration resolution Traditional Belgian dispute mediation via the Center for Civil and Commercial Mediation or the vogue Clauses providing for alternative methods of settling disputes are 16.1 death orbodilyharm,forwilfulintentpersonalfraud. for liability to relate not does or essence its of contract the deprive not does it liability,provided on cap a to agree can Yes,parties the 15.2 ■ ■ NautaDutilh AvocatsLuxembourg WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 16 used? liability? or forwilfulintentpersonalfraud. do not exclude and/or limit liability for death or bodily harm, (e.g. thewarrantyofsellerforhiddendefects);and law Luxembourg mandatory of obligation an exclude not do What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon n uebug a gvre areet (.. arbitration, (e.g. agreements governed law Luxembourg in Dispute Resolution

Email: Tel: +3522612297406 Property (“IP”)& this Technology lawpractice. of preparation the NautaDutilh’sIntellectual in associate senior a is Carmen chapter. in Schellekens Carmen colleague their The authors would like to acknowledge the invaluable assistance of Acknowledgment a case-by-casebasisbythecompetentjudge. must be performed in good faith, the evaluation of which is done on Yes, under Article 1134 of the Luxembourg Civil Code, agreements 17.1 17 reasonableness undergenerallaw? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer [email protected] Good Faith

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OUT19_04_07_Layout 104/07/201914:46Page97 NautaDutilh AvocatsLuxembourg ICLG TO: OUTSOURCING 2019 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd from key local players to global market leaders. We serve a wide range of institutional clients, mainly financial institutions financial mainly clients, institutional of range wide a serve We leaders. market global to players local key from enables ustofosterlong-termclientrelationships. being taught what to think. It allows us to deal with learni about change, all is learn art from subtle This new clients. situations, our for and relevant think staying to on comes it our when feet choice of when tool our faced is with thinking Adaptive and mid-sizedcorporates,privateequityfirms,fundssponsorsIT companies. and Brussels lawfirms. Luxembourg postal first-tier other and in practised telecom also Vincent Luxembourg operator. largest the Luxembourg, at POST experience in-house gained Vincent NautaDutilh, joining to Prior Benelux associationfor Trademark andDesignLaw. the of board of the of member a organisation is further He of French-Luxembourg professionals. archiving the Protection and the Property for Intellectual Association International the of professionals, member is Vincent financial sectors. practice. He represents major clients in the FMCG, tech, pharma and Vincent Wellens is partner in NautaDutilh Luxembourg’s IP & Tech Law world’s leading legal directories such as such directories legal world’sleading NautaDutilh Avocats Luxembourg is a key player on the Luxembourg legal market providing high quality advice and services. Reco and New York. in the Benelux. More than 400 lawyers, notaries and tax advisers work at the firm’s offices in Luxembourg, Brussels, Amsterdam, is and 1724 in law.founded Dutch was and firm Belgian The Luxembourg, in specialising firm law international an is NautaDutilh

URL: Email: Tel: Grand DuchyofLuxembourg L-1233 Luxembourg 2, rueJeanBertholet NautaDutilh Avocats Luxembourg Vincent Wellens i.a. h Lxmor ascain f IT of association Luxembourg the www.nautadutilh.com/en [email protected] +352 26122934 Chambers

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The Legal 500 Legal The

, our team of 65 lawyers serves a range of national and international clients, international and national of range a serves lawyers 65 of team our , ein a (PA) n te uebug aa protection Faustine isanativeFrenchspeaker, fluentinEnglish. data Luxembourg the to and the Bar Luxembourg Barin2016. Paris the to and admitted was She (APDL). (APRAM) association Law and Trademark Design of association French the of member a is Faustine another for worked Faustine 2017, renowned lawfirminLuxembourg. in NautaDutilh joining to Prior from thePanthéon-AssasUniversity(France,2014). Law Computer and Multimedia in 2 Master a holds also She 2013). double a and Law IP/IT degree in English and German from the Paris-Sud University (France, and Business in Master a holds Faustine archiving anddataprotectionissues. e- e-commerce, practices, trade IP, on clients assists She practice. (IP), Information&Communication Technology (ICT)andCompetition Faustine Cachera is an associate in NautaDutilh’s Intellectual Property

URL: Email: Tel: Grand DuchyofLuxembourg L-1233 Luxembourg 2, rueJeanBertholet NautaDutilh Avocats Luxembourg Faustine Cachera www.nautadutilh.com/en [email protected] +352 2612297412

ng how to think instead of instead think to how ng problems. This approach , asset managers, large managers, asset , WWW.ICLG.COM

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Chapter 14 Mexico Rafael Sánchez Navarro Caraza

BSN Bufete Sánchez-Navarro, S.C. Salvador Sánchez López

own and sufficient goods, such intermediator will be the 1 Regulatory Framework employer. In the event that such contractor does not comply with the assumed obligations with its employees, the intermediator and the beneficiary will be jointly and 1.1 Are there any national laws or regulations that severally responsible for such obligations. In other specifically regulate outsourcing transactions, either words, only in the event of the intermediator’s generally or in relation to particular types of noncompliance, the beneficiary will be jointly liable outsourcing transactions (e.g. business process (article 13 LFT). outsourcings, IT outsourcings, telecommunications outsourcings)? 1.3 Exclusive or main (insourcing): is the structure by which a group of companies, whether holder of total or partial control, organise themselves for the effect that a single For the purposes of this chapter, any reference to outsourcing will be company or numerous companies provide personnel or a reference to service or personnel outsourcing in any of the services to the rest of the companies that belong to that following three types: subcontracting; third party personnel group of companies (article 15 LFT). provider (hereinafter personnel provider); and rendering of any 2. Subcontracting: any time an employer (subcontractor) type of services due to a services agreement (hereinafter service executes works for or renders services in favour of a third provider). party (contracting party) using employees that are dependent It is important to have in mind that the new government and on the employer. The contracting party allocates tasks to be Mexican Congress expect to issue new regulations on outsourcing completed by the subcontractor’s personnel and supervises matters within the next year. However, nothing concrete is currently the development of services performed by the subcontractor being prepared, so regulation in force will remain applicable for the or the execution of work or services contracted (articles 15-A LFT). time being. For validity of subcontracting, the following three The outsourcing concept in Mexico is governed by two federal laws: requirements must be satisfied: the Federal Labor Law (Ley Federal del Trabajo – LFT); and the ■ Specialisation: subcontracted services or works are to be Social Security Law (Ley del Seguro Social – LSS), as well as specialised tasks, that is, an identified or an identifiable judiciary precedents. function or work is to exist and a specialisation due to the A. LFT regulates the following: subject matter it is engaged in, that is, specific works are 1. Intermediation (articles 12, 13, 14 and 15 of the LFT). to be subcontracted. No specialisation limit is established. Definition: ■ Partial nature: may only comprise a fraction of Intermediation is the act occurring any time a person employees that render services to the Contracting Party contracts or intervenes in the contracting of another person to (not all personnel may be subcontracted). render services to an employer; in the understanding that in those cases when the contractor possesses their own ■ Non-concurrence: subcontracted services will not sufficient goods to perform with the obligations deriving include the same or similar tasks to those completed by from the relations with its own employees, such contractor the rest of contracting party employees. will be deemed the employer and not an intermediator. If the above-listed conditions are not satisfied, the contracting party In the case that the contractor does not possess sufficient will be deemed as the employer of the subcontractor’s employees goods or properties to properly comply with the existing (last paragraph of article 15-A LFT). obligations with its employees, the beneficiary of services The Supreme Court of Justice of the Nation (Suprema Corte de will be held jointly liable regarding such obligations. Justicia de la Nación – SCJN) has defined that under subcontracting Intermediation types: the employee finds himself under a double subordination: on one 1.1 Ephemeral or pure: in this case the intermediator side the employee finds himself subordinated to the contracting (contractor) only acts as a link between an employer and party in the workplace where tasks or services are being completed, an employee. Once this particular act is achieved, the and to whose organisation rules such employee is subordinated to; intermediation is extinguished (article 12 LFT). and on the other side, to the subcontractor, which pays the 1.2 Generic: in this case the intermediator (contractor) employee’s salary, with whom the current dependency is performs tasks or services in favour of a third party, established. known as the beneficiary. If the intermediary has their

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Chapter 14 BSN Bufete Sánchez-Navarro, S.C. Mexico

B. LSS regulates the following: operations; however, they are not established for a particular Personnel provider: is that in which a third party provides industry, but are generally established under LFT and LSS, and are personnel in an identified and individualised manner to complete generally applied across all sectors. certain activities in accordance with clients’ needs, generally within In case of subcontracting, the agreement must be executed in Mexico a work centre and company facilities requiring the service (article writing. The Contracting Party must verify that the subcontractor Rafael Sánchez Navarro Caraza 15-A LSS). has all the documentation and its own and sufficient goods to The parties must inform the Mexican Social Security Institute comply with all the employment and social security obligations (hereinafter IMSS) every three months within the first 15 days of regarding its employees (article 15-B LFT). January, April, July and October about the agreements entered into The Contracting Party must verify that the subcontractor complies

within such periods, about the employees subject to the agreement with all security, health, and environment labour matters regarding Mexico and the agreement’s terms. its employees (article 15-C LFT). In case of the provider’s noncompliance with its obligations, the A subcontracting scheme is not allowed if the objective is to reduce BSN Bufete Sánchez-Navarro, S.C. Salvador Sánchez López beneficiary of the services will be held responsible for such employees’ employment rights (article 15-D LFT). obligations, in the understanding that the IMSS had already required Tax obligations: the provider to comply. A. VAT Law C. Judiciary precedents: In case of subcontracting, the VAT Law (Ley del IVA – LIVA) own and sufficient goods, such intermediator will be the Economic Unit: a Collegiate Court on Employment Matters for the 1 Regulatory Framework employer. In the event that such contractor does not establishes that the contracting party must obtain from the First Circuit in Mexico had established precedents in the sense that comply with the assumed obligations with its employees, subcontractor a simple copy of the VAT tax return and a payment any time a company intervenes as provider of labour through the the intermediator and the beneficiary will be jointly and acknowledgment receipt, and the subcontractor is obliged to make 1.1 Are there any national laws or regulations that severally responsible for such obligations. In other execution of a civil agreement for the rendering of services, or any such documents available. specifically regulate outsourcing transactions, either legal act, and the other party contributes to infrastructure and words, only in the event of the intermediator’s B. Income Tax Law generally or in relation to particular types of noncompliance, the beneficiary will be jointly liable capital, achieving both the good or service produced, they attain the outsourcing transactions (e.g. business process (article 13 LFT). company purpose of economic unit; therefore, they will establish Additionally, the Income Tax Law (Ley del Impuesto Sobre la Renta outsourcings, IT outsourcings, telecommunications – LISR) provides that in order to deduct an employment 1.3 Exclusive or main (insourcing): is the structure by which one sole economic entity and are consequently liable for the labour outsourcings)? subcontracting expense for the purposes of income tax, the a group of companies, whether holder of total or partial relationship with the employee. contracting party must obtain from the subcontractor a simple copy control, organise themselves for the effect that a single Personnel Provision: According to the Ninth Collegiate Court on For the purposes of this chapter, any reference to outsourcing will be of the following documents, which the subcontractor must deliver: company or numerous companies provide personnel or Labour Matters of the First Circuit, whenever a services agreement a reference to service or personnel outsourcing in any of the services to the rest of the companies that belong to that a) Tax proof evidencing payment of salary of employees is entered into with the object of providing personnel to a “real following three types: subcontracting; third party personnel group of companies (article 15 LFT). assigned by the subcontractor. provider (hereinafter personnel provider); and rendering of any employer”, such agreement shall be void since LFT forbids 2. Subcontracting: any time an employer (subcontractor) b) Acknowledgments of receipt. type of services due to a services agreement (hereinafter service commercialising labour. executes works for or renders services in favour of a third c) Tax return where the subcontractor pays withholdings made provider). Even though this judiciary precedent is an isolated thesis (which party (contracting party) using employees that are dependent to employees. It is important to have in mind that the new government and on the employer. The contracting party allocates tasks to be means it is not mandatory for justices), it gives us a heads-up d) IMSS employee-employer fees payment proof. Mexican Congress expect to issue new regulations on outsourcing completed by the subcontractor’s personnel and supervises regarding the conditions or agreements’ objects which judges may matters within the next year. However, nothing concrete is currently the development of services performed by the subcontractor consider void in outsourcing matters. Consequences of noncompliance: being prepared, so regulation in force will remain applicable for the or the execution of work or services contracted (articles 15-A In case information is not exchanged, the contracting party will not LFT). time being. 1.2 Are there any additional legal or regulatory be able to credit or request the return of the paid VAT. For validity of subcontracting, the following three requirements for outsourcing transactions Additionally, the contracting party will not be able to deduct for The outsourcing concept in Mexico is governed by two federal laws: requirements must be satisfied: the Federal Labor Law (Ley Federal del Trabajo – LFT); and the undertaken by government or public sector bodies? income tax effects the expense made. ■ Specialisation: subcontracted services or works are to be Social Security Law (Ley del Seguro Social – LSS), as well as specialised tasks, that is, an identified or an identifiable judiciary precedents. Notwithstanding outsourcing is regulated at federal level and it is function or work is to exist and a specialisation due to the 1.4 Is there a requirement for an outsourcing transaction generally applied, without distinction of particular industries, there A. LFT regulates the following: subject matter it is engaged in, that is, specific works are to be governed by local law? If it is not to be local are cases, such as financial regulation, in which it is required that top 1. Intermediation (articles 12, 13, 14 and 15 of the LFT). to be subcontracted. No specialisation limit is law, is there any generally accepted norm relating to established. levels be directly engaged by the entity. In this sense, for example, the choice of governing law? Definition: ■ Partial nature: may only comprise a fraction of the chief executive officer of the financial entity is to be a direct Intermediation is the act occurring any time a person employees that render services to the Contracting Party employee of the institution; in such a manner that any type of Depending on the type of outsourcing applied, local laws may or contracts or intervenes in the contracting of another person to (not all personnel may be subcontracted). outsourcing thereof is forbidden. render services to an employer; in the understanding that in may not be applied. those cases when the contractor possesses their own ■ Non-concurrence: subcontracted services will not The above is without detriment that financial regulations foresee the Personnel or services provider agreements are governed by civil law sufficient goods to perform with the obligations deriving include the same or similar tasks to those completed by existence of service providers or subcontractor companies, which, (unless one of the parties is the government or a government entity), the rest of contracting party employees. from the relations with its own employees, such contractor under particular circumstances and specific authorisations, may act which in Mexico is of local jurisdiction. In this sense, the parties will be deemed the employer and not an intermediator. If the above-listed conditions are not satisfied, the contracting party to contract the remaining staff of the financial group (article 90 of may agree the forum and law that applies, provided the parties In the case that the contractor does not possess sufficient will be deemed as the employer of the subcontractor’s employees the Law to Regulate Financial Groups). clearly and definitively waive the forum granted thereto by law, and goods or properties to properly comply with the existing (last paragraph of article 15-A LFT). Another example is when outsourcing transactions are made with in the event of a dispute, they are to identify as courts with obligations with its employees, the beneficiary of services The Supreme Court of Justice of the Nation (Suprema Corte de public entities, in which the provider must be chosen following jurisdiction any of the following: those of any party’s domicile; will be held jointly liable regarding such obligations. Justicia de la Nación – SCJN) has defined that under subcontracting bidding proceedings or at least an invitation to bid and submit those with jurisdiction at the place where any obligation is Intermediation types: the employee finds himself under a double subordination: on one quotations in accordance with laws. performed; or those with jurisdiction in the place where the 1.1 Ephemeral or pure: in this case the intermediator side the employee finds himself subordinated to the contracting obligation of thing is in force. (contractor) only acts as a link between an employer and party in the workplace where tasks or services are being completed, 1.3 Are there any additional legal or regulatory On the other hand, the subcontracting regulation is relatively new in an employee. Once this particular act is achieved, the and to whose organisation rules such employee is subordinated to; intermediation is extinguished (article 12 LFT). requirements for outsourcing transactions our laws (1 December 2012). There are opinions regarding whether and on the other side, to the subcontractor, which pays the undertaken in particular industry sectors, such as for it is governed by LFT because it is related to employment. In such 1.2 Generic: in this case the intermediator (contractor) employee’s salary, with whom the current dependency is example the financial services sector? case, no local law may be agreed since employment regulations are performs tasks or services in favour of a third party, established. known as the beneficiary. If the intermediary has their at federal level. In this sense, there are precedents issued by the There are requirements under law for outsourcing transactions or

98 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 99 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page100 100 Mexico and scope of services will then be sent to a select few companies. few select a to sent be then will services of scope and quotations for request a references; and experience relevant most the has which see to analysed be will Once companies such identified, completed. is services required the offering market the in party’scontracting the companies thereafter,of objectives; search a The most common selection process is, at first instance, to ascertain 3.1 B. A. of contractedservices. type the on depend will used commonly structure outsourcing The 2.1 employment courtsforanyomittedobligation. federal or local the by liable held be may parties both claim, labour a of event the in agreement, of type the of regardless case, either In subcontracting isanemploymentmatter. that establishing Plenary Circuit Administrative the by and SCJN BSN BufeteSánchez-Navarro,S.C. WWW.ICLG.COM in anykindoflabour outsourcing. Mexican law establishes no maximum or minimum agreement term 4.1 In thisway, theriskofcontractingpartyisreduced. and obligations tax law.the with accordance in employees of and rights minimum respects security social labour, applicable with complies always provider service the that verification account into take will and providers by determined be must choosing final The © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 4 3 2 minimum termforanoutsourcing contract? process thatisusedtoselectasupplier? used foranoutsourcingtransaction? ■ Insourcing: ■ ■ ■ Outsourcing: Term ofanOutsourcing Agreement Procurement Process Legal Structure What isthemostcommontypeofprocurement What arethemostcommontypesoflegalstructure Does nationalorlocallawimpose anymaximumor

justices. for mandatory not is it means which thesis, isolated an is criteria this that note workers’to important is It services. make the from to benefitted has order which company the in responsible eliminated be should veil corporate obligations, labour its with complies group corporate a of the of Matters Labour Seventh Circuit which says that and if an employer that is part Civil on First Court the Collegiate by 2016 on issued was precedent judiciary A any r xlsv itreito: hs ocp is is entered intobyentitiesofthesamecorporategroup. concept agreement services A this 1.1. question intermediation: under explained exclusive or Mainly without rendering ofsuchservices. services its the in client the by participation direct any or supervision renders independently provider Rendering of generic services: in this concept, the service under explained is concept question 1.1. this provider: Personnel 1.1. question under explained is concept this Subcontracting:

■ ■ ■ ■ transactions arethoseexplainedbelow: outsourcing in collection complete to ways common most four The 5.1 the agreement,whichisgenerally30days. Common practice is to establish the applicable term of notice under for required days notice extinguishing anoutsourcingagreement. of number no establish laws Mexican 4.2 resolves to directly perform services that used to be outsourced; or a party contracting the either scenarios: two in be may situation Such Upon only prevailingliability. the be will (Infonavit) liability Law). employer’s new the Infonavit term, Fund such of paragraph, completion Housing last 29, Mexican (article regarding obligations years two for and notice, of date the to prior born obligations security social and employment for employer substitute the with responsible jointly be will employer substituted the which during run, will period month six- a date, such from As IMSS. the to addition in union, the and employees all to substitution the writing in notify to required is It an work, perform of LFT). to used assets of 41 and LSS of 290 (articles triggered be will transfer substitution employer a of event the In 6.1 full complianceminimisesrisksforthecontractingparty. services’the since in costs, impact an have would compliance such that notwithstanding obligations, security social and labour all with complying is provider the that verified be should it Additionally, for base the applicable mark-uppayment. as remuneration employee’s the not using do we recommend agreed, compensation services’ the of Independently 5.2 adhere thereto. However, if the parties reach an agreement in this sense, they should 5 6 outsourcing transactions? outsourcing contract? license assetsonanoutsourcingtransaction? outsourcing transactions? hne r r udtd u t dfeet ass sc as such causes, different to not due inflation. do updated rendered are service or of change conditions the that the provided to money,of amount assigned fixed a is, that amount, fixed by Charged employees of number contracting party. per charge A employee the by assigned fortherenderingofservicetocontractingparty. used hours with accordance in Charged for disburses contractor the cost rendering aserviceischarged. the to as percentage A Charging Transfer of Assets What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof What formalitiesarerequiredtotransfer, lease or What otherkeytermsareusedinrelationtocosts

ICLG TO: OUTSOURCING 2019

Mexico

OUT19_04_07_Layout 104/07/201914:46Page101 release isissued. obligation an employer months, six former of completion the upon that substitution, ensure employer should an of event the In and prior totheemployersubstitution. terms same born relations labour from deriving obligations for months ensuing the in six the for responsible be obligations will employer former the and conditions, will employment employer new all the assets, acquire of transfer a to due employer of change a is there time any general, in that, mind in Webear should 6.3 terms if applicable,mustbenotified,aswelltheIMSS. in exists substitution employer described above that at question 6.1; therefore, employees and the possible union, is it work, perform to used is which property real of transfer of event the In 6.2 for benefits such employees. and salary seniority, acknowledging terms, existing same the in obligations security social and employment all acquire be made as an employer subrogation; that is, the new employer will is it may transfer but personnel such force, transferred, labour the maintain to not intended are work perform to used assets When received fromitsdirectemployees. previously services party third to outsource to resolves company BSN BufeteSánchez-Navarro,S.C. ICLG TO: OUTSOURCING 2019 Law). years two for and regarding Infonavit obligations (article 29, last paragraph, Infonavit obligations, security social and employment regarding months six and following the for employment obligations, security all social for employer new the with liable jointly be will employer substituted the substitution, employer of event the In moment oftransfer. exists, work assets of perform owner the of as existing relationship labour any to as responsible becomes new to The used exists. substitution assets labour mandatory of transfer a Whenever 7.1 the before agreement public the a which Notary Public). in in executed property, real be of must transfer agreement of event the in (except be agreement written private a in evidenced be to must transfer the Also, and obligation register fees employer security transferred tothesubstituteemployer. social the of for payment order subsequent in each IMSS/Infonavit from the acknowledgment In addition, the employer substitution will need to be notified written before substitute get the and employee/union. writing, shall in notified employer be must applicable, if union, the and employees substitution, employer an of event the In 6.4 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 7 Employment Law What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered?

d) c) b) a) the tax, income of thefollowingdocuments,whichsubcontractormustdeliver: of purposes copy simple a subcontractor the from obtain must the party contracting for expense labour a subcontracting deduct to order in that provides LISR the Additionally, them available. the make to obliged is subcontractor the under and receipt, acknowledgment that, payment a and VATthe return of tax copy simple a establishes subcontractor LIVA the from obtain must party contracting the matters, scheme, subcontracting tax Regarding on work matters with regard to its employees (article 15-C of LFT). environment and security health, on provisions applicable all with complies subcontractor the that verify must party contracting The or goods sufficient its employees(article15-BofLFT). and own with relations from deriving its obligations with comply to properties of documents possession and the information regarding grant also must subcontractor The to as party regarding itsemployees. contracting the inform compliance with all employment, social security and tax obligations must subcontractor The 7.3 worksite. the at prevailed as conditions and terms same the under continue relations work occurring, substitution employer an Upon 7.2 relationship. not vested with the capacity to formally extinguish the employment is beneficiary or party which contracting the rendered, through being are services employees of employer direct the not is services In this sense, considering that the contracting party or beneficiary of already separatedtheemployeefrom services. has employment customer the when formalised the be even or request customer of a extinction the from derive may extinction such practice, however,in relationship; execute to salary must the paying employees party the or employer direct the Formally, 7.4 d. c. b. a. Additionally, thefollowingfeaturesexist: provide toeachother? take place? employee forareasonconnectedtotheoutsourcing? IMSS employee-employerfeespaymentproof. employees. to made withholdings pays subcontractor where return Tax salaries Acknowledgments ofreceipt. employees’ of payment assigned bythesubcontractor. evidencing proof Tax What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw Is acustomer/supplierallowedtodismissan the newemployerwillprevail. of liability the exclusively term, which of completion upon substitution; of date the to prior born obligations, Infonavit for years, two for on go will liability employer Substituted the term, which liability ofthenewemployerwillexclusivelyprevail. of completion upon substitution; of date employment and social security obligations, born prior to the for months, six for on go will liability employer Substituted The transferofassetsusedtoperformthework. is onlysufficient tograntformalnoticesofitsoccurrence. In order to operate, the employee’s consent is not required; it

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101 Mexico OUT19_04_07_Layout 104/07/201914:46Page102 102 Mexico dee o F ad l ohr biain. o hs fet we effect, this To Mexico. in obligations. established legally company other a through compliance all recommend and LFT to adhere The employer, independent of having offices in Mexico or not, must relationship). employment the of and assignation of termination regarding (both due to the employee’s expatriated nature and termination conditions and conditions of temporary assignment, repatriation, benefits given in services render terms establishing letter assignment temporary a have must Mexico to assigned employees foreign Additionally, social between entitiesofdifferent countries. employment, all with services of rendering the from deriving provisions tax comply and security to the obligation between agreement the services parties, the establish to important is It 7.7 regarding retirement conditionstobeeligiblepensionplanbenefits. especially rights, the all gathered have transfer the of moment the at that employees’employees transferred affected avoid to order in analysed be must conditions and terms employer, prior a with plan pension private a of existence the of event the In must employer new continue payingSARcontributions. the employees, of transfer a of event the In retirement employer their to savings account. by employees those by and made up salary) contributions base voluntary employee’s made the over are (2% contributions pensions retirement Currently, para el Retiro In Mexico there is a Retirement Savings System ( the to 7.6 due if indemnity partial a pay harmonisation areductionofsalariesandbenefitsoccurs. must provider The order toreducetheiremploymentrights(article15-DofLFT). in personnel transfer to prohibition express is there Additionally, works atabeneficiarycompany. similar performing employees direct by received those to available made conditions employment enjoy to entitled be will services or Another principle of outsourcing is that employees rendering works salary must correspond. same a position, and hours efficiency, of conditions same the under rendered work, equal for that is law of principle Another Board Arbitration such employmentconditionsmaybechanged. and Conciliation a circumstances economic the of to due that establishing CAB) (hereinafter event by the issued in resolution except maintained, conditions employment An LFT general principle is that employees are entitled to have their 7.5 employee mustbeindemnified. the cause, justified of inexistence of event the In analysed. be must case particular subcontracting. each to Therefore, related expressly an justified extinguish a existing cause a without exist, to must LFT the by liability,for provided cause employer incurring direct without the relationship for employment hand, other the On BSN BufeteSánchez-Navarro,S.C. WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd existing workforce? Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment

– SAR) applicable to all formal employees in Mexico.

Sistema de Ahorro

immigration status. regular a maintains employee the that so considered be also should assigned is employee the where country the of laws Immigration Mexican a by rendered be to company abroad,applicableforeignlawsmustbeobserved. service a about talking are we If available toownersofpersonaldata. it make and notice privacy a have must collector the collected, is It should be considered also that in any event in which personal data owner ofpersonaldata. the from transfer and treatment data for consent express obtaining always recommend we liability, any avoid to order in Therefore, and treatment data for transfer mustalwaysbeobtainedfromtheownerofpersonaldata. consent express discrimination), of act an most intimate sphere of the owner or which, wrongly used, may cause In the case of sensitive personal data (such data which is related to the 37, fractionIV, LFPDPPP). (article agreements outsourcing or provider personnel services, of the owner of the data, consent is not needed. Such would be into the case entered of interest the party,in third a agreement and data the of receiver the an between with comply to necessary is transfer a whenever However, data. personal transferring before obtained first be must data personal of owner the of consent the rule general Particulares los de Posesión Private Persons (Ley Federal de Protección de Datos Personales en of Possession in Data Personal of Protection on Law Federal The 8.1 vn o nnopine te rnfre s o e ibe o such for liable be to obligations. is transferee the the noncompliance, in of obligations, event security social of nature tax the Considering 9.1 the LFDPPP By-Law). data applies provider of 52 (article information uploaded any erase will provider services services cloud cloud the end, services once that ensure the to and policies protection that necessary is it Additionally, in case of treatment without of personal data in cloud services, treatment, alteration, or access loss, mentioning specificsecurityrequirements(article19LFPDPPP). use, damage, unauthorised against or the data destruction allowing personal security, measures of maintain physical protection must and data technical personal administrative, collecting person The 8.2 8 9 transaction? terminating thecontract? requirements concerninginformationsecurity? Security Data ProtectionIssuesandInformation Tax Issues data protectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory

ICLG TO: OUTSOURCING 2019 LPPP etbihs ht s a as that establishes LFPDPPP) –

Mexico

OUT19_04_07_Layout 104/07/201914:46Page102 102 Mexico WWW.ICLG.COM we effect, this To Mexico. in obligations. established legally company other a through compliance all recommend and LFT to adhere The employer, independent of having offices in Mexico or not, must relationship). employment the of and assignation of termination regarding (both due to the employee’s expatriated nature and termination conditions and conditions of temporary assignment, repatriation, benefits given in services render terms establishing letter assignment temporary a have must Mexico to assigned employees foreign Additionally, social between entitiesofdifferent countries. employment, all with services of rendering the from deriving provisions tax comply and security to the obligation between agreement the services parties, the establish to important is It 7.7 regarding retirement conditionstobeeligiblepensionplanbenefits. especially rights, the all gathered have transfer the of moment the at that employees’employees transferred affected avoid to order in analysed be must conditions and terms employer, prior a with plan pension private a of existence the of event the In must employer new continue payingSARcontributions. the employees, of transfer a of event the In retirement employer their to savings account. by employees those by and made up salary) contributions base voluntary employee’s made the over are (2% contributions pensions retirement Currently, para el Retiro In Mexico there is a Retirement Savings System ( the to 7.6 due if indemnity partial a pay harmonisation areductionofsalariesandbenefitsoccurs. must provider The order toreducetheiremploymentrights(article15-DofLFT). in personnel transfer to prohibition express is there Additionally, works atabeneficiarycompany. similar performing employees direct by received those to available made conditions employment enjoy to entitled be will services or Another principle of outsourcing is that employees rendering works salary must correspond. same a position, and hours efficiency, of conditions same the under rendered work, equal for that is law of principle Another Board Arbitration such employmentconditionsmaybechanged. and Conciliation a circumstances economic the of to due that establishing CAB) (hereinafter event by the issued in resolution except maintained, conditions employment An LFT general principle is that employees are entitled to have their 7.5 employee mustbeindemnified. the cause, justified of inexistence of event the In analysed. be must case particular subcontracting. each to Therefore, related expressly an justified extinguish a existing cause a without exist, to must LFT the by liability,for provided cause employer incurring direct without the relationship for employment hand, other the On BSN BufeteSánchez-Navarro,S.C. Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? existing workforce? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment

– SAR) applicable to all formal employees in Mexico.

Sistema de Ahorro

immigration status. regular a maintains employee the that so considered be also should assigned is employee the where country the of laws Immigration Mexican a by rendered be to company abroad,applicableforeignlawsmustbeobserved. service a about talking are we If available toownersofpersonaldata. it make and notice privacy a have must collector the collected, is It should be considered also that in any event in which personal data owner ofpersonaldata. the from transfer and treatment data for consent express obtaining always recommend we liability, any avoid to order in Therefore, and treatment data for transfer mustalwaysbeobtainedfromtheownerofpersonaldata. consent express discrimination), of act an most intimate sphere of the owner or which, wrongly used, may cause In the case of sensitive personal data (such data which is related to the 37, fractionIV, LFPDPPP). (article agreements outsourcing or provider personnel services, of the owner of the data, consent is not needed. Such would be into the case entered of interest the party,in third a agreement and data the of receiver the an between with comply to necessary is transfer a whenever However, data. personal transferring before obtained first be must data personal of owner the of consent the rule general Particulares los de Posesión Private Persons (Ley Federal de Protección de Datos Personales en of Possession in Data Personal of Protection on Law Federal The 8.1 vn o nnopine te rnfre s o e ibe o such for liable be to obligations. is transferee the the noncompliance, in of obligations, event security social of nature tax the Considering 9.1 the LFDPPP By-Law). data applies provider of 52 (article information uploaded any erase will provider services services cloud cloud the end, services once that ensure the to and policies protection that necessary is it Additionally, in case of treatment without of personal data in cloud services, treatment, alteration, or access loss, mentioning specificsecurityrequirements(article19LFPDPPP). use, damage, unauthorised against or the data destruction allowing personal security, measures of maintain physical protection must and data technical personal administrative, collecting person The 8.2 9 8 Tax Issues Security Data ProtectionIssuesandInformation transaction? data protectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory requirements concerninginformationsecurity?

ICLG TO: OUTSOURCING 2019 LPPP etbihs ht s a as that establishes LFPDPPP) –

Mexico

OUT19_04_07_Layout 104/07/201914:46Page103 the monthlyreturn. VATas in well paid as client, of each VATto amount specifically transferred the authority tax the to report must contractor the and payment a paid has contractor the month the on obtained be must Information and return tax VAT the acknowledgment receipt. of copy a subcontractor the LIVA establishes that the contracting party labour must obtain from the and the evasion In case of subcontracting, in order to make under creditable the entire tax VAT, transactions preventing inadmissible crediting(articles5and32LIVA). thereby in regime, paid VAT regarding subcontracting requirements of certain are crediting there LIVA, to According 9.2 where place the of services wererendered,eitherthetransfereeortransferor. owner the from fees security social omitted collect to tries IMSS the that possible is it termination, of case In in additiontolocalpayrolltaxresponsibility. the personnel, transferred, also the are obligations SAR and transfers security,Infonavit social company a whenever sense, this In BSN BufeteSánchez-Navarro,S.C. ICLG TO: OUTSOURCING 2019 or civil the services, the of noncompliance agreement valid the place, first the apply.In will laws commercial of event the In 11.1 Mexico. in standard a not are credits service hand, other the for On grounds normally is it satisfied, termination oftheagreement. not are standards such If establishing expectedqualitystandards. agreement, outsourcing the on agreed usually is level service The 10.1 d) c) b) a) which documents, subcontractor mustdeliver: following the of copy simple a subcontractor the from obtain must party contracting the expense, subcontracting labour a deduct to order in effects, Tax Income for Additionally, question 9.2. in above VATdescribed regarding are issues important most The 9.3 such issueintheagreement. on provision a include to desired, if prevent, not does it However, © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 10 levels andservicecredits? under theoutsourcingcontract? general lawifthesupplierbreaches thecontract? IMSS employee-employerfeespaymentproof. employees. to made withholdings pays subcontractor where Areturn tax salaries Acknowledgments ofreceipt. employees’ of payment assigned bysubcontractor. evidencing proof Tax Is thereanyVAT leakageonthesupplyofservices What remediesareavailableto thecustomerunder What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Customer Remedies Service Levels

osqec o te otatrs r evcs provider’s services regularly informaboutcomplianceshouldbeestablished. or Furthermore, the subcontractor’s or contractor’sservices provider’s obligation to the noncompliance withitsobligations. of consequence filed a be as services the of may beneficiary the or party that contracting the against claim tax or security social the employment, any keep from to harmless services the of obligation beneficiary the the or party contracting provider’s establish always services to or recommended provider subcontractor’s also personnel is it in Additionally, practice common is agreements. This be may insurance required. responsibility or bond a of granting the Also, a sense, this with anyobligationcontainedintheagreement. In noncompliance of event the in agreed govern. be valid may penalty will contractual the parties matters, commercial the and between civil agreement on rule, general a As 11.2 Social security is a mandatory insurance for all direct employers. It 12.1 its employees(article15-CofLFT). to regard with matters work on environment and security health, on verify that the subcontractor complies with all applicable provisions Throughout the validity of the agreement, the contracting party must relationships. employment its Such requirement must be satisfied at the inception from of the agreement. deriving obligations its the with that comply to verify goods sufficient must and party own their contracting possesses subcontractor the sense, this In party. contracting the of favour in warranties/indemnities as considered be In subcontracting there are certain mandatory requirements that may for anydamagethatitmaysuffer. services the of beneficiary or party contracting the protect to penal) It is also recommendable to establish an indemnity clause ( such obligationsbreach. from arise may that liability any from services the of beneficiary services provider social will have the to keep harmless the or contracting party or subcontractor employment, the Otherwise, all obligations. tax fulfil and security to obligation provider’s services or subcontractor’s the include agreements outsourcing Typically, 11.3 subcontractor forsuffered damages. the security fees. social In such omitted cases, the employees, contracting or party may benefits go against the owed of own payment for party the contracting its against claim a start with may IMSS or obligations employee subcontractor’s security social or In the event of the subcontractor’s noncompliance with employment may or obligations its with rescind theagreementand/orbeindemnifiedforsuffered damages. comply to required legally be may between the parties will govern; otherwise, the noncomplying party 12 contract documentationtoprotectthecustomer? transaction? that areincludedinanoutsourcingcontract? What additionalprotectionscouldbeincludedinthe order tocovertherisksinvolved inanoutsourcing What typesofinsuranceshould beconsideredin What arethetypicalwarrantiesand/orindemnities Insurance

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cláusula

103 Mexico OUT19_04_07_Layout 104/07/201914:46Page104 104 Mexico t hud e one ot ht h drc epoe psess a possesses direct employees(article163ofLFT). its employer of invention permanent any direct of acquisition or the use the for that right preemptive a out pointed be have should It employees though confidentiality obligationasestablished underLFT. even information, confidential and IPparty’s each agreement of use authorised the determine the to in include to desirable order in clauses, copyright confidentiality,and property intellectual is it consequence, a As the responsibility, effects and obligations of each party to protect IP. establish may agreements all question, following the in described by the Industrial Property Law ( provided protection rights (IP) Property Intellectual to addition In 14.1 agreement. There is no local law annulling termination rights of an outsourcing 13.3 its before both events, such in counterpart andbeforeemployees/IMSS. party each to obligations corresponding and rights the as well as condition), or time (specific termination agreement for grounds special on agree to possible is It 13.2 situation. such on IMSS and employees before responsibilities party’s each In case of termination for any cause, the agreement should establish written noticeinformingtheintenttoextinguishagreement. mere a as broad as be may grounds Such termination. agreement for grounds establishes agreement the that recommended also is It against thenoncomplyingparty. responsibility and/or claim indemnity of harm and damages suffered no with agreement the rescind may party party,affected any the by obligations contractual or legal with noncompliance of event the In 13.1 IV. III. II. I. providing insurances,suchas: In addition to social security, it is common for the parties to agree on retirement, disabilitiesand/ordeath. covers work-related risks, general diseases and accidents, maternity, BSN BufeteSánchez-Navarro,S.C. WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 13 protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? termination rights? for damagesfromtheterminatedparty? Insurance ofcivilresponsibilityfortheusevehicles. Insurance ofcivilorcommercialresponsibility. Insurance ofcivilresponsibilitybylabouraccidents. Insurance ofresponsibilitybyaccidentsandlabourillnesses. How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement

Intellectual Property Termination

Ley de Propiedad Industrial

– LPI),

the partiesmustrefrainfromusingthem,unlessotherwiseagreed. termination, of event the in therefore, rights; property industrial or licences of use the to relation in rights implicit holds party Neither 14.3 made by the employee in detriment of the company (article 47 LFT). information reserved of disclosure the in found be may relationship employment an of cause with termination for grounds addition, In may they secrets industrial any become awareof. protect to order in established be should employees with confidentiality of clauses sense, this In not discloseit. secret and has been prevented regarding its confidential nature must Any person that by reason of his/her work has access to an industrial the before also but employees renderingtheservices. parties, the between applies protection LPI an advantageinthemarket. on representing company, the information of activity protect economic and/or productive secrets industrial that provides LPI The 14.2 s o cvl r omril iblt, hr i te osblt of possibility the is there liability, agreeing a contractual penalty in the event commercial of noncompliance by any or civil for As 15.2 claiming authority the before or compliance withanyobligationmaynotbelimited. employees before liability the cases, these provider.In the with liable jointly be may services the of beneficiary the schemes, outsourcing other in or, employees the contracting party be deemed the employer of the subcontractor’s of incompliance, it is possible that under the subcontracting scheme, cases in Otherwise, obligations. such for liable of be not will services beneficiary or party contracting the obligations, its of all with compliance in is employer direct the if contracts, outsourcing For agreement. the under foreseen expressly advance, in limited be may the liability cases, particular in liability, commercial and civil Regarding 15.1 of theagreementhasbeenagreed. of the supplier, except the right to continue use after the termination know-how using from refrain must beneficiary or party contracting the rule, general a as parties, the by agreement of termination Upon 14.4 15 and canthesebeexcludedfromtheagreement? law? liability? under nationallaw? can itmakeofit? continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness Are thepartiesfreetoagreeafinancial capon To whatextentcanapartylimitorexclude liability supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccess tothe Liability

ICLG TO: OUTSOURCING 2019

Mexico

OUT19_04_07_Layout 104/07/201914:46Page105 settled inacivilorcommercialarbitration. be will case the dispute, of event the in that establishing of purpose There is also a possibility of including an arbitration clause with the civil orcommercialcompetentcourts. before heard be will disputes agreement, the of nature commercial or civil the given and parties, the between dispute a of event the In 16.1 may beagreed. As to employment and/or social security claims, no limit on liability is agreed, damagesmaybeclaimedlimitlesslybythedamagedparty. penalty contractual no that event the In been estimated. has previously liability such that understood to is cap it a as as liability, act damages will penalty such that effect the as having party, BSN BufeteSánchez-Navarro,S.C. ICLG TO: OUTSOURCING 2019 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 16 used? What arethemainmethodsofdisputeresolution Dispute Resolution

private no case, arbitration maybeagreed. this In matter. the on jurisdiction with tribunal administrative an or CAB the by heard be will matter security,the When the dispute is generated with employees and/or against social may notbeobjectivelymeasured. labour in principle good general faith is expected, but good faith’s scope a is not standardised and be Therefore, regulations. civil in and to LFT) of 17 (article regulations considered is faith good There are few grounds explored in Mexico on the subject; however, 17.1 17 reasonableness undergenerallaw? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Good Faith

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105 Mexico OUT19_04_07_Layout 1 04/07/2019 14:46 Page 106

BSN Bufete Sánchez-Navarro, S.C. Mexico

Tel: +52 1 55 56 31 96 66 Tel: +52 1 55 56 31 96 66 Email: [email protected] Email: [email protected] URL: www.bsn.com.mx/en/ URL: www.bsn.com.mx/en Mexico Graduated from the Escuela Libre de Derecho; he was President of Born in 1977, Salvador graduated from the Instituto Tecnológico the Alumni Society from 1980–1981. Autónomo de México (ITAM). In 1987, he founded the Firm Sanchez-Navarro, S.C. (now BSN Since 2001 he has been part of BSN Bufete Sanchez-Navarro, S.C. Bufete Sanchez-Navarro, S.C.). and in January 2012 he was appointed partner. He has conducted several postgraduate studies, taking the Labor Law He has been in charge of various processes of company acquisitions, specialty programme at the Universidad Panamericana. He has also labour reengineering (modification/unification of benefits), participated in the Management Program for Lawyers at Yale implementation of the necessary practices and labour policies for the University, as well as taken a diploma in Human Rights and Appeal for operation of companies in Mexico, as well as day to day labour issues, Constitutional Protection in the Escuela Libre de Derecho, among from the development of compensation schemes, individual contracts others. of employment to the termination of the employment relationship. He participated in working tables of the reform to the Federal Labor Additionally, he is specialised in the implementation of global Law at the Senate of the Republic in 2012. compensation schemes, as well as obligations such as garden leave periods, non-solicit, non-compete and confidentiality clauses. He is a member of the National and Illustrious College of Lawyers acting as subcoordinator of the Labor Law, coordinator of the Update He has completed various postgraduate studies among which is the Course in Labor Law in 2010 and co-coordinator of the Master's Management Program for Lawyers at Yale University and a Master's degree in Labor Law. Degree in Labor Law (2013–2015) at the Escuela Libre de Derecho. He is currently the Director of the Law Firm BSN Bufete Sanchez Navarro, S.C. which coordinates strategically and actively.

BSN Bufete Sánchez-Navarro, S.C. is a law firm specialised in Labour Law. Since its founding, BSN has taken the philosophy of providing the best advice and legal defence for its customers, counting permanent lawyers specialised in Labour Law and in direct contact with the dynamics of labour relations and human resources in the country, as well as by having the capacity and study of the criteria and judicial decisions that could have an impact on labour litigation. BSN has always sought the identification of the clients’ needs and together with them find the best solution to the conflicts that may arise or the defence of the matters that are entrusted to the firm. Based on the experience gained, BSN is organised in attending to the specialisation of each of its members, either in the aspects of consulting, litigation (individual or collective), Administrative Law, auditing and, lately, in the protection of personal data.

106 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 1 04/07/2019 14:46 Page 106 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 107

BSN Bufete Sánchez-Navarro, S.C. Mexico Chapter 15

Rafael Sánchez Navarro Caraza Salvador Sánchez López BSN Bufete Sánchez-Navarro, S.C. BSN Bufete Sánchez-Navarro, S.C. Insurgentes Sur #1647, Piso 10, Oficina 1001 Insurgentes Sur #1647, Piso 10, Oficina 1001 San José Insurgentes San José Insurgentes 03900, Mexico City 03900, Mexico City Nigeria Mexico Mexico Nduka Ikeyi Tel: +52 1 55 56 31 96 66 Tel: +52 1 55 56 31 96 66 Email: [email protected] Email: [email protected] URL: www.bsn.com.mx/en/ URL: www.bsn.com.mx/en Mexico Graduated from the Escuela Libre de Derecho; he was President of Born in 1977, Salvador graduated from the Instituto Tecnológico the Alumni Society from 1980–1981. Autónomo de México (ITAM). In 1987, he founded the Firm Sanchez-Navarro, S.C. (now BSN Since 2001 he has been part of BSN Bufete Sanchez-Navarro, S.C. Ikeyi Shittu & Co. Sam Orji Bufete Sanchez-Navarro, S.C.). and in January 2012 he was appointed partner. He has conducted several postgraduate studies, taking the Labor Law He has been in charge of various processes of company acquisitions, specialty programme at the Universidad Panamericana. He has also labour reengineering (modification/unification of benefits), participated in the Management Program for Lawyers at Yale implementation of the necessary practices and labour policies for the University, as well as taken a diploma in Human Rights and Appeal for operation of companies in Mexico, as well as day to day labour issues, Agent Banking Relationships in Nigeria” issued by the Central Constitutional Protection in the Escuela Libre de Derecho, among from the development of compensation schemes, individual contracts 1 Regulatory Framework Bank of Nigeria (“CBN Guidelines”) in 2013 require financial others. of employment to the termination of the employment relationship. institutions that wish to engage in agent banking to submit an He participated in working tables of the reform to the Federal Labor Additionally, he is specialised in the implementation of global application for approval to the CBN (section 2 of the CBN Law at the Senate of the Republic in 2012. compensation schemes, as well as obligations such as garden leave 1.1 Are there any national laws or regulations that periods, non-solicit, non-compete and confidentiality clauses. specifically regulate outsourcing transactions, either Guidelines), and for the financial institution to assess the adequacy He is a member of the National and Illustrious College of Lawyers generally or in relation to particular types of of controls of outsourcing activities through regular audits (section acting as subcoordinator of the Labor Law, coordinator of the Update He has completed various postgraduate studies among which is the outsourcing transactions (e.g. business process 6 of the CBN Guidelines). The CBN Guidelines define agent Course in Labor Law in 2010 and co-coordinator of the Master's Management Program for Lawyers at Yale University and a Master's outsourcings, IT outsourcings, telecommunications degree in Labor Law. Degree in Labor Law (2013–2015) at the Escuela Libre de Derecho. banking as “the provision of financial services to customers by a outsourcings)? third party (agent) on behalf of a licensed deposit taking financial He is currently the Director of the Law Firm BSN Bufete Sanchez Navarro, S.C. which coordinates strategically and actively. institution and/or mobile money operator (principal)”. Although the There are no national laws generally regulating outsourcing. CBN Guidelines, unlike the O&G Guidelines, do not directly However, the “Guidelines on Labour Administration: Issues in regulate outsourcing, they nevertheless touch upon outsourcing. Contract Staffing/Outsourcing in the Oil and Gas Sector” (“O&G Guidelines”), issued by the Federal Ministry of Labour and Productivity in 2011, regulate outsourcing in the oil and gas sector. 1.4 Is there a requirement for an outsourcing transaction to be governed by local law? If it is not to be local The O&G Guidelines, amongst others, provide that the jobs on the law, is there any generally accepted norm relating to organogram of companies in the sector must be occupied by the choice of governing law? permanent employees of the companies and restricts outsourcing to non-core business of the companies, except for proven short-term There is no requirement for an outsourcing transaction to be projects. There also exists a “Code of Conduct for Private BSN Bufete Sánchez-Navarro, S.C. is a law firm specialised in Labour Law. governed by national law, so parties to an outsourcing transaction Employment Agencies 2012”, which was developed jointly by the are entitled to choose the law applicable to the transaction; a Since its founding, BSN has taken the philosophy of providing the best advice and legal defence for its customers, counting permanent lawyers Human Capital Providers Association of Nigeria, an association of specialised in Labour Law and in direct contact with the dynamics of labour relations and human resources in the country, as well as by having the Nigerian court will enforce such a choice unless there is strong private employment agencies in Nigeria, Nigeria Employers’ capacity and study of the criteria and judicial decisions that could have an impact on labour litigation. reason for the court to refuse to enforce it [Nika Fishing Company Consultative Association, Federal Ministry of Labour and BSN has always sought the identification of the clients’ needs and together with them find the best solution to the conflicts that may arise or the Limited v. Lavina Corp. (2008) 16 NWLR (Pt. 1114) 509; Sonnar Productivity and the International Labour Organisation. defence of the matters that are entrusted to the firm. (Nig) Ltd & anor v. Partenreedri M.S Nordwind & anor (1987) 4 Based on the experience gained, BSN is organised in attending to the specialisation of each of its members, either in the aspects of consulting, In addition, the National Industrial Court, which has exclusive NWLR (Pt. 66) 520]. However, such choice of law will (a) be litigation (individual or collective), Administrative Law, auditing and, lately, in the protection of personal data. jurisdiction to hear and determine labour- and employment-related limited by mandatory rules of the forum (i.e. Nigeria), and (b) will disputes, has in recent case law begun to develop some principles of not affect the determination of the nature of the relationship between law applicable to outsourcing and other “disguised employment any of the parties to the transaction and an “employee”, which will relationships”. be determined by reference to Nigerian law.

1.2 Are there any additional legal or regulatory 2 Legal Structure requirements for outsourcing transactions undertaken by government or public sector bodies? 2.1 What are the most common types of legal structure No. However, outsourcing transactions by government or public used for an outsourcing transaction? sector bodies will be subject to the Public Procurement Act 2007, which applies to procurement by the federal government and its The most common structure in Nigeria is direct outsourcing in agencies and similar legislation as applicable in the various states of which the customer directly engages the supplier under a services the federation. agreement. Such services agreements usually have elaborate schedules detailing the scope of the business outsourced, standards 1.3 Are there any additional legal or regulatory against which performances will be assessed, prices, transfer of requirements for outsourcing transactions personnel and equipment, etc. undertaken in particular industry sectors, such as for example the financial services sector?

Yes. The “Guidelines for the Regulation of Agent Banking and

106 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 107 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page108 108 Nigeria 5.2 deliverable received. each for price unit pre-agreed a pays customer the whereby model charging pay-as-you-go the adopt may parties the units, standard of may be the adopted. Where cost the deliverables under the contract have actual supplier) the to the margin profit agreed an plus pays service the providing customer the cost-plus the (where predictable, method not charging is required of be volume would and that level the service if However, ideal. is approach charge fixed the budget, its over certainty have to wants customer the and be required by the customer during the contract period is predictable services of type being outsourced. If the level and volume of the service that would the with accordance in vary methods Charging 5.1 periods notice on agree and negotiate to according totheirneeds. free are Parties No. 4.2 benefit. optimal for contract the of term the set to liberty at are Parties No. 4.1 selects itspreferredsupplieraccordingtopredeterminedstandards. Shortlisted suppliers. likely eventually customer the and engagement, the for bid to then suppliers proposal for a request a engage out would send business customer its the would customer the to Thereafter, work.) cases, of piece this for consultant according some outsourced (In be to requirement. is what of scope the define would customer the that is process common most The 3.1 Ikeyi Shittu&Co. WWW.ICLG.COM termination- inflation, related costsandchange-management costs,etc. and rates exchange in disputed variation on based benchmarking, credits, responsibility,tax of allocation charges,payments, late adjustments service-level for include provisions transactions outsourcing in cost-related-terms key Other © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 5 4 3 outsourcing transactions? outsourcing transactions? outsourcing contract? minimum termforanoutsourcingcontract? process thatisusedtoselectasupplier? Charging Term ofanOutsourcing Agreement Procurement Process What otherkeytermsareusedinrelationtocosts What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum What isthemostcommontypeofprocurement

thereon. of paid are taxes state relevant other and tax course gains duty,capital stamp the In and assessed is instrument relevant the consent, registry. said the obtaining land appropriate for the instrument at transfer registration the of presentation by is usually situated (of is obtained, land the deed where the state which the of a after governor be), the of may execute consent case the parties as sublease the of or that assignment include formalities The 6.2 the instrument oftransfer.on payable is duty stamp cases, all and In registration involve requirements. consent cases some in would land in rights and interest of transfer choses-in-action, including property, personal transfer to suffice cases most in would documents title of delivery and transfer of documents relevant of execution Whilst Nigeria. generally would and licensed; follow usual rules applicable to transfer, lease or license of assets in or leased transferred, be to asset the of nature the to according vary would required formalities The 6.1 consents toit. an of transfer employee the when aeffective be only will Thus, employee’semployment officer. labour authorised an by transfer the of endorsement the and worker the of consent the to another to employer one from employment of transfer the subjects thereof 10 Labour section the Act, by governed Specifically,employments for by employees of [ transfer law of the operation recognise not does law Nigerian 7.1 of interestsinlandandcopyright. See questions 6.2 and 6.3 in regard to the registration of the transfer 6.4 and hiredbythenewemployer, ifitsodesires. employer current their by disengaged the be will employees the upon which from terms the arising especially employment, matters of transfer to and cessation attention special pay to be necessary also would it employees, of “transfer” the involving case a In outsourcing the by affected be arrangement. materially may which of terms third parties with whom the customer had contracts (like leases), the contract. any the for of goes terms same the The under supplier the to licence such transferring be would customer the where copyright is It Commission. Copyrights necessary to obtain the consent from Nigerian primary owners of any licensed the with registered be In the case of assignment or exclusive licence of copyrights, it has to 6.3 6 7 license assetsonanoutsourcingtransaction? Transfer of Assets Employment Law What aretheformalitiesfortransferofland? What formalitiesarerequiredtotransfer, leaseor Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto?

Re Bendel Line Co. Ltd. Co. Line Bendel Re

ICLG TO: OUTSOURCING 2019

(1979) 5 FRCLR 19]. FRCLR 5 (1979)

Nigeria

OUT19_04_07_Layout 104/07/201914:46Page109 2004 pursuant to the Pension Reform Act. Although the PRA sets PRA the Although Act. Reform Pension the to pursuant 2004 (“PFA”) and administrator fund chosen by the employer employee. The mandatory scheme came into force pension in the a to of remitted are contributions employee monthly which in scheme existing employer’s the of those workforce. with employee transferring which would include harmonisation of the employment terms of the implemented, be will transfer the to which chance upon terms the the negotiate employee the provides Nigeria in employment of collective applicable bargaining agreement. or employment the of Act, contract employee’s Labour the the by in provision redundancy any governed with comply to required not is employer employment For Act. Labour the of 20 section under redundancy for worker a off laying for requirements Labour the the with by comply governed will Act, employment an of case in employer, the arrangement, outsourcing an by occasioned redundancy to due the employee terminate an of to employment intended is it where instance, For observed. be to relating information receive The unionisation oftherelevantemployees. to entitled arrangement. be compensation also a will as supplier well as records and file the (b) employment employee’s and the receive employee, to entitled relevant be would supplier the of vitae curriculum the for request skill, and qualification specified requiring roles in would, customer the (a) Thus, employee. the of suitability the determine to them enable to require employee relevant would the on information party sufficient either Generally, supplier. the to customer the by transferred be to (b) or customer, the to supplier the by sent will havetobeobtainedineachcase. employee each of consent The law. of operation by employment another, to engaged were employees the which for undertaking the who person a to transfers which employer, previous the pass of business the to succeeds may employer previous a of payment termination obligations law, of operation by employees of transfer ICLG TO: OUTSOURCING 2019 Yes.Generally,pension contributory mandatory a operates Nigeria 7.6 Yes.employee’san obtain to transfer requirement a The to consent 7.5 must employment of termination to applicable rules legal Yes,but 7.4 by the parties to an outsourcing contract about an employee (a) to be There is no statute providing for specific information to be provided 7.3 of transfer recognise not does law Nigerian above, indicated we As 7.2 for instance in acquisitions, takeover, privatisation, outsourcing, etc. the recognise not does law However,Nigerian that notwithstanding Ikeyi Shittu&Co. take place? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw existing workforce? provide toeachother?

rvos mlyr ad b te rvos mlyrs compliance with itsdeductionandremittanceobligations. employer’s previous the (b) and employer, the by previous assumed contribution of rate the (a) confirm to necessary be therefore would It contribution. total the of percentage higher the and a assume to employee employer the permits the nevertheless law both the employer, for contribution of rates minimum conversations and telegraphic communication. There are also other telephone correspondence, homes, their of privacy the and to privacy in citizens of rights 1999, the of Nigeria, protection the of for provides 37, Republic section Federal the the of of Constitution The supervision the and Regulation Honourable Attorney GeneraloftheFederation (withexceptions). the of provisions the contract, and(g)subjectsthetransfer ofdatatoaforeigncountry to outsourcing an of case the in applies which processing, data party third for controller data the and party third a between contracts for provision makes (f) processing, data in involved is who person any of data the protect to measures security developing of burden the class of the data subjects being targeted can understand, (e) imposes collection the that policy privacy a have of to processing and collection data of purpose specific the the mediums for compulsory it makes (d) subject, data the to disclosed without forbids (c) data subject, of data a obtaining of data personal with (b) entrusted subject, data the of consent is who anyone on subject data a of favour in care of duty a imposes the with be must data and that purpose prescribes (a) things, collection and processing shall be for other specific, legitimate and lawful among Regulation, The residing outsideNigeriabutofNigeriandescent. or Nigeria, in residing persons natural of of respect processing in actual data personal the and data (the personal of 2019” processing the for Regulation, Protection intended transactions all to Data applies Regulation The “Regulation”). “Nigeria the issued Information National The contract. Technology Development the Agency (“NITDA” or the “Agency”), has of respect in engaged party third a or contract the to party a by protected and collected be security and data protection that may arise is how personal data will data concerning requirements regulatory or legal material most The 8.1 such in would supplier prescribed bysection54oftheCompaniesand Allied Matters Act. offshore The circumstance be required to establish a local subsidiary in Nigeria. Nigeria as in on carrying business be to considered be might supplier offshore the that extent the to supplier offshore the for Nigeria in activity business a create may customer, resident transaction Nigerian a and supplier offshore the where staff It is also possible that an outsourcing transaction, which involves an expatriate to, contemplates theengagementofexpatriatepersonnel. paid monies of also be given to local law legal relating to employment of, and remittance any to subject should consideration Special not jurisdictions. the of any in restriction is business outsourced the that ensure to contract outsourcing the after and during before, party foreign the of laws the and laws local to attention pay should Yes.Parties 7.7 8 Data ProtectionIssuesandInformation Security transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? WWW.ICLG.COM

Nigeria

109 Nigeria OUT19_04_07_Layout 104/07/201914:46Page109 ICLG TO: OUTSOURCING 2019 sets PRA the Although Act. Reform Pension the to pursuant 2004 (“PFA”) and administrator fund chosen by the employer employee. The mandatory scheme came into force pension in the a to of remitted are contributions employee monthly which in scheme Yes.Generally,pension contributory mandatory a operates Nigeria 7.6 existing employer’s the of those workforce. with employee transferring which would include harmonisation of the employment terms of the implemented, be will transfer the to which chance upon terms the the negotiate employee the provides Nigeria in employment of Yes.employee’san obtain to transfer requirement a The to consent 7.5 collective applicable bargaining agreement. or employment the of Act, contract employee’s Labour the the by in provision redundancy any governed with comply to required not is employer employment For Act. Labour the of 20 section under redundancy for worker a off laying for requirements Labour the the with by comply governed will Act, employment an of case in employer, the arrangement, outsourcing an by occasioned redundancy to due the employee terminate an of to employment intended is it where instance, For observed. be must employment of termination to applicable rules legal Yes,but 7.4 to relating information receive The unionisation oftherelevantemployees. to entitled arrangement. be compensation also a will as supplier well as records and file the (b) employment employee’s and the receive employee, to entitled relevant be would supplier the of vitae curriculum the for request skill, and qualification specified requiring roles in would, customer the (a) Thus, employee. the of suitability the determine to them enable to require employee relevant would the on information party sufficient either Generally, supplier. the to customer the by transferred be to (b) or customer, the to supplier the by sent by the parties to an outsourcing contract about an employee (a) to be There is no statute providing for specific information to be provided 7.3 will havetobeobtainedineachcase. employee each of consent The law. of operation by employment of transfer recognise not does law Nigerian above, indicated we As 7.2 for instance in acquisitions, takeover, privatisation, outsourcing, etc. another, to engaged were employees the which for undertaking the who person a to transfers which employer, previous the pass of business the to succeeds may employer previous a of payment termination obligations law, of operation by employees of transfer the recognise not does law However,Nigerian that notwithstanding Ikeyi Shittu&Co. © Published andreproduced withkindpermission byGlobalLegal Group,Ltd existing workforce? employee forareasonconnectedtotheoutsourcing? provide toeachother? take place? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw

rvos mlyr ad b te rvos mlyrs compliance with itsdeductionandremittanceobligations. employer’s previous the (b) and employer, the by previous assumed contribution of rate the (a) confirm to necessary be therefore would It contribution. total the of percentage higher the and a assume to employee employer the permits the nevertheless law both the employer, for contribution of rates minimum such in would supplier prescribed bysection54oftheCompaniesand Allied Matters Act. offshore The circumstance be required to establish a local subsidiary in Nigeria. Nigeria as in on carrying business be to considered be might supplier offshore the that extent the to supplier offshore the for Nigeria in activity business a create may customer, resident transaction Nigerian a and supplier offshore the where staff It is also possible that an outsourcing transaction, which involves an expatriate to, contemplates theengagementofexpatriatepersonnel. paid monies of also be given to local law legal relating to employment of, and remittance any to subject should consideration Special not jurisdictions. the of any in restriction is business outsourced the that ensure to contract outsourcing the after and during before, party foreign the of laws the and laws local to attention pay should Yes.Parties 7.7 conversations and telegraphic communication. There are also other telephone correspondence, homes, their of privacy the and to privacy in citizens of rights 1999, the of Nigeria, protection the of for provides 37, Republic section Federal the the of of Constitution The supervision the and Regulation Honourable Attorney GeneraloftheFederation (withexceptions). the of provisions the contract, and(g)subjectsthetransfer ofdatatoaforeign country to outsourcing an of case the in applies which processing, data party third for controller data the and party third a between contracts for provision makes (f) processing, data in involved is who person any of data the protect to measures security developing of burden the class of the data subjects being targeted can understand, (e) imposes collection the that policy privacy a have of to processing and collection data of purpose specific the the mediums for compulsory it makes (d) subject, data the to disclosed without forbids (c) data subject, of data a obtaining of data personal with (b) entrusted subject, data the of consent is who anyone on subject data a of favour in care of duty a imposes the with be must data and that purpose prescribes (a) things, collection and processing shall be for other specific, legitimate and lawful among Regulation, The residing outsideNigeriabutofNigeriandescent. or Nigeria, in residing persons natural of of respect processing in actual data personal the and data (the personal of 2019” processing the for Regulation, Protection intended transactions all to Data applies Regulation The “Regulation”). “Nigeria the issued Information National The contract. Technology Development the Agency (“NITDA” or the “Agency”), has of respect in engaged party third a or contract the to party a by protected and collected be security and data protection that may arise is how personal data will data concerning requirements regulatory or legal material most The 8.1 8 transaction? Security Data ProtectionIssuesandInformation Are thereanyoffshoreoutsourcingconsiderations? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory WWW.ICLG.COM

Nigeria

109 Nigeria OUT19_04_07_Layout 104/07/201914:46Page110 110 Nigeria n mut ete aray ged r acltd t n ged rate) from theamount to bepaidunderthecontractasservice credits. agreed an at calculated or agreed already (either amount an contracted service level standards, the customer is entitled to deduct the supplier at agreed intervals. Where the supplier fails to meet the by given be should report level service the that require also should supplier.contract the The from expected standards level service or performance of standard the clarity and detail sufficient in contract the in include to is contract outsourcing an in approach usual The 10.1 Nigerian the incomeofnon-residentsupplierfromtransaction. a between transaction resident and a non-resident may raise issues of “double taxation” of outsourcing an Furthermore, related entities. pricing issues may also arise where the parties to the transaction are Transfer transferred. been have assets the whom to supplier the of books the into brought are assets transferred the which at value the may implicate capital gains tax issues. It may also raise the issue of assets, of transfer the involves which transaction, outsourcing An 9.3 not is services of procurement the recoverable inNigeria.Itratheroperatesasplainsalestax. on paid VAT Input Yes. 9.2 employees the service involvestheoutsourcingofemployees. to payroll outsourced the payable where cases statutory in monies customer the to on services all providing made and be to tax deductions income pay-as-you-earn be remit also will and deduct to It is it duty whose discuss to billed. parties the for amount important actual the up marking of the effect have the will (with figure supplier which the expenses), by reimbursable it of to exception billed amounts all of 5% of rate reimbursable expenses). The customer will be subject to VATof exception at the the (with customer the by it to made payments all of amount gross the on 10% of rate the at tax withholding a to subject be will supplier the that given especially exposure, tax income its about concerned be will supplier the transaction, outsourcing an In 9.1 No; otherthanasexplainedinquestion8.1above. 8.2 the of and telephoneconversations. transactions right personal his of the security and privacy the on to individual regulations and legislation sector-specific Ikeyi Shittu&Co. WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 9 terminating thecontract? requirements concerninginformationsecurity? levels andservicecredits? under theoutsourcingcontract? Tax Issues What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory Service Levels

maintain asuccessful claimfordamages. would party counter the that unlikely is it provisions, termination the of any with accordance in contract the terminates party a Once the of, omission or act outsourced employees,arenotunusual. any from arising claims and by, regarding claims indemnity employees, of outsourcing the for contracts in Further, included. typically also are etc., regulations, protection environmental and sanitary of breach rights, property intellectual example for a breach of data protection regulations, infringement of party,for third a of claim successful a for the supplier the by customer of indemnity the on Terms notification. of time from to period undertaking an level; service agreed an within possible) (where deliverables the substandard remedy to up perform to and capacity qualification supplier’s the to as warranty a usually is There 11.3 due for insurance an out take performance andtoendorsethecustomer’s interestonthepolicy. to supplier the a for be should There requirement supplier. the of expense the at do so to party third a appoint to or service the of performance the of management or performance the over take and in step to right a be should There 11.2 the of rescission and/or contract. injunctions damages, compensatory The remedies depend on the nature of the breach. They may include 11.1 riaiy otorig otat hv triain provisions. termination have contracts outsourcing Ordinarily, 13.1 should beputinplace. insurance employee-related personnel, outsourced of provision the of information technology. Where the outsourcing transaction outsourced is for the use where the to related risk any or data of breaches to lead considered may business be Cyber- should considered. insurance be should liability etc. property, to damage or loss outsourced liability insurance for negligence resulting in bodily injury or the death, where instance, For business has the potential of posing any danger to the public, public business. outsourced the The type of insurance to be considered will be largely determined by 12.1 11 13 12 that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? for damagesfromtheterminated party? transaction? What arethetypicalwarrantiesand/orindemnities What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcingagreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin

Customer Remedies Termination Insurance

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Nigeria

OUT19_04_07_Layout 104/07/201914:46Page111 of thedeliverables. the contract, and only in connection with the customer’s normal use non- development the use to exclusively. customer Permission by suppliers to customers for continued use the licensing merely on insist would it then similar customers, other to supplier of the by services performance continued the impede would rights such of transfer absolute Where transfer. such after customers other for services similar perform to continue can supplier the that provided to has supplier the that save them; to belong would IPs existing respective their to developments that provide parties IPs, existing be – of the services. Also, in contemplation of improvements to the the extent necessary for the performance – or receipt as the case may that such IP is incorporated in the deliverables to the customer under of suppliers’ IP at the end of the contract term is usually to the extent customer, particular the for exclusively created IP supplier’s the to developments new in rights customer the to transfer to agree to IP received such use to licensed is party other the Accordingly, post-termination only to the extent and for the purpose prescribed in under – law common contracts, tortsandotherbasiclegalprinciples. of principles general the under protected contract. the of purpose the for or of course the in party other declared to belong to the relevant party though made available to the based ontheprincipleoffreedomcontract. ICLG TO: OUTSOURCING 2019 the contract. know-how supplier’s the use and access gain can customer The 14.4 No, therearenosuchimpliedrights. 14.3 are They Nigeria. in them for protections statutory no are There 14.2 usually is party either of (“IP”) property intellectual Existing 14.1 No, therearenot. 13.3 rights termination additional agree or exclude can Parties Yes. 13.2 Ikeyi Shittu&Co.

14 can itmakeofit? supplier's know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto law? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight termination rights? Can thepartiesexcludeoragreeadditional to seeinanoutsourcingcontract? Intellectual Property

matter. have come under a fiduciary relationship to the other in the specific to said be may party a that such is circumstance the unless fairly, no is There contract. overriding requirement for their either party to act in of good faith and are to act terms express parties the matters, to held pertinent usually on provisions express the in of principles absence law common by contracts into implied etc.) usually dealing, of course usual customs, trade (like terms for Save 17.1 court forurgent interimreliefs. arbitration of choice the to parties’apply the to to right prejudice without operate would the arbitrate, to agreed have parties which dispute a determining from courts of the choice preclude would the arbitration Although arbitration. by resolved be to is dispute any dispute, resolve failing which they resort to to mediation, failing which the management parties’ the by consultations confidential for provide usually contracts outsourcing like contracts Business 16.1 Yes, subjecttowhatwehavesaidinquestion15.1above. 15.2 the if clause effect oftheexclusionistodefeatessencecontract. liability of exclusion an enforce not also will court or fraud for Nigerian A liability unenforceable. usually is misrepresentation of fraudulent limitation or exclusion Also, contract. by party other the on obligation such of performance its of burden the transfer may it though obligation, or duty statutory mandatory liability their exclude contractually. or However, neither party is limit allowed to contract out of a to allowed are parties Generally, 15.1 17 16 15 used? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolution liability? Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexcludeliability reasonableness undergenerallaw? under nationallaw?

Good Faith Dispute Resolution Liability

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111 Nigeria OUT19_04_07_Layout 104/07/201914:46Page110 110 Nigeria WWW.ICLG.COM rate) from theamount to bepaidunderthecontractasservice credits. agreed an at calculated or agreed already (either amount an contracted service level standards, the customer is entitled to deduct the supplier at agreed intervals. Where the supplier fails to meet the by given be should report level service the that require also should supplier.contract the The from expected standards level service or performance of standard the clarity and detail sufficient in contract the in include to is contract outsourcing an in approach usual The 10.1 Nigerian the incomeofnon-residentsupplierfromtransaction. a between transaction resident and a non-resident may raise issues of “double taxation” of outsourcing an Furthermore, related entities. pricing issues may also arise where the parties to the transaction are Transfer transferred. been have assets the whom to supplier the of books the into brought are assets transferred the which at value the may implicate capital gains tax issues. It may also raise the issue of assets, of transfer the involves which transaction, outsourcing An 9.3 not is services of procurement the recoverable inNigeria.Itratheroperatesasplainsalestax. on paid VAT Input Yes. 9.2 employees the service involvestheoutsourcingofemployees. to payroll outsourced the payable where cases statutory in monies customer the to on services all providing made and be to tax deductions income pay-as-you-earn be remit also will and deduct to It is it duty whose discuss to billed. parties the for amount important actual the up marking of the effect have the will (with figure supplier which the expenses), by reimbursable it of to exception billed amounts all of 5% of rate reimbursable expenses). The customer will be subject to VATof exception at the the (with customer the by it to made payments all of amount gross the on 10% of rate the at tax withholding a to subject be will supplier the that given especially exposure, tax income its about concerned be will supplier the transaction, outsourcing an In 9.1 No; otherthanasexplainedinquestion8.1above. 8.2 the of and telephoneconversations. transactions right personal his of the security and privacy the on to individual regulations and legislation sector-specific Ikeyi Shittu&Co. 10 9 Tax Issues levels andservicecredits? What istheusualapproachwithregardtoservice What othertaxissuesmayarise? under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring requirements concerninginformationsecurity? Are thereindependentlegaland/orregulatory Service Levels

maintain asuccessful claimfordamages. would party counter the that unlikely is it provisions, termination the of any with accordance in contract the terminates party a Once the of, omission or act outsourced employees,arenotunusual. any from arising claims and by, regarding claims indemnity employees, of outsourcing the for contracts in Further, included. typically also are etc., regulations, protection environmental and sanitary of breach rights, property intellectual example for a breach of data protection regulations, infringement of party,for third a of claim successful a for the supplier the by customer of indemnity the on Terms notification. of time from to period undertaking an level; service agreed an within possible) (where deliverables the substandard remedy to up perform to and capacity qualification supplier’s the to as warranty a usually is There 11.3 due for insurance an out take performance andtoendorsethecustomer’s interestonthepolicy. to supplier the a for be should There requirement supplier. the of expense the at do so to party third a appoint to or service the of performance the of management or performance the over take and in step to right a be should There 11.2 the of rescission and/or contract. injunctions damages, compensatory The remedies depend on the nature of the breach. They may include 11.1 riaiy otorig otat hv triain provisions. termination have contracts outsourcing Ordinarily, 13.1 should beputinplace. insurance employee-related personnel, outsourced of provision the of information technology. Where the outsourcing transaction outsourced is for the use where the to related risk any or data of breaches to lead considered may business be Cyber- should considered. insurance be should liability etc. property, to damage or loss outsourced liability insurance for negligence resulting in bodily injury or the death, where instance, For business has the potential of posing any danger to the public, public business. outsourced the The type of insurance to be considered will be largely determined by 12.1 13 12 11 that areincludedinanoutsourcingcontract? What arethetypicalwarrantiesand/orindemnities contract documentationtoprotectthecustomer? What additionalprotectionscouldbeincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder for damagesfromtheterminated party? terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcingagreement transaction? order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin

Termination Insurance Customer Remedies

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OUT19_04_07_Layout 104/07/201914:46Page111 of thedeliverables. the contract, and only in connection with the customer’s normal use that such IP is incorporated in the deliverables to the customer under non- development of the suppliers’ IP at the end of the contract term use is usually to the extent to exclusively. customer Permission by suppliers to customers for continued use the licensing merely on insist would it then similar customers, other to supplier of the by services performance continued the impede would rights such of transfer customer,absolute Where transfer. such after customers other for particular the services similar perform for to continue can supplier the that provided exclusively created IP supplier’s to the to developments has new in rights customer the supplier to transfer to agree the that save them; to belong would IPs existing respective their to developments that provide parties IPs, existing be – of the services. Also, in contemplation of improvements to the the extent necessary for the performance – or receipt as the case may to IP received such use to licensed is party other the Accordingly, ICLG TO: OUTSOURCING 2019 the contract. know-how supplier’s the post-termination only to the extent and for use the purpose prescribed in and access gain can customer The 14.4 No, therearenosuchimpliedrights. 14.3 under – law common contracts, tortsandotherbasiclegalprinciples. of principles general the under are protected They Nigeria. in them for protections statutory no are There 14.2 contract. the of purpose the for or of course the in party usually other is party either of declared to belong to the relevant party though (“IP”) made available to the property intellectual Existing 14.1 No, therearenot. 13.3 rights termination additional based ontheprincipleoffreedomcontract. agree or exclude can Parties Yes. 13.2 Ikeyi Shittu&Co. © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 to seeinanoutsourcingcontract? termination rights? can itmakeofit? and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional Intellectual Property

16.1 Yes, subjecttowhatwehavesaidinquestion15.1above. 15.2 the if clause effect oftheexclusionistodefeatessencecontract. liability of exclusion an enforce not also will court or fraud for Nigerian A liability unenforceable. usually is misrepresentation of fraudulent limitation or exclusion Also, contract. by party other the on obligation such of performance its of burden the transfer may it though obligation, or duty statutory mandatory liability their exclude contractually. or However, neither party is limit allowed to contract out of a to allowed are parties Generally, 15.1 matter. have come under a fiduciary relationship to the other in the specific to said be may party a that such is circumstance the unless fairly, no is There contract. overriding requirement for their either party to act in of good faith and are to act terms express parties the matters, to held pertinent usually on provisions express the in of principles absence law common by contracts into implied etc.) usually dealing, of course usual customs, trade (like terms for Save 17.1 court forurgent interimreliefs. arbitration of choice the to parties’apply the to to right prejudice without operate would the arbitrate, to agreed have parties which dispute a determining from courts of the choice preclude would the arbitration Although arbitration. by resolved be to is dispute any dispute, resolve failing which they resort to to mediation, failing which the management parties’ the by consultations confidential for provide usually contracts outsourcing like contracts Business

16 15 17 used? liability? under nationallaw? reasonableness undergenerallaw? What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexcludeliability according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer

Dispute Resolution Liability Good Faith

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111 Nigeria OUT19_04_07_Layout 104/07/201914:46Page112 112 Nigeria Ikeyi Shittu&Co. WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd providing innovative and practical business solutions. We start by understanding the industries in which our fir clients operate, the transactions, existing from arising issues resolve to or relationships, or investments new on advise to engaged Whether business advisoryandtransactionsupportserviceswithaguaranteeofskill,knowledgeprofessionalism. clien its provides firm The experience. business international with firm law full-service a is “firm”) (the Co. & Shittu Ikeyi communication anddeepanalyticalskills”. Renaissance at member 2018 faculty in adjunct described is He an Ugbawka. University, is of Nduka areas practice, the private to in addition In transfer. technology and regulation especially investment law, foreign governance, corporate business arbitration, taxation, law, employment and commercial on Nduka has published several articles in local and international journals sector public and administration legal consultancy. sector corporate public and services, commercial advisory litigation, research, teaching, an in and labour on and clients tax, employment law transactional, matters. He has over 25 multinational years’ regulatory, combined experience of and and range extensive indigenous Attorney-General represents Nduka the been his privatesectorexperience. others, to 2011)addition – in (2007 State Enugu in Justice for Commissioner amongst experience, sector public having, and sector private extensive has Nduka We placestrongemphasisonbusinessethics. law andtheoperatingenvironment. client’s business and the clients’ expectations, as the bases for identifying the solutions that optimise the client’s position as “an exceptional expert in taxation and finance” with “excellent Email: Tel: Nigeria Lagos 1 Ikeyi Shittu&Co. Nduka Ikeyi URL: st Floor, 21BoyleStreet,Onikan

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eoe h Ngra spro cut o rcr, t oh ra and trial both at record, of courts appellate levels. cases superior high-profile Nigerian several the litigated before successfully has He matters. election-related and and labour transactions, on commercial bordering matters, employment lawsuits of defence and prosecution the governments, in candidates, state their and parties political including and companies multinational clients, various represented has He commercial transactions. of failure or and implementation structuring, the from arising of issues range wide a on advises also He employees. of disengagement routinely the He and discipline engagement, from arising issues on employers advises co-leads firm. also the of He practice Litigation and and Co. Resolution Labour Dispute & the leads Shittu He Ikeyi of Co. practice & Employment Shittu Ikeyi in partner a is Sam

URL: Email: Tel: Nigeria Lagos 1 Ikeyi Shittu&Co. Sam Orji

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https://ikeyishittuco.com [email protected] +234 8035321980 within the framework of the ts with a full range of legal, of range full a with ts the peculiarities of each m creates value by value creates m

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OUT19_04_07_Layout 104/07/201914:46Page113 DO 174 prohibits labour-only contracting and declares the principal 4. 3. 2. as the direct employer of the contractor’s employees. It renders the contractor’srenders the It of employer employees. direct the as following the if 1. legitimate is circumstances concur: arrangement contracting A the remain contractor the of contractor’s employeesandhisalone. employees the Thus, contractor. service contractor, whoaccomplishthejob,work,orservice. the undertakes who the of employees the and service; or work, contractor,job, the of performance service the the contractor; between service relationship trilateral a to service or work, job, a out a farm to decided has who principal, contemplates It predetermined or period. definite a within service or work, job, specific a of completion or performance the subcontractor or contractor a an governs 174 DO with out farm or out put to agrees principal a whereby arrangement April. 3 on effective became which 2017, of series 174”), (“DO 174 No. Order Department issued (DOLE) parties tothisarrangement. n hs oncin te eatet f ao ad Employment and Labor of Department the connection, this In mlye eainhp ewe hmef n te mlye o the of employees the and himself between relationship employee employer- an create not does principal the contractor, independent legitimate a is contractor the provided arrangement, of type this In the of obligations and rights the and sub-contracting regulating for conditions the prescribe and arrangements sub-contracting and Articles 106 to 109 of the Philippine Labor Code govern contracting In General 1.1 Law Ofﬁces(ACCRALAW) Angara AbelloConcepcionRegala&Cruz ICLG TO: OUTSOURCING 2019 Philippines Chapter 16 1 and benefitsunderlabourlaws. rights the all with compliance ensures agreement service the or capital substantial investment; and has subcontractor or contractor the results thereof; the to as except work the of performance the with connected matters all in principal the of direction and control from free and method, and manner own its responsibility,to according own its on service or work, job, the perform to undertakes the contractor carries a distinct and independent business and the contractorisregisteredinaccordancewithDO174; Regulatory Framework outsourcings)? outsourcings, ITtelecommunications Are thereanynationallawsorregulationsthat outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

epniiiy o koig h csoe ad o keig the keeping for and Ultimate customer the obtained. knowing be for to responsibility required documents minimum the or of information gathering the counterparty a to outsource may and other financial institution, also known as “covered institutions”, issuer money electronic agent, remittance changer, money dealer, nonstock savings and entity,loan association, pawnshop, foreign exchange trust quasi-bank, unit, banking offshore bank, a However, risk exposures;and(v)strategicdecision-making. (iii) exposures; of credit managing (iv) activities; risk-taking other market and position-taking of extension and loans and of granting deposits the (ii) accounts; of deposit of recording placement the including withdrawals, with associated normally services (i) follows: as defined are functions banking inherent Philippines, be cannot taking, the of deposit Bank Central the of 765-12 No. Circular Under outsourced. as such functions, banking Inherent Banking Transactions On Particular Types ofOutsourcing Transactions Code andotherspeciallaws. the principal, as these contracts are governed by the Philippine Civil for work or job the performs himself who talents and skills unique toll and growing/growership, maintenance and with individual or professional a to work or job a of out contracting carriage, operation, lease, management, manufacturing, sale, of contracts support. It likewise does not cover contractual relationships such as office back or services; animation transcription; medical support; infrastructure software and/or IT hardware development, outsourcing; application process outsourcing, legal activities); centre call (including outsourcing process knowledge or business as: such process, business specific contracting/sub- or entire an a involving services enabled in relationship trilateral technology- information cover not does it arrangement, contracting a to only applies 174 DO As relationships. contractual and industries certain to 174 DO of applicability/non-applicability the clarified DOLE 2017, of Subsequently, however, in DOLE Department Circular No. 1, series 2. 1. is definedas: the for contractor payment of the employees’ the money claims. Labour-only contracting with liable severally and jointly principal h cnrco de nt xrie h rgt o oto the control to right the performance oftheworkemployee. exercise not does contractor the b. a. an arrangementwhere: f oto oe te efrac o te ok f the of work the of performance employee; or the over control of the contractor or subcontractor does not exercise the right or capital supervision workpremises,amongothers;and substantial have not investments in the form of tools, equipment, machineries, does contractor the

Emerico O.deGuzman

Neptali B.Salvanera

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Chapter 16 Philippines Emerico O. de Guzman

Angara Abello Concepcion Regala & Cruz Law Ofﬁces (ACCRALAW) Neptali B. Salvanera

principal jointly and severally liable with the contractor for the 1 Regulatory Framework payment of the employees’ money claims. Labour-only contracting is defined as: 1.1 Are there any national laws or regulations that 1. an arrangement where: specifically regulate outsourcing transactions, either a. the contractor does not have substantial capital or generally or in relation to particular types of investments in the form of tools, equipment, machineries, outsourcing transactions (e.g. business process supervision work premises, among others; and outsourcings, IT outsourcings, telecommunications outsourcings)? b. the contractor or subcontractor does not exercise the right of control over the performance of the work of the employee; or In General 2. the contractor does not exercise the right to control the Articles 106 to 109 of the Philippine Labor Code govern contracting performance of the work of the employee. and sub-contracting arrangements and prescribe the conditions for Subsequently, however, in DOLE Department Circular No. 1, series regulating sub-contracting and the rights and obligations of the of 2017, DOLE clarified the applicability/non-applicability of DO parties to this arrangement. 174 to certain industries and contractual relationships. As DO 174 In this connection, the Department of Labor and Employment applies only to a trilateral relationship in a contracting/sub- (DOLE) issued Department Order No. 174 (“DO 174”), series of contracting arrangement, it does not cover information technology- 2017, which became effective on 3 April. DO 174 governs an enabled services involving an entire or specific business process, arrangement whereby a principal agrees to put out or farm out with such as: business or knowledge process outsourcing (including call a contractor or subcontractor the performance or completion of a centre activities); legal process outsourcing; IT infrastructure specific job, work, or service within a definite or predetermined outsourcing, application development, hardware and/or software period. It contemplates a trilateral relationship between the support; medical transcription; animation services; or back office principal, who has decided to farm out a job, work, or service to a support. It likewise does not cover contractual relationships such as service contractor; the service contractor, who undertakes the contracts of sale, lease, carriage, growing/growership, toll performance of the job, work, or service; and the employees of the manufacturing, management, operation, and maintenance and service contractor, who accomplish the job, work, or service. contracting out of a job or work to a professional or individual with In this type of arrangement, provided the contractor is a legitimate unique skills and talents who himself performs the job or work for independent contractor, the principal does not create an employer- the principal, as these contracts are governed by the Philippine Civil employee relationship between himself and the employees of the Code and other special laws. contractor. Thus, the employees of the contractor remain the On Particular Types of Outsourcing Transactions contractor’s employees and his alone. Banking Transactions A contracting arrangement is legitimate if the following Inherent banking functions, such as deposit taking, cannot be circumstances concur: outsourced. Under Circular No. 765-12 of the Central Bank of the 1. the contractor is registered in accordance with DO 174; Philippines, inherent banking functions are defined as follows: (i) 2. the contractor carries a distinct and independent business and services normally associated with placement of deposits and undertakes to perform the job, work, or service on its own withdrawals, including the recording of deposit accounts; (ii) the responsibility, according to its own manner and method, and granting of loans and extension of other credit exposures; (iii) free from control and direction of the principal in all matters position-taking and market risk-taking activities; (iv) managing of connected with the performance of the work except as to the risk exposures; and (v) strategic decision-making. results thereof; 3. the contractor or subcontractor has substantial capital or However, a bank, offshore banking unit, quasi-bank, trust entity, investment; and nonstock savings and loan association, pawnshop, foreign exchange dealer, money changer, remittance agent, electronic money issuer 4. the service agreement ensures compliance with all the rights and benefits under labour laws. and other financial institution, also known as “covered institutions”, may outsource to a counterparty the gathering of the minimum DO 174 prohibits labour-only contracting and declares the principal information or documents required to be obtained. Ultimate as the direct employer of the contractor’s employees. It renders the responsibility for knowing the customer and for keeping the

ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 113 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page114 114 Philippines and theCybercrimePrevention Act of 2012. 2012, of Regulation Devices Access E-commerce 1998, of Act Act, laws related to data privacy legislation such as the Data Privacy Act and DICT the enforcing in vigilant more be to expected is such, it, to attached agencies As Philippines. the in sector ICT/BPO the continuity of the programmes created for the further development of the and support government institutionalises law The Philippines. the in sector (ICT) Technology Communications and Information the the develop help as and promote plan, to serve entity government primary will which (DICT), Technology Communications Republic Act No. 10844 created the Department of Information and Information andCommunicationsServices operators andtheirprincipalsorclients. or agencies security private all to applies which Industry’, Security Working and issued Private the in Personnel Similar Employment and Guards Security of Conditions DOLE the Governing the Guidelines law, ‘Revised by mandated Department Order No. 150-16, Series of 2001 benefits (DO 150-16), entitled minimum to personnel security private of rights the ensuring of purpose the For Security Services occupational on safety andhealthintheconstructionindustry). programmes and policies of harmonisation and coordination (on 2011 of Series 1, No. Order Administrative Joint DOLE-DPWH-DILG-DTI and PCAB Memorandum of Agreement- the and Industry) Construction the in Health Governing and Safety Occupational (Guidelines DOLE Industry), 1993 Construction Department Order No. 13, series the of 1998 (Guidelines of Governing the in Workers series of Employment 19, No. Order Contractors regulates the same by ensuring compliance with DOLE Department Philippine whether already and industry, the contractors, construction the in subcontractors or all general that registers (PCAB) explained Board Accreditation DOLE the 174, DO of coverage the from Industry Construction the excluding In Construction Services medical operations/ office support, back and support. software services, animation and/or transcription, hardware application outsourcing, development, infrastructure legal IT KPOs, BPOs, outsourcing, as process such process business specific or entire an involving services (IT)-enabled technology information cover to contemplate not does 174 DO that explained DOLE the 174, DO of coverage the from industries KPO the and BPO the excluding In Business ProcessTransactions services, andvehicleservicecontractors. trading other and import guard security services, postal and messenger,courier transactions, export, of processing collection, and investigation credit statements, loan bank of printing services, card and processing of clearing checks, printing of bank deposit retrieval, statements, credit and storage imaging, data IT systems/processing, as such functions banking of outsourcing allowed which 268, No. Circular issued Philippines the of Bank Central the addition, In the necessaryriskassessmentofcustomer. covered the to days institution, which shall carefully review the documents and conduct calendar 90 within over turned documents and information identification all having and place, in programme a training and system identification customer having acceptable and reliable counterparty the institutions, covered both of directors of board the by approved agreement level service written a covered having including the conditions several with with comply must lie which institution, however, shall, documents identification ACCRALAW WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd

.. 14 r h Gvrmn Poueet c ad pertinent and Act Procurement budgeting, accountingandauditingrulesregulations. Government the or 9184 R.A. of provisions the to subject is agencies government by Contracting significant most the has that relationship tothetransactionandparties. State the the of stipulate, that so is to law fail applicable parties the if However, law. governing covered by is DO 174. which be Philippine law one recognises the parties’is to choice arrangement of the transactions if except law, outsourcing local by for governed requirement no is there No, 1.4 other thantheabove. There are no other specific regulations on outsourcing arrangements 1.3 year.(1) one of period maximum a for functions support other and sum of work for services to perform janitorial, security, consultancy, lump a covers which service a of contract institutional an through Generally, government agencies may avail from outsourced services 1.2 supplier. a select to used process procurement of type common no is There 3.1 professionals or individuals by Some considered asindependentcontractors. rendered be corporations. also local may servicing services likewise been or have some country the partnerships, in KPOs although abroad, and entities corporate client with directly outsourcing deal proprietorships, usually BPOs an allowed. also single is into cooperatives entering with However, arrangement are entities. two these between 174, corporate arrangement contractual DO a through by done covered generally transactions outsourcing For 2.1 3 2 the choiceofgoverninglaw? example thefinancialservicessector? undertaken bygovernmentorpublicsectorbodies? process thatisusedtoselectasupplier? used foranoutsourcingtransaction? Procurement Process Legal Structure law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory What isthemostcommontypeofprocurement What arethemostcommontypesoflegalstructure

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OUT19_04_07_Layout 104/07/201914:46Page115 5.1 termination ofanoutsourcingcontract. the for period notice the regulate not does law local or national No, 4.2 outsourcing an for term contract. minimum or maximum no is there No, 4.1 ACCRALAW ICLG TO: OUTSOURCING 2019 87 Sections with comply must It executed. is arrangement transfer technology a rights, property intellectual of forms all of licensing systematic or assignment, transfer, the of and service, a of rendering or transfer process, a of the application the product, a involves of manufacture the it for knowledge If parties. contracting the by into entered is agreement licence a assets, of licensing to As sale canbemade. PEZA- is registered, transferor a letter of the authorisation is required from If PEZA before the parties. both by signed and notarised of of Deed usually The executed. is is Sale Sale Absolute Absolute containing conditions and requirements to be fulfilled before a Deed Sell to Contract a by preceded usually Ais assets of sale or transfer Authority (PEZA). an is outsourcing business registered with the Philippine Economic Zone transferor the when assets of transfer the business except regular industries, of of those assets to of similar license are transactions and outsourcing lease, transfer, the for formalities The 6.1 Performance Key the on Level based Indicators (KPIs)relevanttothetypeofservicethatisoutsourced. Service various usually on (SLAs), agree Agreements parties KPOs, and BPOs For 5.2 security private is 20%. and guards fee security administrative minimum the 156-16, DO by covered for personnel whereas 10%, of fee administrative minimum a is there 174, DO by covered employees For deployed. employee of type the on depends which of amount the fee, administrative minimum a with principal the to deployed cost-plus employees a contractors’ of number on the of based cost the usually is, that method, are charges 156-16, DO and 174 DO both by covered arrangements subcontracting or contracting In © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 5 4 6 outsourcing transactions? outsourcing transactions? outsourcing contract? minimum termforanoutsourcingcontract? license assetsonanoutsourcingtransaction? Charging Term ofanOutsourcing Agreement Transfer of Assets What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum What formalitiesarerequiredtotransfer, leaseor What otherkeytermsareusedinrelationtocosts

Act No.8293tobeenforceable. Republic of Provisions) (Mandatory 88 and Clauses) (Prohibited (CAR) from the BIR before registration with the Registry of Deeds. registration tax authorising certificate and Office Thereafter, Treasurer’s City and unit. government (BIR) Revenue Internal of Bureau local the from secured are clearances the to paid be should DST,tax and CGTtransfer the local to addition in land, of sale For The tax. income corporate corresponding documentarystamptax(DST)shouldalsobepaid. the to subject and income business paid, while for ordinary assets, the income forms part of the regular be should (CGT) tax gains capital the business), in used not those generally, (i.e., assets capital For assessments. avoid deficiency to future paid be should taxes assets, other or land of sale any In 6.3 is lease agreementisexecuted. sale the if buyer the of registered with the name Registry of Deeds. For lease of land, a notarised the in only transferred is land the Title to businesses. outsourcing PEZA-registered for necessary also is PEZA from authorisation of letter A sale. notarised absolute of a deed through effected usually is This writing. in made be corporation (at least 60% owned by Philippine stockholders) should Filipino qualified a or citizen Filipino a to validity,land For of sale 6.2 ne Piipn lw te biain o ean mlye will employees retain to depend on obligation the underlying transaction which will prompt the the transfer. law, Philippine Under 7.1 9. 8. 7. 6. 5. 4. 3. 2. 1. the following: purchaser,the to title the in name the transfers Deeds of requires he Registry the Before properties. real of registration the with tasked Philippines the in agency government the is Deeds of Registry The 6.4 The newbuyerthenappliesfortaxdeclarationinhisname. process thetransferoftitleinnamepurchaser. to Deeds of Registry the to paid also is fee registration minimal A 10. 7 articles ofincorporationthebuyerandby-laws; board ofdirectorsthebuyerapprovingsale; the of resolution containing certificate secretary’s notarised board ofdirectorsthesellerapprovingsale; the of resolution containing certificate secretary’s notarised original orcertifiedtruecopyofthelatesttaxdeclaration; the seller); original copy of the owner’s duplicate of TCT (in the name of real propertytaxclearancefromtheCity Treasurer’s Office; and CGT of DST; payment for receipts official including CAR official receiptevidencing payment oftransfertax; copy ofthedeedabsolutesale; Employment Law What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? Whenareemployeestransferred byoperationoflaw? How isthetransferregistered? have beenregistered. buyer the of incorporation of articles the that certificate SEC

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115 Philippines OUT19_04_07_Layout 104/07/201914:46Page116 116 Philippines requirements aremet. certain provided tax income from reasonable exempt are plan a benefit private under received benefits retirement Code, Revenue Internal National the of (B)(6)(a) 32 Section under Additionally, age, of years 60 reaching provided serviceofatleastfiveyearshasbeenrendered. upon while allowed age, is of retirement years 65 optional reaching upon is retirement Mandatory one wholeyear. as considered being months six least at of fraction a service, of year the annual 13 annual the of month per equivalent the plus salary month’s a of (1/2) one-half the least at law,to equivalent be should Philippine pay retirement of amount Under minimum law. Philippine by provided is which The benefits provided for in a retirement plan must not be below that 7.6 favourable less no employment termsasthoseinplacewiththeprincipal. or same the under Normally, are transfers transfer. such the though, of terms the with agree principal the of Yes, harmonisationisallowedprovided that theaffected employees 7.5 function/s particular of performed bytheaffected employees. outsourcing legitimate the of reason by The principal (or customer) may separate employees for redundancy 7.4 Privacy (“Data 2012 of Act”). Seediscussionsinquestion7.7andsection8. Act Privacy Data the or 10173 No. Act personal information must conform to the requirements of Republic sensitive or information personal employee’s an concerning made disclosures However,any information. employee regarding parties Under Philippine law, there are no required disclosures between the 7.3 the may bealabour-only contractingarrangement. as deemed be may contractor employees of the principal, if there is a finding that the arrangement service a of employees The non-surviving the of employment and terms withthenon-survivingcorporation. service employees of length the their honour absorb and corporation to thus and have entities consolidated would or merged the of liabilities and other employees the absorbing of obligation or the merger has a consolidation either in corporation consolidated or surviving The 7.2 are transferred byoperationoflaw. employees where consolidations or mergers during only is It ACCRALAW WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd take place? existing workforce? employee forareasonconnectedtotheoutsourcing? provide toeachother? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw th month’s pay, or a total of 22.5 days’ pay, for every for pay,days’ 22.5 of total a or pay,month’s

rcsig f estv proa ifrain n privileged and information personal information sensitive of the that provides processing law same the of 13 Section hand, other the On 5. 4. 3. 2. 1. 8.1 act ofCongresstobekeptclassified. an or order executive an by established specifically d) and returns; tax and revocation, or suspension denials, their or licences records, by health current or previous issued numbers, security social c) to, limited not proceedings; such but includes, in which individual an to specific court agencies government any of sentence the been committed by such person, the disposal of such proceedings, or have to alleged or committed offence any for proceeding any to or person, a of life sexual or genetic individual’seducation, an health, age, status, marital origin, colour, and religious, philosophical or political affiliations; b) about ethnic race, individual’s an about a) information: to refers This Privacy Act. Data the under exceptions well-defined the for save prohibited, generally is Privacy Act Data the under defined as information personal sensitive of Disclosure 7.7 exists of processing prohibited by law and when at least one of the following conditions the Act, Privacy information Data personal the of 12 Section Under processing data the by entity. privileged processed is same 2) the which by manner information; personal information; 1) and 3) sensitive personal information, and regulates the namely: an to individual, belonging information the of categories three to defines law The links has information processing Philippines, or a the service contract is entered into in the Philippines. or entity citizen the Philippine a resident, about information personal to relates processing the others, among when, application extra-territorial for The relevant law in this case is the Data Privacy Act which provides 2. 1. 8 :

by athirdpartytowhomthedataisdisclosed. or Controller Information Personal legitimate the by the pursued interests of purposes the for necessary is processing public of order andsafety, requirements ortofulfilfunctionsofpublicauthority; the national with a comply to to respond or emergency, to order in necessary is processing the datasubject,includinghislifeandhealth; processing is necessary to protect vitally important interest of request ofthedatasubjectpriortoenteringintoacontract; the at steps take to order in or subject data the with contract a of fulfilment the to related and necessary is processing the the datasubjecthasgivenhisorherconsent; transaction? Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? guarantee the protection of the sensitive personal information enactments regulatory such that Provided, regulations. and laws existing by for provided is same the of processing the their given have exchange consent priortoprocessing; the to parties all information, privileged of case the in or processing, the to prior purpose the to specific consent, her or his given has subject data the shall beprohibited,exceptinthefollowingcases hl b pritd ny f o otherwise not if only permitted be shall ICLG TO: OUTSOURCING 2019

Philippines

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117 Philippines OUT19_04_07_Layout 104/07/201914:46Page116 116 Philippines requirements aremet. certain provided tax income from reasonable exempt are plan a benefit private under received benefits retirement Code, Revenue Internal National the of (B)(6)(a) 32 Section under Additionally, age, of years 60 reaching provided serviceofatleastfiveyearshasbeenrendered. upon while allowed age, is of retirement years 65 optional reaching upon is retirement Mandatory one wholeyear. as considered being months six least at of fraction a service, of year WWW.ICLG.COM 13 annual the of month per equivalent the plus salary month’s a of (1/2) one-half the least at law,to equivalent be should Philippine pay retirement of amount Under minimum law. Philippine by provided is which The benefits provided for in a retirement plan must not be below that 7.6 favourable less no employment termsasthoseinplacewiththeprincipal. or same the under Normally, are transfers transfer. such the though, of terms the with agree principal the of Yes, harmonisationisallowedprovided thattheaffected employees 7.5 function/s particular of performed bytheaffected employees. outsourcing legitimate the of reason by The principal (or customer) may separate employees for redundancy 7.4 Privacy (“Data 2012 of Act”). Seediscussionsinquestion7.7andsection8. Act Privacy Data the or 10173 No. Act personal information must conform to the requirements of Republic sensitive or information personal employee’s an concerning made disclosures However,any information. employee regarding parties Under Philippine law, there are no required disclosures between the 7.3 the may bealabour-only contractingarrangement. as deemed be may contractor employees of the principal, if there is a finding that the arrangement service a of employees The non-surviving the of employment and terms withthenon-survivingcorporation. service employees of length the their honour absorb and corporation to thus and have entities consolidated would or merged the of liabilities and other employees the absorbing of obligation or the merger has a consolidation either in corporation consolidated or surviving The 7.2 are transferred byoperationoflaw. employees where consolidations or mergers during only is It ACCRALAW Are thereanypensionsconsiderations? existing workforce? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan provide toeachother? What employeeinformationshouldtheparties take place? On whattermswouldatransferbyoperationoflaw th month’s pay, or a total of 22.5 days’ pay, for every for pay,days’ 22.5 of total a or pay,month’s

2. privileged 1. and information personal information sensitive of the that provides processing law same the of 13 Section hand, other the On 5. 4. 3. 2. 1. exists: prohibited by law and when at least one of the following conditions 8.1 act ofCongresstobekeptclassified. an or order executive an by established specifically d) and returns; tax and revocation, or suspension denials, their or licences records, by health current or previous issued numbers, security social c) to, limited not proceedings; such but includes, in which individual an to specific court agencies government any of sentence the been committed by such person, the disposal of such proceedings, or have to alleged or committed offence any for proceeding any to or person, a of life sexual or genetic individual’seducation, an health, age, status, marital origin, colour, and religious, philosophical or political affiliations; b) about ethnic race, individual’s an about a) information: to refers This Privacy Act. Data the under exceptions well-defined the for save prohibited, generally is Privacy Act Data the under defined as information personal sensitive of Disclosure 7.7 ne Scin 2 f h Dt Piay c, h poesn of processing the Act, Privacy information Data personal the of 12 Section Under processing data the by entity. privileged processed is same 2) the which by manner information; personal information; 1) and 3) sensitive personal information, and regulates the namely: an to individual, belonging information the of categories three to defines law The links has information processing Philippines, or a the service contract is entered into in the Philippines. or entity citizen the Philippine a resident, about information personal to relates processing the others, among when, application extra-territorial for The relevant law in this case is the Data Privacy Act which provides 8

guarantee the protection of the sensitive personal information enactments regulatory such that Provided, regulations. and laws existing by for provided is same the of processing the their given have exchange consent priortoprocessing; the to parties all information, privileged of case the in or processing, the to prior purpose the to specific consent, her or his given has subject data the by athirdpartytowhomthedataisdisclosed. or Controller Information Personal legitimate the by the pursued interests of purposes the for necessary is processing public of order andsafety, requirements ortofulfilfunctionsofpublicauthority; the national with a comply to to respond or emergency, to order in necessary is processing the datasubject,includinghislifeandhealth; processing is necessary to protect vitally important interest of request ofthedatasubjectpriortoenteringintoacontract; the at steps take to order in or subject data the with contract a of fulfilment the to related and necessary is processing the the datasubjecthasgivenhisorherconsent; Security Data ProtectionIssuesandInformation transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? shall beprohibited,exceptinthefollowingcases hl b pritd ny f o otherwise not if only permitted be shall ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page117 raiain pyia ad ehia maue itne fr the for intended protection ofpersonalinformation”. measures technical and physical organization, appropriate and reasonable “implement to controllers information Data the in personal on obligation an out imposed likewise IRR of The laid Privacy Act. already standards security and and privacy principles data processing personal data personal the with other body involved in the processing of personal data shall comply or person juridical or natural any (IRR), 2012 of Act Privacy Data Under Section 67 of the Implementing Rules and Regulations of the 6. 5. 4. 3. ICLG TO: OUTSOURCING 2019 the on assignment ofthecontract. gain the on tax income to liable is assignor the case, such business outsourced In price. or consideration the a for sold/assigned is contract the unless transferring on issues tax no are There 9.1 of the where cases cases in or money depositedorinvestedisthesubjectmatteroflitigation”. officials, in public of or duty of dereliction depositor, or the of impeachment, or upon order of permission a competent court in cases of bribery written upon except office, or bureau official, government person, any by into looked or absolutely inquired examined, be an not may of and nature as confidential considered hereby are instrumentalities, its and subdivisions political its Philippines, the of Government the by institutions in the Philippines including investments in bonds issued law provides “all deposits of whatever nature with banks or banking belonging to the depositors in custody of the bank. Section 2 of the any prohibits Law properties the to relation in information any disclosing from Secrecy person Bank the or 1405 No. Act Republic 8.2 ACCRALAW © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 9 aua o lgl esn i cut rceig, r the or proceedings, court provided togovernmentorpublicauthority. when in or claims, legal of defence persons or exercise establishment, legal or natural is as of interests and rights information lawful of protection the for personal necessary such concerns processing the of level adequate a an medical or protection ofpersonalinformationisensured;or and practitioner of institution, medical a purposes treatment by medical for out carried necessary is treatment, is processing was the subject data the of obtained priortoprocessing; consent that finally, provided, and parties; third sensitive to transferred the not is that information personal further, provided, associations; their or the to related and and lawful the associations. Provided, that such processing is only confined achieve their and to organisations public of objectives necessary noncommercial is processing the to theprocessing; prior consent her or not his express to is able physically or subject legally data the and person, another or subject data the processing is necessary to protect the life and health of the osn o te aa ujcs s o rqie b lw or law by information ortheprivilegedinformation; required not is subjects regulation permitting the processing of the sensitive personal data the of the thatconsent further, provided, information; privileged the and terminating thecontract? requirements concerninginformationsecurity? Tax Issues outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory

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claims forrefundpendingwiththecourtshavebeendenied. numerous procedure, this of application strict the from Resulting ue ta te 2+0dy s adtr ad jurisdictional. and mandatory is 120+30-day the that consistently have decisions ruled Court Supreme recent 2010, in Inc. Since the landmark case of case landmark the Since of the BIR to decide on the claim within 120 days from application). for claim the refund with the file Court of Tax should Appeals within VAT30 (taxpayers days from the input failure claiming in rule 120+30-day the observe should claimant the filing, belated the For as arule,actuallyremittedintothePhilippines. Philippines, and that the payment was made in foreign currency and, the in business doing not entity foreign non-resident a for rendered were services that prove should claimant the substantiation, the For properly not is claim the (a) when: substantiated; or(b)theclaimisbelatedlyfiled. refund of failure is There subject totaxonnetincomeasopposed togrossincome). (i.e., corporation foreign resident a as Philippines the in taxable be will it such, As treaties). tax pertinent in enumerated as on carried business in which the business of the enterprise is wholly and partly ujc t zr-ae VT tee s o A laae uls the unless VATinput the refund properly to unable is VAT leakage, provider service credits. no is VAT, there zero-rated to subject i.e., entities, foreign non-resident to rendered are that services For input VAT. VATis There VAToutput the that extent the to leakage the exceeds usucn bsns my e osdrd o ae rae a created the have performing to considered enterprise be establishment permanent business may foreign business outsourcing a addition, In assessed valueofthetaxableproperties. the of cent per three to two at generally is tax property Real taxes. its VAT from passed-on the VATinput an as VAT.output used own is customer,its supplier against credit the of view of point the VAT),to subject not is VATon pass to has it customer.From its to not is VATincome compensation (since employees its by on passed 12% VAT, from the point of view of the service to provider,subject while i.e., there entities, Philippine to rendered are that services For 9.2 h tx n hi rgsee oeain a fv pr et n gross on cent per five at income, operations registered their on tax the outsourcing company, it may avail of the special tax regime limiting After the expiration of the income tax holiday of a PEZA-registered procedures. customs of simplification and importations, certain on exemptions duty and tax sales, VATexport taxation, on local zero-rating from exemption holiday, tax income include which (since Omnibus Code, the Investments under incentives company the of avails usually non-pioneer outsourcing it as activities), considered generally BOI-registered are businesses or outsourcing PEZA the an taxes, Investments (BOI) as an IT enterprise. During the first four Philippine years of of Board the or applicable PEZA the with register may minimise business outsourcing To taxes. property real and taxes, VAT, business tax, local income corporate regular may be incorporated in the Philippines. If so, it will be subject to the business outsourcing an 9.1, question in discussion the from Aside 9.3 under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices What othertaxissuesmayarise? in lieu in of all national and local taxes, except real property real except taxes, local and national all of n h Piipns ie, fxd lc of place fixed a (i.e., Philippines the in CIR v.Asia, of CIR ForgingCompany Aichi

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117 Philippines OUT19_04_07_Layout 104/07/201914:46Page118 118 Philippines ■ ■ are typical warrantiesrequiredofaservicecontractor: following the 174, DO by covered contracts outsourcing For 11.3 ■ ■ following ■ the 174, DO by stipulations arefavourablefortheoutsourcingparty: covered contracts outsourcing For 11.2 or rescission between choose can and fulfilment oftheobligation,withdamagesineithercase. remedy this exercise the of object the parties in entering into the contract. It is the defeats injured party who may already it that in be serious must or breach substantial The him. upon incumbent is what with comply not party the a should of obligations, reciprocal of resolution) event the the in contract properly, more (or, rescission of remedy the for provides Philippines the of Code Civil the of 1191 Article 11.1 transactions. outsourcing for However, credits seediscussioninquestion5.2. service and levels service There are no specific provisions in Philippine law which will govern 10.1 ACCRALAW WWW.ICLG.COM ■ ■ ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 10 that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? levels andservicecredits? services; competent and efficient, uninterrupted, provide will it that the with contractor DOLE; independent an as registered is it that be to results the to the employer. as as only described being client the avoid to direction only if accomplished, or control the and the means of performing the work, with the client having manner the control to right the of contractor the by retention employment employees’ contractor’s contracts totheclient;and the of submission Compensation Employees Home Fund, Commission, andPhilippineHealthInsurance; the System, Mutual required Security the the Development Social to all the due made to benefits has contributions other and and employees, salaries, contractor’s wages, all full in paid has contractor the once made be only will agreement service the of consideration the of payment that condition a What arethetypicalwarrantiesand/orindemnities What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice furnish theclientonaregularbasis; and will it which of list current the clients, other several fact, in has, it that and large at public the to services its offers it that its out carry to obligations underthecontract; facilities and equipment, tools, has it that contractor ofgoodstanding; its business and will maintain its status as an independent job that it has secured all the necessary licences for it to engage in Customer Remedies Service Levels

agreement. without prejudice to the solidary liability of the parties to the service fault, at party the by borne be shall contributions, mandatory legal unremitted including benefits, unpaid other and retrenchment), wages unpaid then redundancy, (e.g., Code Labor the of 298 Article service agreement and not due to any of the authorised causes under the of pre-termination the to due is employees contractor’s the of dismissal the if 174, DO by covered arrangements outsourcing For of suchaprovision. invocation upon claimed be may damages No upon. agreed period notice prior a of observance upon contract the terminate to able be will party either that stipulate normally agreement an to parties The 13.1 service the of personnel the to contractor whichitmayfailtopay. due wages the for answer will equal to the total labour costs under the subject contracts. The bond service the 174, DO contractor is required to post by a surety bond in favour of the principal covered arrangements contracting For 12.1 iniquitous. or unconscionable are these if down same the strike nevertheless may courts Philippine contract, of breach of case in awarded be to order. For example, while parties may agree on liquidated damages public or policy public custom, good to and morals, law, to contrary free are parties the not are these as long as rights, termination respective their stipulate however, law, applicable by prevented specifically Unless arrangement. contracting every into read are Generally, local laws, especially the Labor Code and the Civil Code, 13.3 rights. termination additional upon agree or exclude may parties Yes,the 13.2 ■ 13 12 for damagesfromtheterminatedparty? transaction? to seeinanoutsourcingcontract? termination rights? terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional odtos lbu sadrs n bnft, ih t self- to right benefits, working organisation, andrighttosecurityoftenure. and healthy and standards 174 safe labour DO to, conditions, and limited Code not Labor but the including, under benefits their and all of rights employees its by enjoyment ensure will it that Termination Insurance

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OUT19_04_07_Layout 104/07/201914:46Page119 and otherconfidentialbusinessinformation. laws and jurisprudence recognise the confidentiality of trade secrets local secrets, trade protecting law specific no is there While Yes. 14.2 agreement betweentheparties. agreement. licensing outsourcing the by governed be should relationship outsourcing the or contract during created are that a rights IP new or rights IP of (2) Improvements and/or 8293), No. Act (Republic Philippines the of Code (IP) Property Intellectual the (1) by protected be may party each of rights property intellectual The 14.1 ACCRALAW ICLG TO: OUTSOURCING 2019 or publicorder. policy,public custom, good and law,morals to contrary not is it as as they see fit, including a limitation or exclusion of liability, as long The parties are generally free to stipulate such terms and conditions 15.1 obtained inthetransactionwithsupplier. knowledge the the public agreement, making for non-disclosure liability no a have may customer of absence and the In agreement warranties. by established on provision any to subject be expiration, latter’s the upon terminates may creations supplier’s a regarding intellectual information access to right customer’s A 14.4 outsourcing the the contract,unlessotherwiseagreedupon. under obligation customer’s agreement. Thus, these rights are terminated upon the expiration of the from arise only rights IPcustomer’s the use to supplier the of rights The No. 14.3 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 15 can itmakeofit? and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? under nationallaw? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty supplier's know-howpost-terminationandwhatuse To whatextentcanapartylimitorexcludeliability To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto Intellectual Property Liability

arbitration. by covered be may that issue an as law by excluded those among not is matter subject the if resolution, dispute of mode alternative an as arbitration, for submitted be may agreement or contract the from arising disputes that stipulate also may Parties dispute. the of matter subject the on depending agencies administrative or judicial quasi- or courts Philippine to submitted are disputes Primarily,the 16.1 above willnotapplytothesemoneyclaims. mentioned cap The contractor. the and principal the between 174 DO by provided liability several and joint the to due claims money unpaid of payment for contractor service the or principal the either after go may employees, contractor’s the particularly parties, third the service contractor in an arrangement covered by DO 174. Thus, and principal the between only applies Moreover,cap financial this been partiallyperformed. be iniquitous or unconscionable or when the principal obligation has to found are same the if courts Philippine by reduced be may contract, these of breach damages, for indemnity liquidated or penalty upon as intended agreed whether have parties liability. the on cap if financial However, a on agree to free are parties the Yes, 15.2 n h promne f hi dte ms at n od faith. good in act must duties their of performance the in Yes.Under persons Philippines, the of Code Civil the of 19 Article 17.1 of afamilyshallberequired. observed the in the performance, that which is of expected of a good father nature the by obligation. required If the contract does not state the diligence which diligence is to be that exercise for service to render or failing to obliged fault party the imputes of part Code the on same negligence the of 1173 Article Additionally, 16 17 used? liability? reasonableness undergenerallaw? What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Dispute Resolution Good Faith

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119 Philippines OUT19_04_07_Layout 104/07/201914:46Page120 120 Philippines ACCRALAW WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd Practice Areas Affiliations University ofSingapore/KennedySchoolGovernment1999. National Productivity – Negotiations on Asian Programme Cooperation, 2000. Japan, Management Organization, Labor 2005. USA, Special Studies: Academy of American and International Law, Dallas, of Education Litigation Outsourcing; Acquisitions; Employment RelatedClaims. and Mergers Relations; efficient administrationandexperthandlingofclients’ requirements. solutio legal strategic and timely,creative, offer which branches, three its and departments practice seven are clients Firm’s bot for transactions and ACCRALAW’s projects clientele represents the full spectrum of business business and industry, and includes professional complex organisations and individ and significant, diverse, handling in record multinational clients,andhasbeeninvolvedinlandmarklitigationcases. track excellent an has Firm The Metro Manila.Ithasfull-servicebranchesinthethrivingcommercialcentresofCebuCityVisayas andDavaoCityinMi Glo Bonifacio developed newly the TowerACCRALAWthe in at located are offices main Its Community. In-House and Business Legal t of Firm Law Philippine the as recognised was it 2018, In lawyers. 170 than more with Firm full-service leading a ACCRALAWis on Guides Practical Global Restrictive Outsourcing andEmploymentpublishedby Chambers 2019 on the Association; Survey Bar International American the by Law, Employment 2010 in Secrets Trade and Covenants the Littler LLP; by Law Mendelson Labor and Employment International to Screening, Guide the 2008 Recruiting, Kluwer; Wolters by Global published Criteria, Interviewing on and Testing Handbook 2007 Association’s Publications Past Association; Philippines; the Bar Employer Representative, National of Tripartite Industrial Peace Council. Association Philippine Management Personnel President, President, Past Association; L.. B (scooy – nvriy f h Philippines. the of University – (Psychology) BS LL.B., : C-hi, ea Patc Cmite ItrPcfc Bar Inter-Pacific Committee, Practice Legal Co-Chair, : Piipn Catr uhr te nentoa Bar International the – Author Chapter Philippine : : Appeals; Employment and Labour Standards; Labour Second Avenue corner30 22 Law Offices (ACCRALAW) Angara Abello ConcepcionRegala&Cruz Emerico O.deGuzman URL: Email: Tel: The Philippines 1635 Taguig, MetroManila Crescent ParkWest, BonifacioGlobalCity nd Floor, ACCRALAW Tower

www.accralaw.com [email protected] +632 8308000

Chambers &Partners

Street

Affiliations International Law, Dallas,USA,2007. Course on American and International Law, Academy of American and and the Philippines 1993. LL.B., San Beda College 1999. Special Course: Mergers Employment; Education and Labour Acquisitions; andWorkers’ Compensation. Benefits; Employee Areas Practice Asia BusinessLawJournal the to contributor a also Employment “Doing Business in Secrets Trade & Covenants Restrictive on “ LLP; Mendelson, Littler by published (2010), Philippine chapters of “ Publications the and Fraternity Dallas Alumni Beta Association Rho Lambda Society, Honor International : : Integrated Bar of the Philippines (IBP), Phi Gamma Mu Gamma Phi (IBP), Philippines the of Bar Integrated : Magna cum laude cum Magna C-uhrd eea atce o lbu, nldn the including labour, on articles several Co-authored : pelt Patc; uies rcs Outsourcing; Process Business Practice; Appellate : ” (various years), published by the World Bank. He is International Guide on Labor and Employment Asian Mena Magazine, Business World, and World, Business Magazine, Mena Asian Second Avenue corner30 22 Law Offices (ACCRALAW) Angara Abello ConcepcionRegala&Cruz Neptali B.Salvanera URL: Email: Tel: The Philippines 1635 Taguig, MetroManila Crescent ParkWest, BonifacioGlobalCity

. ICLG TO: OUTSOURCING 2019 nd Floor, ACCRALAW Tower , BA (Political Science) – University of University – Science) (Political BA , www.accralaw.com [email protected] +632 8308000

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■ ■ ■ alternative make to Some oftherequirementsunderOutsourcingGuidelinesare: or measures, additional arrangements, ortore-integrateanoutsourcedserviceintotheFI. out carry to FI an FI’s observance of the Outsourcing Guidelines, it may require the While FIs are permitted to outsource, if the MAS is dissatisfied with or reputationofaninstitutionbeingcompromisedweakened. not result in the risk management, internal control, business conduct A key guiding principle is that an outsourcing arrangement should arrangement outsourcing an that is principle guiding key A n Ntc o TM N. M-0) lo mat outsourcing impact also CMG-N02) transactions made byFIs. (No. TRM on Notice and higher Guidelines TRM MAS the Guidelines, Outsourcing the and from Apart data-commingling multi-tenancy, propensity forprocessingtobecarried outinmultiplelocations. e.g. services, cloud of characteristics prohibited. the from arising not risks active the address take to are steps to FIs and require Guidelines outsourcing Outsourcing of the However, form a as considered are services cloud that state expressly Guidelines Outsourcing The ■ ■ establishing a framework of responsibilities of the FI’s board ■ ■ ■ ■ in should Clauses stages. particular beincludedtodealwiththefollowing: diligence due and evaluation agreement outsourcing provisions to address the risks identified at the risk their in include should FIs enforceability. and in conditions and theoutsourcing agreement, which should be vetted for legality terms contractual the defining carefully service providers; potential on diligence due appropriate conducting for evaluatingtherisksofanyoutsourcingarrangement); framework a establishing (including management senior and arising fromitsoutsourcingarrangements. developments adverse any of MAS the notify should FI an and outsourcing; cross-border from arise and may which social – political economic, – risks country the of consideration ■ ■ ■ audit material and inspection – including by the MAS or its agents; of register a outsourcing arrangementsshouldbemaintained; particular in outsourcing an and of arrangement review, periodic including control, and management the for structure a establish should FI an – arrangements outsourcing of control and monitoring not is continuity compromised byoutsourcingarrangements; business its that ensure things) other business continuity management – an FI should (amongst confidentiality andsecurity; sub-contracting; default terminationandearlyexit; notification ofadversedevelopments;

David TeoShihYee

Yeoh LianChuan

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121 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 121

Chapter 17 Singapore Yeoh Lian Chuan

Sabara Law LLC (a member of the Deloitte Legal Network) David Teo Shih Yee

A key guiding principle is that an outsourcing arrangement should 1 Regulatory Framework not result in the risk management, internal control, business conduct or reputation of an institution being compromised or weakened. 1.1 Are there any national laws or regulations that While FIs are permitted to outsource, if the MAS is dissatisfied with specifically regulate outsourcing transactions, either an FI’s observance of the Outsourcing Guidelines, it may require the generally or in relation to particular types of FI to carry out additional measures, or to make alternative outsourcing transactions (e.g. business process arrangements, or to re-integrate an outsourced service into the FI. outsourcings, IT outsourcings, telecommunications outsourcings)? Some of the requirements under the Outsourcing Guidelines are: ■ establishing a framework of responsibilities of the FI’s board No. However, there are certain sector-specific rules and regulations, and senior management (including establishing a framework particularly in the financial services sphere. for evaluating the risks of any outsourcing arrangement); ■ conducting appropriate due diligence on potential service providers; 1.2 Are there any additional legal or regulatory ■ carefully defining the contractual terms and conditions in requirements for outsourcing transactions theoutsourcing agreement, which should be vetted for legality undertaken by government or public sector bodies? and enforceability. FIs should include in their outsourcing agreement provisions to address the risks identified at the risk Public procurement is governed primarily by the Government evaluation and due diligence stages. Clauses should in Procurement Act (Chapter 120 of Singapore) and related particular be included to deal with the following: regulations. ■ confidentiality and security; In addition, the Singapore Ministry of Finance (MOF) is ■ business continuity management – an FI should (amongst responsible for the Government Procurement policy framework, other things) ensure that its business continuity is not which governs how Singapore Government agencies carry out their compromised by outsourcing arrangements; procurement within the framework. ■ monitoring and control of outsourcing arrangements – an To align with international standards and obligations, the framework FI should establish a structure for the management and seeks to establish a transparent procurement system which ensures control, including periodic review, of an outsourcing fair competition between suppliers and allows procurement from arrangement and in particular a register of material outsourcing arrangements should be maintained; sources which offer the best value for money. ■ audit and inspection – including by the MAS or its agents; Furthermore, the MOF has prescribed a public procurement process which requires approvals to be sought at various stages. This to ■ notification of adverse developments; ensure that there are checks and balances in the system. Please see ■ default termination and early exit; and the response to question 3.1 below. ■ sub-contracting; ■ consideration of the country risks – economic, social and political – which may arise from cross-border outsourcing; 1.3 Are there any additional legal or regulatory and requirements for outsourcing transactions undertaken in particular industry sectors, such as for ■ an FI should notify the MAS of any adverse developments example the financial services sector? arising from its outsourcing arrangements. The Outsourcing Guidelines expressly state that cloud services are Financial Services considered as a form of outsourcing and are not prohibited. Financial institutions (FIs) are regulated by the Monetary Authority However, the Outsourcing Guidelines require FIs to take active of Singapore (MAS). The MAS has issued various regulatory steps to address the risks arising from the characteristics of cloud instruments to govern outsourcing. services, e.g. multi-tenancy, data-commingling and higher propensity for processing to be carried out in multiple locations. In particular, the MAS Guidelines on Outsourcing (Outsourcing Guidelines) set out the MAS’s expectations of an FI with respect to Apart from the Outsourcing Guidelines, the MAS TRM Guidelines outsourcing arrangements. and Notice on TRM (No. CMG-N02) also impact outsourcing transactions made by FIs.

ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 121 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page122 122 Singapore uh srcue los o lcl evc areet t be to agreements service local for allows accommodated undermulti-jurisdictional arrangements. structure a such addition, In services. further of addition the facilitate to adopted be also may structure agreement services master or framework A ■ ■ ■ ■ ■ of form may include: some These customer. and include supplier a between would relationship contractual transactions outsourcing Most 2.1 governing law(mostoftenEnglishlaw). include the law of one of the parties (e.g. the supplier) or a “neutral” would alternatives common more the used, not is law Singapore If No, thereisnosuchrequirement. 1.4 Singapore. outside function connection outsourced an of performance the with in information customer of respectively, disclosure is banks, there merchant where and banks to apply for Outsourcing) Conditions Secrecy, (Banking 1108 and 634 Notices MAS’s Sabara LawLLC(amemberoftheDeloitteLegalNetwork) WWW.ICLG.COM right orprivilegeunderthelicence. the licence, or confer upon a person who is not the licensee a of benefit, disposition other or subletting transfer, effectively assignment, an to in result is arrangement outsourcing an of effect the where required be may approvals example, for outsourcing, impact may licence telecommunications a under conditions certain However, operator fromoutsourcing. and Singapore) telecommunications a prohibit generally of not do regulations related 323 (Chapter Act Telecommunications Info- The Singapore the of by Authority (IMDA). Development regulated Media are communications operators Telecommunications Telecommunications ABS Outsourced for issued Service Providers. Procedures also & Objectives has Control Singapore on in Guidelines Banks of Association The banks andmerchantbanks. certain refinements to the regulation of outsourcing arrangements of proposing Banks” Merchant and Banks consultation by “Outsourcing a on paper released MAS the 2019, February 7 on Recently, © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 2 used foranoutsourcingtransaction? the choiceofgoverninglaw? utmr ihs o ean rae ivleet n the in use ofacaptiveentity. involvement greater the retain where outsourcing arrangement;or to used be wishes may customer these – arrangement cooperation contractual or partnership venture, joint of form some prime contractor/sub-contractormodel; customer the requirement; where total its of parts model, separate for differentsuppliers with engages outsourcing multi-vendor direct/single sourceoutsourcingmodel; Legal Structure law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot What arethemostcommontypesoflegalstructure Is therearequirementforanoutsourcingtransaction

■ ■ the level ■ high a at but case-to-case, procurement processmayinvolvethefollowingstages: a from select vary to used will process supplier procurement the sector, private the In 3.1 There isnogenerallegalstipulation onthis. 4.1 Public sector ■ 4) Thereafter, anaward noticewillbepublishedonGeBIZ. from the evaluating officer(s) before accepting the recommendation. clarifications the seek may and justifications and recommendation officer(s) evaluating the bids. The approving authority considers the differentbe must officer(s)bid the the of from award the approving Notably,the officers. three least at of board tender a by approved are tenders officerwhereas one least at by approved are Quotations 3) for be evaluatedholistically. authority approving relevant consideration. Under the principle of value for money, the the bids will officers to more recommendation or their one making before tender) by or quotation a evaluated is it whether on be (depending to are bids Suppliers’ 2) ■ ■ may ■ process procurement procurement. Tenders cantaketheformof: the of value estimated the the on based typically is This relevant before commence. the by authority approved be approving must procurement intended Any 1) stages: The public procurement process can generally be separated into four all administrativedutiesassociatedwiththecontract. performing includes This stage. crucial a is management Contract 3 4 process thatisusedtoselectasupplier? minimum termforanoutsourcing contract? Assessment ofbidsreceivedandshort-listing. suppliers, orinitiateacompetitivetender. potential more or one approach directly may customer The potential of a list a draws-up compiles suppliers. and diligence and due conducts information gathers (possibly) and outsourced be to activities the of specification customer The Negotiation withoneormorepotentialsuppliers. Procurement Process Term ofanOutsourcing Agreement What isthemostcommontypeofprocurement Does nationalorlocallawimpose anymaximumor Contract Management Approval of Award Evaluation by invitationonlytooneorafewsuppliers. security.tenders national are concerning They those as such projects discreet more for used are Tenderswhich Limited – complicated purchases withsophisticatedrequirements. more for used are which – Tenders Selective on therequirementsstipulated. based bid to supplier interested the any invite to website GeBIZ on openly notices Tender of posting mechanism. the default involves general This the is which – Tenders Open Sourcing

ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page122 122 Singapore WWW.ICLG.COM ■ ■ of form may include: some These customer. and include supplier a between would relationship contractual transactions outsourcing Most 2.1 governing law(mostoftenEnglishlaw). include the law of one of the parties (e.g. the supplier) or a “neutral” would alternatives common more the used, not is law Singapore If No, thereisnosuchrequirement. 1.4 Singapore. outside function connection outsourced an of performance the with in information customer of respectively, disclosure is banks, there merchant where and banks to apply for Outsourcing) Conditions Secrecy, (Banking 1108 and 634 Notices MAS’s Sabara LawLLC(amemberoftheDeloitteLegalNetwork) ■ ■ uh srcue los o lcl evc areet t be to agreements service local for allows accommodated undermulti-jurisdictional arrangements. structure a such addition, In services. further of addition the facilitate to adopted be also may structure agreement services master or framework A ■ right orprivilegeunderthelicence. the licence, or confer upon a person who is not the licensee a of benefit, disposition other or subletting transfer, effectively assignment, an to in result is arrangement outsourcing an of effect the where required be may approvals example, for outsourcing, impact may licence telecommunications a under conditions certain However, operator fromoutsourcing. and Singapore) telecommunications a prohibit generally of not do regulations related 323 (Chapter Act Telecommunications Info- The Singapore the of by Authority (IMDA). Development regulated Media are communications operators Telecommunications Telecommunications ABS Outsourced for issued Service Providers. Procedures also & Objectives has Control Singapore on in Guidelines Banks of Association The banks andmerchantbanks. certain refinements to the regulation of outsourcing arrangements of proposing Banks” Merchant and Banks consultation by “Outsourcing a on paper released MAS the 2019, February 7 on Recently, 2 ut-edr usucn mdl wee h customer the requirement; where total its of parts model, separate for differentsuppliers with engages outsourcing multi-vendor direct/single sourceoutsourcingmodel; prime contractor/sub-contractormodel; utmr ihs o ean rae ivleet n the in involvement greater the retain where outsourcing arrangement;or to used be wishes may customer these – arrangement cooperation contractual or partnership venture, joint of form some use ofacaptiveentity. Legal Structure used foranoutsourcingtransaction? What arethemostcommontypesoflegalstructure the choiceofgoverninglaw? law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction

Thereafter, anaward noticewillbepublishedonGeBIZ. may ■ process procurement procurement. Tenders cantaketheformof: the of value estimated the the on based typically is This relevant before commence. the by authority approved be approving must procurement intended Any 1) stages: The public procurement process can generally be separated into four Public sector ■ ■ ■ the level ■ high a at but case-to-case, procurement processmayinvolvethefollowingstages: a from select vary to used will process supplier procurement the sector, private the In 3.1 There isnogenerallegalstipulation onthis. 4.1 4) from the evaluating officer(s) before accepting the recommendation. clarifications the seek may and justifications and recommendation officer(s) evaluating the bids. The approving authority considers the differentbe must officer(s)bid the the of from award the approving Notably,the officers. three least at of board tender a by approved are tenders officerwhereas one least at by approved are Quotations 3) for be evaluatedholistically. authority approving relevant consideration. Under the principle of value for money, the the bids will officers to more recommendation or their one making before tender) by or quotation a evaluated is it whether on be (depending to are bids Suppliers’ 2) ■ ■ all administrativedutiesassociatedwiththecontract. performing includes This stage. crucial a is management Contract 4 3 on therequirementsstipulated. based bid to supplier interested the any invite to website GeBIZ on openly notices Tender of posting mechanism. the default involves general This the is which – Tenders Open Sourcing Negotiation withoneormorepotentialsuppliers. Assessment ofbidsreceivedandshort-listing. suppliers, orinitiateacompetitivetender. potential more or one approach directly may customer The potential of a list a draws-up compiles suppliers. and diligence and due conducts information gathers (possibly) and outsourced be to activities the of specification customer The Contract Management Approval of Award Evaluation by invitationonlytooneorafewsuppliers. security.tenders national are concerning They those as such projects discreet more for used are Tenderswhich Limited – complicated purchases withsophisticatedrequirements. more for used are which – Tenders Selective Term ofanOutsourcing Agreement Procurement Process process thatisusedtoselectasupplier? What isthemostcommontypeofprocurement minimum termforanoutsourcing contract? Does nationalorlocallawimpose anymaximumor

ICLG TO: OUTSOURCING 2019

Singapore

OUT19_04_07_Layout 104/07/201914:46Page123 ■ ■ ■ ■ ■ Charging modelsinclude: ■ ■ ■ ■ the factualcircumstance,including: on depend will much and variable are used methods charging The 5.1 There isnogenerallegalstipulationonthis. 4.2 Sabara LawLLC(amemberoftheDeloitteLegalNetwork) ICLG TO: OUTSOURCING 2019 in this for formalities prescribed no general, althoughawritteninstrument isgenerallyrecommended. are There novated. being by assigned or rights and obligations under the contract may be transferred be may contract a under rights contract, the of terms the on Depending Property Intellectual the Office ofSingapore( with registration and forms prescribed of use the involve trademarks) or patents of transfers as (such cases being is some in may and writing in that be should IP of licences and Transfers asset the on depend transferred, leasedorlicensed. required formalities The 6.1 ■ ■ ■ ■ ■ ■ These mayinclude: 5.2 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 6 5 license assetsonanoutsourcingtransaction? outsourcing transactions? outsourcing transactions? outsourcing contract? Outcome-based pricing. Headcount orfull-time-equivalent(FTE)basedpricing. Unit ortransaction-basedpricing. Fixed price(withorwithoutadditional“bonus”provisions). Cost plusmodel. the bargaining poweroftheparties. the risksbornebyeachparty;and whether thearrangementisexclusive; the natureofservice; ehnss o piig hne t te cp o services of scope pursuant tothecontract’s changeapprovalmechanisms. the to changes pricing for Mechanisms reveals adiscrepancybetweenreportedandactualcosts). the costs of bear the audit, potentially depending on whether the audit would party which to as made be may provisions consequential (and provider service the of records of Audit the in suppliers other market. of fees the against Benchmarking Indexation offees(e.g.forinflation). to meetagreedperformancestandards. Provision for the consequences of late payment, or for failure made underthecontract. Payment terms addressing when and how payments would be Transfer of Assets Charging What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof What formalitiesarerequiredtotransfer, lease or What otherkeytermsareusedinrelationtocosts

IPOS).

confidence. of law general the under obligations and 8.1) question to the response see please which (for data personal concerning requirements No formalities apply to the transfer of data or information except for otcmlto mtes ol icue eitain f asset of registration include transfers andpaymentofstampduty. would matters Post-completion 6.3 the electroniccopyinSingapore. of receipt or execution of date the from run to starts time and duty stamp to liable equally is instrument electronic An Singapore. in if executed outside Singapore, within 30 days after it is first received Stamp duty must be paid 14 days after the instrument is executed or, to relating instruments on immovable property. payable by often would duty Stamp short-term lease), registration with an a the Singapore Land Registry may or be involved. is land in it interest long-term whether a (e.g. of conveyance transaction absolute the of nature the on Depending the useofaprescribedform,ismandatory. or deed, a cases some in and writing in be should land in Dealings 6.2 However, criminalliabilitieswillnotbetransferred. will betransferredtothetransferee. service of contract the under liabilities and rights the all general, In and there willbenobreakintheperiodofemployment. transferee, the and employee the between made originally if effectas have transfer shall the service after of contract the Instead, the terminate to operate not contract ofservicebetweenthetransferorandemployee. does undertaking of transfer The 7.2 of law. operation by employees of transfer the in result itself, of and in not, does provider service outsourcing an of appointment the However, the in transfer of the employees results involved in the undertaking (or part thereof). automatically another to employer one from thereof) part (or undertaking an of transfer the EA, the of 18A Section Under statutory board employees and civil servants, are covered ( by the EA. workers, domestic seafarers, of Singapore) exception the with employees, All of 91 (Chapter Singapore’s mainlabourlaw. Act Employment The 7.1 See theresponsestoquestions6.1and6.2above. 6.4 7 take place? Employment Law What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered?

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123 Singapore OUT19_04_07_Layout 104/07/201914:46Page124 124 Singapore North Koreaand Iran). as (such countries sanctioned Nations United with from persons/entities dealing from prohibited are Singapore or in entities However, prohibited legally not is restricted. outsourcing offshore Generally, 7.7 not affected byoutsourcingarrangements. generally and portable contribution, therefore and defined scheme, fund individual-account-based, provident an is CPF The work pass(suchasanemploymentorpermit). a on Singapore in working foreigners not but Residents, Permanent Singapore or Singaporean of respect in required are Contributions 36 ofSingapore). and employees, pursuant to the Central Provident Fund employers Act (Chapter from contributions by funded scheme savings social security mandatory a is system (CPF) Fund Provident Central The Generally, no. 7.6 the originalcontractofservice. agree to terms of service which are different from those contained in Yes, the supplier and a transferring employee may negotiate for and 7.5 of grounds the termsofemploymentcontractandprovisionsEA. the on employee an redundancy or retrenchment, but it must ensure that terminate it complies with may employer An 7.4 enable thetransferortoperformdutyimposedonhim. to as so information such transferor the give shall transferee The ■ ■ ■ the tradeunionofaffected employees(ifany)of: To enable this, the transferor shall notify the affected employees and of affected employees(ifany). the affected employees, and between the transferor and a trade union and transferor the between place take should consultations occurs, As soon as it is reasonable and before a transfer by operation of law 7.3 Sabara LawLLC(amemberoftheDeloitteLegalNetwork) WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd provide toeachother? existing workforce? employee forareasonconnectedtotheoutsourcing? h tasee atr h tase o, f e niae ta no that envisages measures will be so taken, this fact should he be communicated. if or, transfer the after transferee the in will, he employees as, by virtue of the transfer, become employees of envisages transferee those of such the to relation transfer,in the take with connection that be measures should the fact this taken, so be communicated; and will measures no that envisages he or,if employees affected the to relation in take the transfer, that the with connection in measures will, he envisages transferor the and transfer the of implications the on whichitistotakeplaceandthereasonsforit; the fact that the transfer is to take place, the approximate date Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties

There isnoprescribedorstandardformwhichmustbeused. obligation. direct a as this impose PDPAnot the does though even outsourcing contract between an organisation and its data processor, an in included effect,be in must result, clauses a protection As data data itself. its on behalf by processed a data processor as if the organisation were is processing the which data personal of respect in obligations above the observe to organisation an on PDPAduty The a imposes ■ ■ post themabroadwithoutfurtherdiscussionandconsent. to transferee the allow not may and employment local for be would and in the case of an outsourcing outright sale of business, the employees’ an contracts of appointment an service provider does not trigger any Singapore mandatory transfer of employees, in above, noted As ■ ■ ■ ■ ■ the observe following obligations: to required are organisations things, other Amongst Personal dataprotectioninSingaporeisgovernedbythePDPA. Personal data service outsourcing an to provider. etc. to information, right the customer to apply transfer also may confidence of law common The obligations. confidentiality statutory to subject are companies trust and firms securities banks, a as such institutions financial certain addition, In Data Protection Act (No.26of2012)( Outsourcing transactions may attract the application of the Personal 8.1 defined as energy, info-communications, water, healthcare, banking ( Infrastructure ( 2018) of 9 imposes cybersecurity obligations on owners of (No. Critical Information Act Cybersecurity The 8.2 8 esnl aa rnfre otie f igpr ta is that Singapore of outside “comparable” tothelevelofprotectionunderPDPA. transferred data personal to protection of standard a for provide transfers, data border Obligation Limitation Transfer or legal legitimate for necessary business purposes. is than longer for data Obligation Limitation Retention disclosure, use, collection, copying, modification,disposalorsimilarrisks”. to access, arrangements unauthorised security prevent reasonable “making by secure transaction? requirements concerninginformation security? Protection Obligation Accuracy Obligation Access andCorrection Obligation . reasonable purposes. Purpose Limitation Obligation Limitation Purpose and obtainconsentfromtheindividual. data, personal the collecting before or on data personal their of disclosure or use collection, the for purpose the regarding individual the Notify – Obligation Notification & Consent Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereindependentlegaland/or regulatory

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OUT19_04_07_Layout 104/07/201914:46Page125 n h cs o ast wih a ejyd aia alwne, a allowances, capital enjoyed had which assets of case the In However, afewbriefpointsmaybenoted. ess ivlig neet i imvbe rpry r tcs and stocks or shares. property immovable in interests involving leases, and dispositions including transactions, on payable is duty Stamp Stamp Duty a doubletaxtreaty. applies under local tax law or the tax is eliminated or reduced under payments such and resident, would be subject to Singapore withholding tax, tax unless an exemption non-Singapore a to Singapore in establishment permanent or resident tax a others) (amongst by technical fees) are deemed to be Singapore-sourced income if made Withholding Tax if GST wouldbecharged onanytransferofassets. determine to undertaken be should examination close a so and many cases an outsourcing arrangement may not satisfy this criteria, in as but concern”, going a of “transfer a of part as made Supplies goods orservices,unlessanexemptionapplies. The transfer of assets to the supplier may involve a taxable supply of Goods andServices Tax (GST) transfer mayresultinabalancingcharge orbalancingallowances. Singapore doesnotimposetaxongainsofacapitalnatureassuch. although gains, taxable produce may assets certain of transfer The Income Tax outside thescopeofthisresponse. the outsourcing transaction, and a comprehensive analysis would be ■ maritime, government,andmedia. eti pyet (uh s oat, neet mngmn fees, management interest, royalty, as (such payments Certain The obligationsofaCIIownerinclude: ICLG TO: OUTSOURCING 2019 Yes, there couldbe. 9.2 The tax issues which may arise will depend on the legal structure of 9.1 ■ ■ ■ transport, land aviation, emergency, and security finance, and Sabara LawLLC(amemberoftheDeloitteLegalNetwork) ■

■ ■ 9 opyn wt rlvn cds f rcie eg the (e.g. practice of codes relevant with complying causing audits of the compliance of the CII with the Act, the with CII applicable codesofpracticeandstandardsperformance; the of compliance the of audits causing the to CII of Commissioner; respect Cybersecurity in incidents cybersecurity reporting the after of days legal seven than or laterchangeinownership; beneficial not CII Commissioner the the of in ownership changes of the (Commissioner) informing and writtendirectories; performance of standards Practice), of Code Cybersecurity Tax Issues Is thereanyVAT leakageonthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring under theoutsourcingcontract? participating incybersecurityexercises. Commissioner; and providing copies of reports of audits and assessments to the to assessments and audits of reports of copies providing undertaking cybersecurityriskassessmentsoftheCII;

the mainagreement(e.g.tofacilitatemodification). agreement, outsourcing to schedule separate a in the or contract, the of body main the in either in documented be then would This indicators ( The equivalent of the Value-Addedthe ( Tax of equivalent The unable torecoverinputtaxinfull). in persons are who persons GST-registered(i.e. persons exempt partially are which Singapore persons) other (amongst from to supplied are overseas which services imported for charge reverse a However, with effect from 1 January 2020, Singapore will introduce in “belongs” supplier the where Singapore forGST purposes. chargeable is GST that is rule supply” of “place the general the services, of full, supplies to respect With in tax input the recover to outsourcing arrangementmayresultinGST leakage. unable is recipient the If facts and circumstances, i.e. whether it is a partially exempt person. its on depend would tax input claim to recipient the of ability the GST,to and subject supplies taxable are services outsourcing Most Act, GST the in defined Chapter 117A (as ofSingapore)arezero-rated(GST ischarged at0%). services” “international for GST much how economy, the existing taxesare”. [Singapore’s] buoyant of how and state grow expenditures the [Singapore’s] “on depending 2025, to The 2021 from time some 9% to rate GST the 7%. raise to 2018 Budget at is rate GST current Singapore government has announced its intention in the Singapore The Singapore. in services and goods of supply the things) other (amongst on levied is GST GST. of breachbythesupplier: event the in customer the on following the confer may contract The 11.2 ■ ■ ■ The maincontractualremediesunderthegenerallawwouldbe: 11.1 ( indicators performance critical (e.g. performance supplier’s the of indicators measurable and objectives and levels, services deliverables, coverage, service the Generally, 10.1 a of existence the to relating issues “permanent establishment”mayarise. case, cross-border a In 9.3 11 10 qial rmde (uh s nucin r specific or injunction Termination ofthecontractfor repudiatorybreach. as (such performance). remedies Equitable Damages. levels andservicecredits? What additionalprotectionscould beincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice What othertaxissuesmayarise? contract documentationtoprotect thecustomer? Customer Remedies Service Levels KPIs)) wouldbeagreedbetweentheparties.

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VAT WWW.ICLG.COM ) in Singapore is the is Singapore in ) Singapore

125 Singapore OUT19_04_07_Layout 104/07/201914:46Page124 124 Singapore WWW.ICLG.COM North Koreaand Iran). as (such countries sanctioned Nations United with from persons/entities dealing from prohibited are Singapore or in entities However, prohibited legally not is restricted. outsourcing offshore Generally, 7.7 not affected byoutsourcingarrangements. generally and portable contribution, therefore and defined scheme, fund individual-account-based, provident an is CPF The work pass(suchasanemploymentorpermit). a on Singapore in working foreigners not but Residents, Permanent Singapore or Singaporean of respect in required are Contributions 36 ofSingapore). and employees, pursuant to the Central Provident Fund employers Act (Chapter from contributions by funded scheme savings social security mandatory a is system (CPF) Fund Provident Central The Generally, no. 7.6 the originalcontractofservice. agree to terms of service which are different from those contained in Yes, the supplier and a transferring employee may negotiate for and 7.5 of grounds the termsofemploymentcontractandprovisionsEA. the on employee an redundancy or retrenchment, but it must ensure that terminate it complies with may employer An 7.4 enable thetransferortoperformdutyimposedonhim. to as so information such transferor the give shall transferee The ■ ■ ■ the tradeunionofaffected employees(ifany)of: To enable this, the transferor shall notify the affected employees and of affected employees(ifany). the affected employees, and between the transferor and a trade union and transferor the between place take should consultations occurs, As soon as it is reasonable and before a transfer by operation of law 7.3 Sabara LawLLC(amemberoftheDeloitteLegalNetwork) h tasee atr h tase o, f e niae ta no that envisages measures will be so taken, this fact should he be communicated. if or, transfer the after transferee the in will, he employees as, by virtue of the transfer, become employees of envisages transferee those of such the to relation transfer,in the take with connection that be measures should the fact this taken, so be communicated; and will measures no that envisages he or,if employees affected the to relation in take the transfer, that the with connection in measures will, he envisages transferor the and transfer the of implications the on whichitistotakeplaceandthereasonsforit; the fact that the transfer is to take place, the approximate date Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? existing workforce? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan provide toeachother? What employeeinformationshouldtheparties

■ There isnoprescribedorstandardformwhichmustbeused. obligation. direct a as this impose PDPAnot the does though even outsourcing contract between an organisation and its data processor, an in included effect,be in must result, clauses a protection As data data itself. its on behalf by processed a data processor as if the organisation were is processing the which data personal of respect in obligations above the observe to organisation an on PDPAduty The a imposes ■ defined as energy, info-communications, water, healthcare, banking post themabroadwithoutfurtherdiscussionandconsent. to transferee the allow not may and employment local for be would and in the case of an outsourcing outright sale of business, the employees’ an contracts of appointment an service provider does not trigger any Singapore mandatory transfer of employees, in above, noted As ■ ■ ■ ■ ■ the observe following obligations: to required are organisations things, other Amongst Personal dataprotectioninSingaporeisgovernedbythePDPA. Personal data service outsourcing an to provider. etc. to information, right the customer to apply transfer also may confidence of law common The obligations. confidentiality statutory to subject are companies trust and firms securities banks, a as such institutions financial certain addition, In Data Protection Act (No.26of2012)( Outsourcing transactions may attract the application of the Personal 8.1 Infrastructure ( Infrastructure ( 2018) of 9 imposes cybersecurity obligations on owners of (No. Critical Information Act Cybersecurity The 8.2 8 Retention Limitation Obligation Limitation Retention disclosure, use, collection, copying, modification,disposalorsimilarrisks”. to access, arrangements unauthorised security prevent reasonable “making by secure esnl aa rnfre otie f igpr ta is that Singapore of outside “comparable” tothelevelofprotectionunderPDPA. transferred data personal to protection of standard a for provide transfers, data border Obligation Limitation Transfer or legal legitimate for necessary business purposes. is than longer for data Protection Obligation Accuracy Obligation Access andCorrection Obligation . reasonable purposes. Obligation Limitation Purpose and obtainconsentfromtheindividual. data, personal the collecting before or on data personal their of disclosure or use collection, the for purpose the regarding individual the Notify – Obligation Notification & Consent Security Data ProtectionIssuesandInformation transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereindependentlegaland/or regulatory requirements concerninginformation security?

) used to provide “essential services” – currently – services” “essential provide to used CII)

yescrt Act) Cybersecurity Singapore

OUT19_04_07_Layout 104/07/201914:46Page125 ess ivlig neet i imvbe rpry r tcs and stocks or shares. property immovable in interests involving leases, and dispositions including transactions, on payable is duty Stamp Withholding Tax if GST wouldbecharged onanytransferofassets. determine to undertaken be should examination close a so and many cases an outsourcing arrangement may not satisfy this criteria, in as but concern”, going a of “transfer a of part as made Supplies goods orservices,unlessanexemptionapplies. The transfer of assets to the supplier may involve a taxable supply of Stamp Duty a doubletaxtreaty. applies under local tax law or the tax is eliminated or reduced under payments such and resident, would be subject to Singapore withholding tax, tax unless an exemption non-Singapore a to Singapore in establishment permanent or resident tax a others) (amongst by fees, management interest, royalty,technical fees) are deemed to be Singapore-sourced income if made as (such payments Certain ICLG TO: OUTSOURCING 2019 Yes, there couldbe. 9.2 Income Tax However, afewbriefpointsmaybenoted. outside thescopeofthisresponse. the outsourcing transaction, and a comprehensive analysis would be The tax issues which may arise will depend on the legal structure of 9.1 ■ ■ ■ ■ ■ ■ ■ The obligationsofaCIIownerinclude: transport, land aviation, emergency, maritime, government,andmedia. and security finance, and Sabara LawLLC(amemberoftheDeloitteLegalNetwork) Goods andServices Tax a allowances, capital enjoyed had which transfer mayresultinabalancingcharge orbalancingallowances. assets of case the In Singapore doesnotimposetaxongainsofacapitalnatureassuch. although gains, taxable produce may assets certain of transfer The © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 9 under theoutsourcingcontract? terminating thecontract? participating incybersecurityexercises. Commissioner; and the to assessments and audits of reports of copies providing undertaking cybersecurityriskassessmentsoftheCII; Act, the with CII applicable codesofpracticeandstandardsperformance; the of compliance the of audits causing the to CII of Commissioner; respect Cybersecurity in incidents cybersecurity reporting the after of days legal seven than or laterchangeinownership; beneficial not CII Commissioner the the of in ownership changes of the (Commissioner) the informing (e.g. practice and writtendirectories; of performance of codes standards Practice), of Code Cybersecurity relevant with complying Tax Issues Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring

(GST)

the mainagreement(e.g.tofacilitatemodification). agreement, outsourcing to schedule separate a in the or contract, the of body main the in either in documented be then would This indicators ( unable torecoverinputtaxinfull). in persons are who persons GST-registered(i.e. persons exempt partially are which Singapore persons) other (amongst from to supplied are overseas which services imported for charge reverse a However, with effect from 1 January 2020, Singapore will introduce in “belongs” supplier the where Singapore forGST purposes. chargeable is GST that is rule supply” of “place the general the services, of full, supplies to respect With in tax input the recover to outsourcing arrangementmayresultinGST leakage. unable is recipient the If facts and circumstances, i.e. whether it is a partially exempt person. its on depend would tax input claim to recipient the of ability the GST,to and subject supplies taxable are services outsourcing Most Act, GST the in defined Chapter 117A (as ofSingapore)arezero-rated(GST ischarged at0%). services” “international for GST much how economy, the existing taxesare”. [Singapore’s] buoyant of how and state grow expenditures the [Singapore’s] “on depending 2025, to The 2021 from time some 9% to rate GST the 7%. raise to 2018 Budget at is rate GST current Singapore government has announced its intention in the Singapore The Singapore. in services and goods of supply the things) other (amongst on levied is GST GST. Value-Addedthe ( Tax of equivalent The of breachbythesupplier: event the in customer the on following the confer may contract The 11.2 ■ ■ ■ The maincontractualremediesunderthegenerallawwouldbe: 11.1 ( indicators performance critical (e.g. performance supplier’s the of indicators measurable and objectives and levels, services deliverables, coverage, service the Generally, 10.1 a of existence the to relating issues “permanent establishment”mayarise. case, cross-border a In 9.3 11 10 contract documentationtoprotect thecustomer? general lawifthesupplierbreachescontract? levels andservicecredits? qial rmde (uh s nucin r specific or injunction Termination ofthecontractfor repudiatorybreach. as (such performance). remedies Equitable Damages. What additionalprotectionscould beincludedinthe What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Customer Remedies Service Levels KPIs)) wouldbeagreedbetweentheparties.

o ky performance key or CPIs)

VAT WWW.ICLG.COM ) in Singapore is the is Singapore in ) Singapore

125 Singapore OUT19_04_07_Layout 104/07/201914:46Page126 126 Singapore supplier.the to transferred assets of condition and title the to regards with Additional customer warranties/indemnities may include assurances ■ ■ ■ ■ ■ ■ ■ The suppliermaygivewarranties/indemnitiesthat: ■ ■ ■ ■ Mutual warrantieswouldtypicallyincludeprovisionsdealingwith: 11.3 ■ Sabara LawLLC(amemberoftheDeloitteLegalNetwork) WWW.ICLG.COM ■ ■ ■ ■ ■ ■ ■ ■ ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd that areincludedinanoutsourcingcontract? t il nenf te utmr o ay os n eain to relation in and loss confidentiality, any cybersecurity, personaldataorIP breaches. for certifications customer the indemnify will specified it certain maintain accreditations (e.g.withrespecttoIT security);and will with it accordance in manner, professional applicable lawsandrecognisedindustrystandards; and timely a to in skill, and care reasonable with services the perform will it etc.) equipment/software, (including perform theservicestorequiredstandard; and resources sufficient personnel use competent and maintain will it the requiredstandard; to services the perform to capability and expertise the has it the informationinitsproposalisaccurateandcomplete; to required approvals and licences perform theservices; regulatory all has it third parties forittoenterintoandperformitsobligation. to obligations any or regulations or law of breach no solvency; and capacity andauthority; due incorporation; ■ Additional terminationrights,e.g.: What arethetypicalwarrantiesand/orindemnities information). Insurance (please see the response to question 11.3 for further Parent guaranteesorotherformsofcreditsupport. and co-operation governance, management information. monitoring, for additional processes other security and agreement and outsourcing operational the of financial, aspects cover to rights Audit Step-in rights. Exclusivity arrangements. poor of event the performance. in methodology pricing of Adjustment breaches). IP or confidentiality,data cybersecurity,case personal the in (e.g. circumstances specified sufferedin loss for Indemnities to meetservicelevels. Provision for liquidated damages or service credits for failure response toquestion11.3 forfurtherinformation). the see (please warranties and representations of Inclusion ■ ■ ■ ■ usin . rgrig h rsrcin on restrictions clauses); the regarding 8.1 question to response the see (but supplier the of insolvency upon for convenienceaftergivingnotice. in caseofachangecontrol,etc.;and for “go-live”; in the event of a failure to adhere to certain milestones e.g. service in standards; deterioration material been has there where

po facto ipso

■ ■ ■ ■ This couldbedonebywayof: 13.1 ■ These mayinclude: 12.1 restricting (IRDA The Insolvency, Restructuring and Dissolution Act (No. 40 of 2018) 13.3 Yes, please see the response to question 11.2 for further information. 13.2 ■ ■ ■ ■ ■ t ut e oe ta cran ye o cnrcs r expressly ■ are contracts of types certain excluded fromtheaboverestrictions andtheyinclude: that noted be must It non- as such grounds, substantive payment ornon-performancebytheinsolventcompany. other on exercising rights from contractual precluded be not however, will, Counterparties the companyisinsolvent. that or company the of respect in commenced have management) specified accelerated proceedings (creditor schemes of arrangement and judicial an claim contractual or payment amend, of under any agreement with the company by reason only or that ability terminate the to restrict counterparties will IRDA the Specifically, any under agreement. party other the from payment accelerated an claim or ■ ■ 13 12 for damagesfromtheterminatedparty? transaction? to seeinanoutsourcingcontract? termination rights? contemplated. had parties the which that from different radically become under the legal doctrine of frustration where performance has certain in (limited) circumstances;or misrepresentation for agreement the rescinding exercising acontractualterminationright; termination underthegenerallawforrepudiatorybreach; Professional indemnityinsurance. terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional Cyber-liability insurance. Directors’ andofficers’ insurance. Product liabilityinsurance. Comprehensive general liability or public liability insurance. Business interruptioninsurance. any prescribedeligiblefinancialcontract; government orastatutory body; any contract that is a licence, permit or approval issued by the or economic interest,ofSingapore; interest, national the affect to likely is that contract any ) will, once it is brought into force, introduce a new provision Termination Insurance ipso facto

clauses that allow a party to terminate, amend,

ICLG TO: OUTSOURCING 2019

Singapore

OUT19_04_07_Layout 104/07/201914:46Page127 ■ ■ ■ ■ ■ The matterstobeaddressedwouldtypicallyinclude: ■ ■ ■ transactions, partieshaveconsiderable freedomtolimitorrestrict: included intheoutsourcingagreement. included intheoutsourcingagreement. law ofconfidence. expect to see included in an outsourcing agreement) or the common may be derived from contractual clauses (which we would typically ■ depend on: outsourcing an in found be might agreement. which rights termination

ICLG TO: OUTSOURCING 2019 business-to-business of context the in rule, general a As 15.1 be however, may, provision Specific right. implied no is There 14.4 may,however,provision be Specific right. implied no is there No, 14.3 protection such but Singapore, in protection statutory no is There 14.2 will arrangement outsourcing any for rights IP of protection The 14.1 the override that laws Singapore mandatory other no are There ■ ■ Sabara LawLLC(amemberoftheDeloitteLegalNetwork) 15 14 provisions detailing the duration, geography and purpose of purpose and geography duration, the detailing provisions confidentiality andtradesecretclauses. event ofterminationthecontract;and the IPin supplier’s the over rights customer’s the specifying such IP rights; IP rights, stipulations as to the ownership and cross-licensing new of create to expected is transaction outsourcing the if the usageofanylicensedIP right; existing IP unlessagreedinwritingtothecontrary; pre- of transfer no be shall there that confirming provisions how eachpartywouldownorlicencethatIP. the existenceofliability; the typeofIP involved;and the natureoftransaction; n areet ht s h sbet f pecie tet to treaty prescribed which Singaporeisaparty. a of subject the is that agreement any any commercialcharterofaship;and can itmakeofit? supplier's know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? To whatextent canapartylimitorexcludeliability To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocallaw? Are know-how, tradesecretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty under nationallaw? Liability Intellectual Property

■ ■ ■ Singapore in used include: resolution dispute alternative of forms Other ■ ■ The maindisputeresolutionmethodsusedinSingaporeare: 16.1 question 15.1above. to response the in above noted considerations the to subject Yes, 15.2 ■ ■ ■ i.e.: This is, however, subject to certain legal safe-guards and limitations, ■ ■ ■ ■ ■ ■ ■ ■ 16

xet eemnto (atclry o ise o a more mediation. a of issues technical nature);and for (particularly determination expert if required,theseniormanagementofparties; or,managers project senior more to dispute the of escalation arbitration. court litigation;and What arethemainmethodsofdisputeresolutionused? Are thepartiesfreetoagreeafinancialcaponliability? the typesofrecoverableloss; the maximumamountofliability; limitation; or exclusion the of benefit the claiming party the of contract form standard a is contract the where especially it, on rely of to seeks which party limitation the against operate may clause liability or exclusion ambiguous an of interpretation the limitationperiodformakingclaims. the remediesavailable;and in other cases, a clause excluding or restricting liability for liability restricting or excluding clause a cases, other in satisfied. is reasonableness of UCTA’s requirement the the if limited be to pertaining terms satisfactory quality, implied fitnessforpurposeandothermatterscan However, Singapore). of 393 (Chapter Act Goods of Sale the to UCTA’spursuant limited the fulfil or excluded be not may assets to title the to as terms implied must terms requirement ofreasonableness;and contractual of breach entity’s a for liability business of restriction or a exclusion any terms, using standard into entered is transaction the if pre- for liability may have tosatisfytherequirementofreasonableness; misrepresentations restricts innocent or or negligent excludes of contractual which requirement clause a a to 396 ofSingapore)(UCTA); subject be reasonableness under the Unfair Contract Terms Act would (Chapter negligence out carved be from thelimitationofliabilityclause; should and unenforceable is negligence by reckless misrepresentation or death or personal injury caused or dishonest fraud, for liability of restriction or exclusion an stringently thanlimitationofliabilityclauses; xlso o laiiy lue my e osre more construed be may clauses liability of exclusion

Dispute Resolution

WWW.ICLG.COM

Singapore

127 Singapore OUT19_04_07_Layout 104/07/201914:46Page127 ICLG TO: OUTSOURCING 2019 business-to-business of context the ■ in rule, transactions, partieshaveconsiderable freedomtolimitorrestrict: general a As 15.1 be however, may, provision included intheoutsourcingagreement. Specific right. implied no is There 14.4 included intheoutsourcingagreement. may,however,provision be Specific right. implied no is there No, 14.3 law ofconfidence. expect to see included in an outsourcing agreement) or the common may be derived from contractual clauses (which we would typically protection such but Singapore, in protection statutory no is There 14.2 ■ The matterstobeaddressedwouldtypicallyinclude: ■ ■ ■ depend on: will arrangement outsourcing any for rights IP of protection The 14.1 ■ Sabara LawLLC(amemberoftheDeloitteLegalNetwork) ■ ■ ■ ■ outsourcing an in found be might agreement. which the rights override that termination laws Singapore mandatory other no are There ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 15 protected inanoutsourcingtransaction? under nationallaw? can itmakeofit? and canthesebeexcludedfromtheagreement? critical confidentialinformationprotectedbylocallaw? the existenceofliability; existing IP unlessagreedinwritingtothecontrary; pre- of transfer no be shall there that confirming provisions how eachpartywouldownorlicencethatIP. the typeofIP involved;and the natureoftransaction; any commercialcharterofaship;and supplier's know-howpost-terminationandwhatuse To whatextent canapartylimitorexcludeliability To whatextentcanthecustomergainaccessto continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty confidentiality andtradesecretclauses. event ofterminationthecontract;and the IPin supplier’s the over rights customer’s the specifying such IP rights; IP rights, stipulations as to the ownership and cross-licensing new of create to expected is transaction outsourcing the if the usageofanylicensedIP right; of purpose and geography duration, the detailing provisions to treaty prescribed which Singaporeisaparty. a of subject the is that agreement any Intellectual Property Liability

■ ■ ■ te frs f lentv dsue eouin sd n Singapore in used include: resolution dispute alternative of forms Other ■ ■ The maindisputeresolutionmethodsusedinSingaporeare: 16.1 question 15.1above. to response the in above noted considerations the to subject Yes, 15.2 ■ i.e.: This is, however, subject to certain legal safe-guards and limitations, ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 16

xet eemnto (atclry o ise o a more mediation. a of issues technical nature);and for (particularly determination expert if required,theseniormanagementofparties; or,managers project senior more to dispute the of escalation arbitration. court litigation;and What arethemainmethodsofdisputeresolutionused? Are thepartiesfreetoagreeafinancialcaponliability? limitation; or exclusion the of benefit the claiming party the of contract form standard a is contract the where especially it, on rely of to seeks which party limitation the against operate may clause liability or exclusion ambiguous an of interpretation the limitationperiodformakingclaims. the remediesavailable;and the typesofrecoverableloss; the maximumamountofliability; satisfied. is reasonableness of UCTA’s requirement the the if limited be to pertaining terms satisfactory quality, implied fitnessforpurposeandothermatterscan However, Singapore). of 393 (Chapter Act Goods of Sale the to UCTA’spursuant limited the fulfil or excluded be not may assets to title the to as terms implied must terms requirement ofreasonableness;and contractual of breach entity’s a for liability business of restriction or a exclusion any terms, using standard into entered is transaction the if pre- for liability may have tosatisfytherequirementofreasonableness; misrepresentations restricts innocent or or negligent excludes of contractual which requirement clause a a to 396 ofSingapore)(UCTA); subject be reasonableness under the Unfair Contract Terms Act would (Chapter negligence for liability restricting or excluding clause a cases, other in out carved be from thelimitationofliabilityclause; should and unenforceable is negligence by reckless misrepresentation or death or personal injury caused more or dishonest fraud, for liability construed of restriction or exclusion an be may clauses stringently thanlimitationofliabilityclauses; liability of exclusion

Dispute Resolution

WWW.ICLG.COM

Singapore

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Sabara Law LLC (a member of the Deloitte Legal Network) Singapore

17 Good Faith

17.1 Is there any overriding requirement for a customer and supplier to act in good faith and to act fairly according to some objective test of fairness or reasonableness under general law?

At present, there is no general across-the-board duty under Singapore contract law to act in good faith.

Singapore However, this is an evolving area of law in the common law world, and it may be that in specific circumstances, a duty of good faith may be implied (in fact or as a legal presumption), particularly in the case of “contractual relationships”.

Yeoh Lian Chuan David Teo Shih Yee Sabara Law LLC (a member of the Deloitte Sabara Law LLC (a member of the Deloitte Legal Network) Legal Network) 6A Shenton Way 6A Shenton Way #04-01 Singapore 068815 #04-01 Singapore 068815

Tel: +65 6800 2253 Tel: +65 6216 3399 Email: [email protected] Email: [email protected] URL: www.sabaralaw.com.sg URL: www.sabaralaw.com.sg

Lian Chuan is a Singapore-qualified lawyer with 25 years of David practises in the area of corporate and commercial law, with a experience. He established Deloitte Legal's Singapore Law Practice special focus on mergers and acquisitions and tax advisory practice. in 2018 and serves as its managing director. Previously, he worked in His clients include multinational corporations, listed companies, small Allen & Overy LLP heading its Singapore law corporate regulatory and and medium-sized enterprises, venture capital investors, and start- advisory team for more than eight years. Prior to that was a partner at ups. David advises high-net-worth individuals, private banks and Allen & Gledhill LLP and Rajah & Tann LLP for eight years. He also trustee companies on Singapore tax and trust matters. He was worked at the Monetary Authority of Singapore for 3½ years. He previously a member of the audit committee of a charitable specialises in corporate advisory work, covering financial regulation, organisation in Singapore. David attained an LL.B. from the National corporate and commercial matters, data protection, corporate University of Singapore in 2002. He was admitted as an Advocate and governance and compliance, trusts law, banking law, tax, employment Solicitor of the Supreme Court of Singapore in July 2003 and as a law and aspects of corporate finance. He is a co-author of the The Solicitor of England and Wales in 2005 (non-practising). David Law and Practice of Singapore Income Tax, 2nd Edn and is also a completed the Association of Chartered Certified Accountants in 2008 member of the STEP, the technical committee of the Singapore and also holds a B.Sc. in Applied Accounting under the ACCA/Oxford Trustees Association, and the Singapore Law Society’s Corporate Brookes University Degree Partnership. David also has experience as Practice and AML committees. a mediator with the Community Mediation Centre in Singapore.

Sabara Law LLC is a corporate and commercial law firm that is a member of Deloitte Legal, the international network of legal practices working with Deloitte all over the world. The affiliation with Deloitte Legal gives Sabara Law LLC access to state-of-the-art global resources and tools together with the ability to serve clients seamlessly across the world. Sabara Law LLC’s practice focuses on fields that are adjacent and complementary to Deloitte’s leading international multi-disciplinary teams, advising clients in data protection, financial services regulatory and commercial law, mergers and acquisitions, employment law and legal management consulting. “Deloitte Legal” means the legal practices of Deloitte Touche Tohmatsu Limited member firm affiliates that provide legal services. For legal and regulatory reasons, not all member firms provide legal services. The global Deloitte Legal network comprises over 2,500 legal professionals in more than 80 countries.

128 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 1 04/07/2019 14:46 Page 128 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 129

Sabara Law LLC (a member of the Deloitte Legal Network) Singapore Chapter 18

17 Good Faith

17.1 Is there any overriding requirement for a customer and supplier to act in good faith and to act fairly South Africa according to some objective test of fairness or reasonableness under general law? Preeta Bhagattjee

At present, there is no general across-the-board duty under Singapore contract law to act in good faith.

1 Regulatory Framework 1.3 Are there any additional legal or regulatory Yeoh Lian Chuan David Teo Shih Yee requirements for outsourcing transactions Sabara Law LLC (a member of the Deloitte Sabara Law LLC (a member of the Deloitte undertaken in particular industry sectors, such as for Legal Network) Legal Network) 1.1 Are there any national laws or regulations that example the financial services sector? 6A Shenton Way 6A Shenton Way specifically regulate outsourcing transactions, either #04-01 Singapore 068815 #04-01 Singapore 068815 generally or in relation to particular types of In the financial services industry, there are a number of national outsourcing transactions (e.g. business process Tel: +65 6800 2253 Tel: +65 6216 3399 laws and regulations that regulate aspects of outsourcing Email: [email protected] Email: [email protected] outsourcings, IT outsourcings, telecommunications URL: www.sabaralaw.com.sg URL: www.sabaralaw.com.sg outsourcings)? transactions. The Financial Sector Regulation Act, 9 of 2017 (“FSR Act”), Insurance Act, 18 of 2017 (“Insurance Act”) and Prudential There are no specific national laws regulating outsourcing. Standard Governance and Operation Standards for Insurers (“GOI Lian Chuan is a Singapore-qualified lawyer with 25 years of David practises in the area of corporate and commercial law, with a Standards”) are applicable to the outsourcing of ‘material business However, there are provisions relevant to outsourcing transactions experience. He established Deloitte Legal's Singapore Law Practice special focus on mergers and acquisitions and tax advisory practice. activities’ by insurers. In short, GOI 1 (Framework for Governance in the airline industry, medical and medical schemes industry, in 2018 and serves as its managing director. Previously, he worked in His clients include multinational corporations, listed companies, small and Operational Standards for Insurers) sets out the high-level Allen & Overy LLP heading its Singapore law corporate regulatory and and medium-sized enterprises, venture capital investors, and start- defense industry, banking and financial services and framework for assessing the governance and operational soundness advisory team for more than eight years. Prior to that was a partner at ups. David advises high-net-worth individuals, private banks and telecommunications industries. Allen & Gledhill LLP and Rajah & Tann LLP for eight years. He also trustee companies on Singapore tax and trust matters. He was of South African insurers from a regulatory perspective. The worked at the Monetary Authority of Singapore for 3½ years. He previously a member of the audit committee of a charitable principles set out in GOI 1 are supported by detailed standards and specialises in corporate advisory work, covering financial regulation, organisation in Singapore. David attained an LL.B. from the National 1.2 Are there any additional legal or regulatory attachments which address certain aspects of the framework, i.e. corporate and commercial matters, data protection, corporate University of Singapore in 2002. He was admitted as an Advocate and requirements for outsourcing transactions GOI 5 is a more detailed account of the standards applicable to governance and compliance, trusts law, banking law, tax, employment Solicitor of the Supreme Court of Singapore in July 2003 and as a undertaken by government or public sector bodies? law and aspects of corporate finance. He is a co-author of the The Solicitor of England and Wales in 2005 (non-practising). David insurers in respect of outsourcing. Law and Practice of Singapore Income Tax, 2nd Edn and is also a completed the Association of Chartered Certified Accountants in 2008 The basic principle of outsourcing by insurers, as set out in GOI 5, member of the STEP, the technical committee of the Singapore and also holds a B.Sc. in Applied Accounting under the ACCA/Oxford As a public entity in South Africa or as a supplier tendering to public is that the insurer retains responsibility for all regulatory Trustees Association, and the Singapore Law Society’s Corporate Brookes University Degree Partnership. David also has experience as entities for technology related outsourcing or procurement Practice and AML committees. a mediator with the Community Mediation Centre in Singapore. obligations, regardless of whether or not an activity or function is contracts, any decision to embark on a tender process for the outsourced. Therefore, the outsource arrangement must provide the outsourcing of services or to bid for the provision of such services Prudential Authority with the same visibility over regulated should be taken after careful consideration of the legislative activities as it has with the insurer. It also means that an insurer backdrop. A public entity would be required to consider the various must have appropriate oversight of the person (supplier) who legislative constraints under which it would have to conduct the provides the outsourced activities or functions, so as to ensure that tender process and evaluation of bids. The importance of the insurer’s regulatory compliance is not impaired. GOI 5 deals government procurement in South Africa is underpinned by its with three general sets of circumstances applicable to outsourcing specific mention in the Constitution of South Africa which states by insurers, namely (i) circumstances in which an insurer may not that all such procurement has to be “fair, equitable, transparent, outsource a function or activity, (ii) circumstances in which an competitive and cost-effective”. insurer must notify the Prudential Authority before entering into an To give effect to the constitutional status of government Sabara Law LLC is a corporate and commercial law firm that is a member of Deloitte Legal, the international network of legal practices working with outsource arrangement for a material activity, and (iii) matters that Deloitte all over the world. The affiliation with Deloitte Legal gives Sabara Law LLC access to state-of-the-art global resources and tools together procurement, various statutes have been enacted to regulate these must be considered in any outsource arrangement. GOI 5 further with the ability to serve clients seamlessly across the world. Sabara Law LLC’s practice focuses on fields that are adjacent and complementary to activities. These include the Public Finance Management Act, the sets out a very broad set of factors which should be applied by an Deloitte’s leading international multi-disciplinary teams, advising clients in data protection, financial services regulatory and commercial law, mergers Municipal Systems Act, the Municipal Finance Management Act, insurer to determine whether or not a business activity is and acquisitions, employment law and legal management consulting. “Deloitte Legal” means the legal practices of Deloitte Touche Tohmatsu Limited the Broad Based Black Economic Empowerment Act, the “outsourced” and whether it constitutes a ‘material business member firm affiliates that provide legal services. For legal and regulatory reasons, not all member firms provide legal services. The global Deloitte Legal network comprises over 2,500 legal professionals in more than 80 countries. Promotion of Administrative Justice Act and the Preferential activity’. Procurement Policy Framework Act. In addition, the common law The FSR Act defines “outsourcing” (as it relates to financial and the general rules applicable to administrative and constitutional institutions) as an arrangement between a financial institution and law also have application. Unlike contracting for technology another person for the provision to or for the financial institution of services in the private sector where basic commercial requirements any of the following: are generally the only overarching factor in making a determination a. a control function; to appoint a supplier, public entities, being statutory creations, are required to act strictly within the legal bounds conferred upon them b. a function that a financial sector law requires to be performed by statute. or requires to be performed in a particular way or by a particular person; and

128 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 129 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page130 130 South Africa WWW.ICLG.COM (recipient oftheservices)arebased. business its the and customer for the where is law applied the be norm to law or governing principle general The law. local by There is no requirement for outsourcing transactions to be governed 1.4 the party. third support a to not function audit does internal bank’s SARB a of that outsourcing states specifically Circular SARB is still able to effectively conduct its supervision duties. The supplier is located outside of South Africa, the bank must ensure that a If functions. regulatory its out carry to it for order in information relevant all to access SARB for allow specifically should formal provider outsourcing have an with to agreements The required place. also in plans are contingency Banks provisions. exit with agreements early level service stringent have to required is bank The arrangement. outsourcing the of terms the of monitoring and required to be set up within the bank to ensure ongoing management be would structures agreement. Appropriate the of duration the for supervisory levels and that such supplier is able to perform at its the expected levels performance supplier’s the verify to able be supplier, proposed the of discharge bank has to have undertaken an investigation into the competence of SARB’s has responsibilities. In respect which of any such outsourcing arrangements, a for and bank’s importance the strategic implications by of classified being is as bank, management the of controls the and affects bank, the systems of profile risk the on bearing a have which into entering intend they which arrangements outsourcing any of to a third party. This Guidance Note requires banks to notify SARB operations their of components certain outsource South who Africa in banks to applies which 3/2008 Note Guidance replacing 5/2014 In July 2014, the South African Reserve Bank issued Guidance Note c. Cliffe DekkerHofmeyrInc. ■ ■ ■ the of bank anditsoperations.Inessence,banksaredirectedto: size profile, risk bank’s the account into taking approach, risk-based a follow banks that requires SARB data. of offshoring consider when electing to adopt cloud computing as a service or any must banks aspects the specifying 2018 of September terms during Act in Banks note guidance and directive a issued SARB The of theoutsourcingmaterialfunctionsbyabank. and this Directive specifies certain reporting requirements in 2016 respect December 13 on SARB the by issued was 8/2016 Directive © Published andreproduced withkindpermission byGlobalLegal Group,Ltd the choiceofgoverninglaw? (ii) (i) not include: does but infrastructure, market the of nature the to integral is or provides, institution financial the that service financial or product financial a of nature the to integral is that function a law, isthereanygenerally acceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction rvn te aks blt t cnut oesc uis or audits forensic conduct not to investigations. does ability bank’s arrangement the computing prevent cloud any that ensure the activitiesofbank)abilitytofulfiltheirduties;and over jurisdiction (having regulators’ any inhibits way no in and ensure that the offshoring of data and use of cloud computing strategy data board-approved formal governance frameworkisinplace; a that ensure esn o te esn o c a a ersnaie f the of representative a financial institution. as act a to and person the institution for financial person a between arrangement an the of (b) or definition of‘‘ (a) paragraph in to referred person a and a contract of employment between the financial institution

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ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page130 130 South Africa WWW.ICLG.COM (recipient oftheservices)arebased. business its the and customer for the where is law applied the be norm to law or governing principle general The law. local by There is no requirement for outsourcing transactions to be governed 1.4 the party. third support a to not function audit does internal bank’s SARB a of that outsourcing states specifically Circular SARB is still able to effectively conduct its supervision duties. The supplier is located outside of South Africa, the bank must ensure that a If functions. regulatory its out carry to it for order in information relevant all to access SARB for allow specifically should formal provider outsourcing have an with to agreements The required place. also in plans are contingency Banks provisions. exit with agreements early level service stringent have to required is bank The arrangement. outsourcing the of terms the of monitoring and required to be set up within the bank to ensure ongoing management be would structures agreement. Appropriate the of duration the for supervisory levels and that such supplier is able to perform at its the expected levels performance supplier’s the verify to able be supplier, proposed the of discharge bank has to have undertaken an investigation into the competence of SARB’s has responsibilities. In respect which of any such outsourcing arrangements, a for and bank’s importance the strategic implications by of classified being is as bank, management the of controls the and affects bank, the systems of profile risk the on bearing a have which into entering intend they which arrangements outsourcing any of to a third party. This Guidance Note requires banks to notify SARB operations their of components certain outsource South who Africa in banks to applies which 3/2008 Note Guidance replacing 5/2014 In July 2014, the South African Reserve Bank issued Guidance Note c. Cliffe DekkerHofmeyrInc. ■ ■ ■ the of bank anditsoperations.Inessence,banksaredirectedto: size profile, risk bank’s the account into taking approach, risk-based a follow banks that requires SARB data. of offshoring consider when electing to adopt cloud computing as a service or any must banks aspects the specifying 2018 of September terms during Act in Banks note guidance and directive a issued SARB The of theoutsourcingmaterialfunctionsbyabank. and this Directive specifies certain reporting requirements in 2016 respect December 13 on SARB the by issued was 8/2016 Directive (ii) (i) not include: does but infrastructure, market the of nature the to integral is or provides, institution financial the that service financial or product financial a of nature the to integral is that function a the choiceofgoverninglaw? law, isthereanygenerally acceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction rvn te aks blt t cnut oesc uis or audits forensic conduct not to investigations. does ability bank’s arrangement the computing prevent cloud any that ensure the activitiesofbank)abilitytofulfiltheirduties;and over jurisdiction (having regulators’ any inhibits way no in and ensure that the offshoring of data and use of cloud computing strategy data board-approved formal governance frameworkisinplace; a that ensure esn o te esn o c a a ersnaie f the of representative a financial institution. as act a to and person the institution for financial person a between arrangement an the of (b) or definition of‘‘ (a) paragraph in to referred person a and a contract of employment between the financial institution

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ICLG TO: OUTSOURCING 2019

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OUT19_04_07_Layout 104/07/201914:46Page131 Sector). diinl euaoy eurmns pl wt rgr to regard with 2 apply section above, (see sector public the requirements within outsourcing regulatory Additional who thesuccessfulbidderwouldbe. then to carry order out a further set in of evaluations to arrive these at the determination of of each with negotiations into entered and a choose not bidders will the of number a short-listed has customer it before bidder successful the Generally, process. tender the in phases of number the on depend would place diligence take will due exercise such When pricing. binding and accurate provide diligence exercise of the customer’s service environment due in order to a out carry to opportunity the afforded The often also are bidders. bidders the on conduct may customer the diligence which due exercises and visits site client the investigations, onsite received, include may been evaluation such and have service same evaluate and responses assess will RFP customer specific and/or RFI and the Once levels service to bidder required requirements. the requires its it which assume), risks legal sheet key term a the (or containing bidder successful the with conclude to intends it which contract outsourcing the of text the include may customer the documentation, RFP the of part As process. RFP subsequent a customer may a issue cases, a RFI some first and In then to require formal bids be. based on may bidders case the RFP,as potential or RFI invite the to respond and identify then will customer The proposal (RFP)specificationdocument. for request or (RFI) information for request a into up drawn then is the with most up practical and workable solution come for that problem. this, This solution on based and comprehensively problems and processes business is specific their customer analyse the carefully to that required is process outsourcing any in step first The 3.1 Cliffe DekkerHofmeyrInc. ICLG TO: OUTSOURCING 2019 outsourcing contracts are (i) fixed price, in (ii) time-and-materials, and adopted models charging typical the experience, our on Based 5.1 No, thepartiesarefreetonegotiateduration. 4.2 renewal ofoutsourcingcontracts. and award the on impact an have will Act, Management Finance As a general rule, no, but public sector legislation such as the Public 4.1 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 5 4 3 outsourcing contract? minimum termforanoutsourcingcontract? process thatisusedtoselectasupplier? outsourcing transactions? Charging Term ofanOutsourcing Agreement Procurement Process What isthemostcommontypeofprocurement What arethemostcommoncharging methodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum

Public

Movable property as itconstitutesanexportofcapitalforexchangecontrolpurposes. requires also SARB the of Africa Department Surveillance Financial the from approval South African of South a outside by company/person rights resident property intellectual of transfer The require thelicensor’s consent. may,addition, and in assignment written by effected be be to required generally would licences property intellectual of transfer The the in effected be to have prescribed manner. particular in trademarks and rights design rights, patents of assignment or Transfer require involved. rights may and property intellectual assignor, the on the depending transfer, the by of registration signed be must and writing in be must rights property intellectual of ownership of transfer A ■ ■ ■ ■ Pricing whichissubjecttovariationwouldusuallybegovernedby: 5.2 IP rightsandlicences 6.1 hs ky otat wud ed o e eiwd o determine to the before reviewed required is be consent written counterparty’s to the whether need agreement. would outsourcing contracts the key in These stipulated as writing in effected be to required be generally should contracts key of assignment The Key contracts are leased,thetransferwouldusually requirethelessor’s consent. assets would Where agreement. outsourcing and the in recorded be purposes generally evidential for property movable transfer transfer to to intention specific the ownership. However, with a written assignment is usually recommended supplier the to property such delivering by transferred is property movable of Ownership arrangements anddemand-basedpricing. sharing arrangements, incentive-based contracts, shared risk-reward Among the new pricing structures increasing in popularity are gain- be alignmentoftheparties’ incentives. the of should nature model pricing a of view,driver our primary In the services. the on depending contract, outsourcing single a in models pricing three all find to uncommon not is It cost-plus. (iii) ■ 6 outsourcing transactions? license assetsonanoutsourcingtransaction? price. lower a at customers other any to service same the providing is it if customer the to prices its reduce to supplier the oblige provisions which provisions, status customer favoured Most Benchmarking provisions. should oblige thesuppliertorefundanysuchovercharges. contract the exercise, audit such during discovered are overcharges or errors any If mechanisms. charging and Audit rights, which allow the customer to investigate charges changes. market and indices salary-based prices, petrol in changes as such indices other and CPI) (e.g. changes index Inflationary Transfer of Assets What otherkeytermsareusedinrelationtocosts What formalitiesarerequiredtotransfer, leaseor responsible fortakingoutforwardcover, ifapplicable. be would parties the of which state would and rate exchange applicable the in changes for cater currency to mechanism a provide foreign usually terms a pricing supplier, the have to impact or which component services to regard With

WWW.ICLG.COM South Africa

131 South Africa OUT19_04_07_Layout 104/07/201914:46Page132 132 South Africa Initial Outsourcing 7.1 must beregisteredattheDeedsOffice. The transfer of immovable property and leases for 25 years or more 6.4 Services Revenue African South the (SARS) transferduty, ataxleviedonpropertytransfers. pay must purchaser The 6.3 in required totransfertheleasesupplier. be property may licensor the or landlord the Where of consent the leased, writing. is question in effected be to has property by the Registrar of Deeds. Further, the transfer of title Deeds to immovable the be of of Deed affecteda of Transfer,means by registered be to has which must transfer 16 that stipulates which Section 1937, of 47 of Act Registries terms in specifically legislation, by governed is property immovable in ownership of transfer The 6.2 the customer. with contract the with accordance in performs counterparty the that ensure to order in counterparty the with interfacing and liaising for such contracts whereby the supplier would, for a fee, be responsible of respect in services management provide to supplier the contract would customer the question, in counterparty the with relationship contractual such retains it that prefer would customer the where or transferred be cannot contracts key If transferred. be may contract Cliffe DekkerHofmeyrInc. WWW.ICLG.COM Second GenerationOutsourcing a of favour section 197transfer. in weighing factor significant a be ordinarily would supplier,outsourced the to it go instead and service the outsourcing be not transferred probably as a going concern. would If they do not business stay with the company the equal, being things all then, service the outsourcing company the with stay business the operate to necessary assets infrastructural the if situation, outsourcing an In be metinorderforthesectiontooperative. new employer (iii) as a going concern. All three requirements must the to old the by transferred be must (ii) business a of part or whole the (i) that are 197 section of operation the for requirements The going concern. is a as service employer new the or to employer undertaking previous the trade, from transferred business, any acquiring of the part that the or event the whole in to place takes now employer) employer) (new employer (previous employer An transferring owner. new the the from place takes employment of contracts of transfer automatic and employees the between employment the new owner of the business, without the need for new contracts of by employed become automatically business that of employees that is effect the concern, going a as transferred is business a when that provides 1995 of 66 No Act, Relations Labour the of 197 Section provisions of section 197 of the LRA apply to second generation second to apply LRA the of 197 section of provisions There exists conflicting case law and commentary as to whether the © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 7 Employment Law Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland?

Other matters Employee benefits terms oftheLRA ( in employees transferred the with transfer benefits contractual All General Terms 7.2 before andaftertheoutsourcing. fide bona from resulting employees of dismissal the prohibit not does This related tothetransfer. is dismissal the for reason the if unfair deemed be will dismissal a but outsourcing, the after or before implemented be can Dismissals 7.4 (b) (a) In termsofsection197(6)theLRA,oldemployermust: 7.3 imsa fr rao rltn t te upirs operational supplier’s the to able toshowthatithascompliedwiththeprovisionsofsection197. relating reason is employer old the unless sequestration, or liquidation requirements, a for supplier’s dismissal the of result a as payment a receive to entitled becomes who employee any to supplier the with liable severally and jointly is For a period of 12 (twelve) months after the transfer, the old employer agreements bindingontheoldemployer.collective or awards arbitration all by bound also is supplier The odtos f mlyet y gemn wt te transferred the and with terms agreement some employees ( by alter employment however, may, of supplier conditions The force. in old the between obligations employer and an and employee at the time of rights transfer continue to remain all LRA, the of terms In eto 17 rcue is plcto t scn generation second to application its outsourcing. precludes 197 section outsourcing. Some commentators have asserted that the wording of take place? employee forareasonconnectedtotheoutsourcing? provide toeachother? ■ ■ ■ conclude awrittenagreementthatspecifies: ■ ■ ■ of: transfer of date the at as valuation a supplier the with agree On whattermswouldatransferbyoperationoflaw Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties for anyobligationonthesupplierthatmayarise. made is provision adequate that ensure to circumstances the in reasonable be may that measures other any Take employee each who afterthetransferbecomesemployedbysupplier. to agreement the of terms the Disclose liability of apportionment between them,thetermsofsuchapportionment. of case the in and, above to referred amount any paying for liable is employer Which employer; and employees but have not been paid to employees of the old transferred the to accrued have that operational payments other Any Supplier’s the from requirements. arising dismissal a of event the in employer old the of employees transferred the to payable been have would that pay severance The old employer. The leave pay accrued to the transferred employees of the reasons valid in law but not related to the transfer both transfer the to related not but law in valid reasons see below, Pensions

for examplemedicalinsurance,severancepay

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OUT19_04_07_Layout 104/07/201914:46Page133 Pensions Fund Act, 1956arefollowed. the of provisions relevant the that provided fund, pension different a on employees transferred place to supplier the permits LRA The 7.6 compensated adequatelybyanimprovementinsomeotherrespect. is this that provided employee the of contract the of conditions and A transferee may, in the pursuit of harmonisation, vary and certain terms terms the than employees wereconsultedonthechangesandagreedtosame. favourable the that and less transferor the by provided be employment of conditions whole the the on to cannot subject process, bargaining limitation collective that the terms and conditions of the transferred employees the by covered not those including employee, any with effected be may Changes employees of categories existing certain through collectivebargaining. for to employment amendments of consensual contracts seek may transferee The 7.5 Cliffe DekkerHofmeyrInc. ICLG TO: OUTSOURCING 2019 protection data in contained 2013, of 4 Act, Information Personal requirements of Protection (the legislation those for Except 8.2 accessed oracquiredbyanyunauthorisedperson. been has information personal any that believe to grounds reasonable are there where immediately Act) the under party’ ‘responsible (the customer the notify operator an that the Act under requirement a is It and establish to agrees operator maintain thesecuritymeasuresandrequirementsstipulatedin Act. the written which a of into terms enter parties in the agreement that requires also Act The their duties. of performance proper the of course the in or law by required which unless same, disclose information not and confidential as knowledge personal its to comes treat or it knowledge customer, the the of with authorisation information personal process operator an that required is it end this to the and of Act purposes ‘operator’for an considered customer,be the would of it behalf on processing data any personal outsourcing that transaction in question. If the supplier will extent be carrying out the the to of part as processed be will this Act under 2013 defined as information of 4 of Protection Act, the Information under Personal apply may which requirements are There 8.1 Personal of Protection the personal informationoutsidetheRepublicofSouth Africa. yet, force of transfer the to prior consent requires 2013 of 4 in Information Act, fully not Although 7.7 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 existing workforce? requirements concerninginformation security? transaction? Security Data ProtectionIssuesandInformation Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Are thereindependentlegaland/or regulatory and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations?

27001:2005, COBIT 5,KingIV andITIL. ISO/IEC as such relevance, have may which standards industry of the monitoring and interception of communication)), (regulating there are a number 2002 of 70 Information, Related Communication the Regulation of Interception of Communications and Provision of and transactions) and communications electronic regulates (which 2002 of 25 Act, Transactions and Communications Electronic the are “electronic services”. The definition includes services such as such services includes definition The services”. “electronic are means electronic of way by supplied are that services all Virtually agent, electronic an of means electronic communicationortheinternet foranyconsideration. by supplied services any means services” “electronic term The period. 12-month any for to million required currently is register for supplier VAT as soon as the value of the services exceeds ZAR 1 services electronic foreign A 3. 2. 1. least twoofthefollowingcircumstancesarepresent: for VATaccount at 1 if South effectfrom 2019 in with April Africa and register to required are services electronic of suppliers Foreign not beclaimed,resultingina VAT costtothecustomer. may tax input sector), services financial the in (generally supplies VATmakes customer exempt the VATWhere registered vendors. taxable supply for VAT be generally purposes. VAT will supplier can only be charged and claimed by the by charges fee service The Transfers ofemployeestothesupplier of theassetandafeewithoutreductionischarged. will be achieved where an amount is paid by the supplier for the use result same The deduction. a for qualify will fee reduced the fee, reduced a for return in contract outsourcing the of duration the for Where the right of use of a customer’s assets are given to a supplier to deductascrappingallowance. the Where value. proceeds tax do not exceed the the tax value, the customer would exceed be entitled proceeds the the by where customer asset depreciable a the for recoupment taxable of a in result will supplier the to customer sale The contract. outsourcing the of duration the for asset the of use of right the providing or sale a of form the in be either can supplier the to assets of transfer The Transfers ofassetstothesupplier 9.1 VAT orsalestax month the of end the during whichtheremunerationwaspaid. African after South days the seven to within paid Service Revenue be contributions, must liability UIF SDL and the PAYEincluding The remuneration. employee’s (SDL) an Levy from deducted not is Development which remuneration, of Skills 1% as calculated a contribute to liable further Insurance Fund (UIF) contributions. Employers in South Africa are PAYE from the employees’ remuneration, including Unemployment assumes and obligations are also transferred. The supplier is obliged to withhold employer new (PAYE)employees’ the tax the remuneration, paying for responsibility becomes supplier the Where 9 South Africa. in address postal or residential, business, a has recipient the African South a bank account;or from originates services for payment the the recipientofservicesisaSouth African resident; terminating thecontract? Tax Issues outsourced business–eitheronenteringintoor What arethetaxissuesontransferring

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133 South Africa OUT19_04_07_Layout 104/07/201914:46Page134 134 South Africa n lent srie rdt ehdlg otn ple i ta the supplier is able to that “claw back” any service credits is which it incurs by applied often methodology credit service alternate An Penalties Act, 1962. Conventional the of provisions the of terms in reduction to subject be may customer the by suffered prejudice the to proportion of out imposed are fair and reasonable, as any claim for a penalty which is such service credits. It is important to ensure that of any amount service credits the for customer the to note credit a issues supplier the service is the or supplier the Generally,to payable fees any level against set-off either are credits credit. service service any a as meet to to referred what generally failing met, for imposed not penalty Any are levels service where compensation ispayable(ifany). the and with levels compliance measuring service for responsible is party and which the quantitative measure to on agree then supplier. which parties the The by services the of performance agree against and metrics performance identify qualitative usually parties The 10.1 ■ ■ may arise. These include: which arise in an outsourcing context, there are other tax issues that Although tax on transferring assets and VAT are the main tax issues 9.3 goods andservicesinthecourseorfurtheranceofanenterprise. VAT purposes, and taxable supplies comprise supplies by vendors of for registered be, to required is or is, who person any as defined is terms of section 7(1)(c) of the VAT Act. This is because a “vendor” VATfor account in to liable recipient the VATrender for not does the VAT Act. Failure by the foreign supplier to register and account and must register and account for VAT in terms of section 7(1)(a) of SA, the foreign supplier is carrying on an enterprise in South Africa in services renders continuously and regularly supplier foreign a If VATservices.) or goods of vendor any by supply the on imposed is the VATthat says which provision core the is 7(1)(a) (Section Act. imported from others, services, supplies which are amongst chargeable in terms of section exempts, 7(1)(a) of VAT Act the Section of industry.14(5) to services relevant financial the often VAT in is operating the This companies of incurred. 7(1)(c) be will section services) of (imported i.t.o. VAT supplies, taxable VATof for service” “imported making the for it use to going not an is licensee the if Thus, purposes. constitutes licence inward An 9.2 storage andbroadcastingservices. data online training, online software, computer computing, cloud Cliffe DekkerHofmeyrInc. WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 levels andservicecredits? under theoutsourcingcontract? contract. the in out set be to need would taxes such bear who persons the customer’s jurisdiction and any tax treaty protection. be The in could treatment the on supplier depending taxes, withholding the to subject to payments – taxes Withholding the in customer its jurisdiction inwhichthesupplierisbased. of presence) cross-border (taxable a establishment on – contract, it is conceivable that the issues supplier create a permanent establishment Permanent What istheusualapproachwithregardtoservice What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices Service Levels

■ ■ ■ ■ ■ ■ ■ ■ 11.2 ■ ■ ■ The remediesavailabletothecustomerinclude: 11.1 to relates which downtime any problems intheseelementswhichareoutsideitscontrol. exclude to want will supplier outside the control of the supplier, such as Internet transmission, the are which elements includes customer the to provision service the where course, Of services. the of availability the in downtime any of supplier the notify to customer than the on rely objectivity which arrangements and assurance greater provides This service provision. IT the of ‘uptime’ the measure continuously which tools IT through supplier the by recorded be to measures availability for can be measured on a continuous basis. It is now relatively common cloud and (SaaS) service service arrangements, a where a continuous IT as service is provided and software outsourcing, IT arrangement, as such provision service and infrastructure for applicable particularly are levels service Availability targets. time response IT in various and measures targets availability include level contracts provision service service of forms common the practice, In ‘emblematic’ identifying (but moreimportant)servicehasfailed. to effort substantial measurements: simple measurements that signify that a less tangible devote often parties services, measured easily but unimportant selecting avoid over whether the measures have actually been achieved. In order to customer the and supplier the between disputes of risk increased an level measures are included service which cannot If be objectively assessed, there is measured. objectively be can which items select to advised frequently are customers levels, service choosing When contracted levelofservice. obtaining “service debits” for those services in which it exceeds the 11 contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? upir pn ia cmlto ad cetne f the of acceptance and completion deliverables orservices towhichtheyrelate. final the to upon payable only supplier are which amounts retained Holding Benchmarking provisions. ultimate parentcompany. supplier’s the from guarantee company parent a Requesting or liquidationandthelike. level service serious of including failure, change of control of the supplier, supplier insolvency respect default, in of contract events the certain and terminate to liabilities rights Automatic its cover maintain to to obligations undertheagreement. cover supplier insurance the sufficient for requirements Contractual on terminationoftheagreement. triggered are which arrangements disengagement Extensive legislative compliance, securityissuesandtechnicalconsiderations. performance, service to relation in rights Audit or penaltyarrangement. measure to service performance levels together with a contracted service credit an service in include included agreement usually outsourcing are which protections Additional termination oftheagreement. obtaining anorderforspecificperformance;and claims fordamages; What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder Customer Remedies

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OUT19_04_07_Layout 104/07/201914:46Page135 ■ ■ Typically, customerwarrantiesandindemnitiesrelateto: ■

■ ■ ■ ■ Typical supplierwarrantiesandindemnitiesinclude: agreement include thefollowing: the services providing should use his or person her reasonable skill the and care when that doing so. is services for contract a in warranty ■ ICLG TO: OUTSOURCING 2019 the terminate to party affected the allow would which Events 13.1 ■ 12.1 implied only The services. for contract a is contract outsourcing An 11.3 Cliffe DekkerHofmeyrInc. ■ ■

■ ■ ■ 13 12 property infringementclaims. intellectual party third to relation in indemnity an Providing perform itsobligationsthereunder. Being authorised and entitled to enter into the agreement and and laws relevant with comply regulations. to failure and breaches security property, to damage and injury personal to relating those include also may customer the to provided Indemnities of athirdparty’s intellectualpropertyrights. breach of the agreement by the supplier and any infringement supplier, the of part and the on misconduct fraudulent staff or wilful its supplier, the to subcontractors’ actions, including as a result of negligence or due suffered harm against nente gvn o h csoe icue indemnities include customer the to given Indemnities efr te evcs ih kl ad ae i a iey and timely a in care, professional manner. and skill shall with and services skills, services the perform the required render to the expertise and possessing experience available disposal, staff its at has, adequate it that is provided warranty further A relevant legalandregulatoryrequirements. all with compliance its to relating warranties and warranties service warranties to the financial condition of the to supplier, intellectual property compliance, relating relating warranties devices, disabling and viruses to system relating those operating include performance; warranties Further corporate necessary all by action. authorised duly is agreement the under performance and delivery execution, the that and and agreement the of terms in perform and into enter to authority powers rights, necessary the all has it that warranty A Professional indemnityinsurance. Employer’s liabilityinsurance. transaction? for damagesfromtheterminated party? order tocovertherisksinvolvedinanoutsourcing terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcing agreement What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities that areincludedinanoutsourcingcontract? Cyber-liability insurance. Land, buildingsandcontentsinsurance. Public liabilityinsurance. Fidelity oremployeedishonestyinsurance. Business interruptioninsurance. Termination Insurance

have different terminationrightsinanoutsourcingcontract. losing to need parties two the that means supplier into and risk customer between in difference as The translates reputation. (such and processing) revenue time, operational process payment business or its reconciliation IT or or centre management call its infrastructure for services losing customer is the customer example, the For for terminated. is risk contract outsourcing the an if hand, higher substantially other the On revenue. lose will supplier the terminated, is contract outsourcing an If different. risk the two parties undertake in an outsourcing arrangement is very and fair should a be mutual between the customer and the in supplier because the date end agreed-to reasonable manner. the This is not to say to that the termination provisions prior arrangement the A well-drafted outsourcing contract enables either party to terminate shall subcontractors its provide uponterminationoftheagreement. and supplier the assistance termination post- of duration and type the consider also should customer The ■ ■ ■ ■ ■ an outsourcingagreement: in included usually are terminate to rights additional following The 13.2 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ compensation forearlytermination. require may supplier the instances, certain In period. notice agreed an on customer the by convenience for Termination party withanyorallofitscreditors. a by composition or arrangement of its scheme Acompromise, of portion material A significantchangeofcontrolinthesupplier. a of party a undertaking orasset. by disposal The not remediedwithintheprescribedtimeperiod. A material breach which is not capable of remedy or which is termination rights? Can thepartiesexcludeoragreeadditional be) ofaparty’s normallineofbusiness. may case the (as cessation or default of a prospect reasonable or cessation or default a is there where circumstances In finally. or provisionally whether management, judicial under party a Provisional or final liquidation of a party or the placement of composition byapartywithitscreditors. or compromise threatened or composition or compromise A Repudiation onthepartofoneparties. the supplier. to court or actually applies to court for the business rescue of apply to step any taking, or take, to proposing is person Any business rescueorproposestodoanyofthesethings. the in any to agrees or change considering, contemplating, is supplier The material or control the shareholding ofthesupplier. in change the Any with resources make to ability necessary experienceandskillsavailabletothecustomer. its on impact members which staff certain of supplier the by non-retention its the of to portion ability its material on render theservices. impact a may which of assets or supplier undertaking the by Disposal the Insolvency Act, 1936(asamended). of terms in insolvency of act an be individual, an been party that had would, which omission or act any of Commitment

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135 South Africa OUT19_04_07_Layout 104/07/201914:46Page135 ICLG TO: OUTSOURCING 2019 the terminate to party affected agreement include thefollowing: the allow would which Events 13.1 ■ ■ 12.1 ■ ■ Typically, customerwarrantiesandindemnitiesrelateto: ■ ■ ■ ■ ■ Typical supplierwarrantiesandindemnitiesinclude: the services providing should use his or person her reasonable skill the and care when that doing so. is services for contract a in warranty implied only The services. for contract a is contract outsourcing An 11.3 Cliffe DekkerHofmeyrInc. ■ ■ ■ ■ ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 13 12 transaction? that areincludedinanoutsourcingcontract? for damagesfromtheterminated party? Professional indemnityinsurance. Employer’s liabilityinsurance. property infringementclaims. intellectual party third to relation in indemnity an Providing perform itsobligationsthereunder. Being authorised and entitled to enter into the agreement and and laws relevant with comply regulations. to failure and breaches security property, to damage and injury personal to relating those include also may customer the to provided Indemnities of athirdparty’s intellectualpropertyrights. breach of the agreement by the supplier and any infringement supplier, the of part and the on misconduct fraudulent staff or wilful its supplier, the indemnities to subcontractors’ actions, including as a result of include negligence or due suffered customer harm the against to given Indemnities and timely a in care, professional manner. and skill shall with and services skills, services the perform the required render to the expertise and possessing experience available disposal, staff its at has, adequate it that is provided warranty further A relevant legalandregulatoryrequirements. all with compliance its to relating warranties and warranties service warranties to the financial condition of the to supplier, intellectual property compliance, relating relating warranties devices, disabling and viruses to system relating those operating include performance; warranties Further corporate necessary all by action. authorised duly is agreement the under performance and delivery execution, the that and and agreement the of terms in perform and into enter to authority powers rights, necessary the all has it that warranty A order tocovertherisksinvolvedinanoutsourcing terminate theagreementwithout givingrisetoaclaim How canapartytoanoutsourcing agreement What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities Cyber-liability insurance. Land, buildingsandcontentsinsurance. Public liabilityinsurance. Fidelity oremployeedishonestyinsurance. Business interruptioninsurance. Termination Insurance

have different terminationrightsinanoutsourcingcontract. losing to need parties two the that means supplier into and risk customer between in difference as The translates reputation. (such and processing) revenue time, operational process payment business or its reconciliation IT or or centre management call its infrastructure for services losing customer is the customer example, the For for terminated. is risk contract outsourcing the an if hand, higher substantially other the On revenue. lose will supplier the terminated, is contract outsourcing an If different. risk the two parties undertake in an outsourcing arrangement is very and fair should a be mutual between the customer and the in supplier because the date end agreed-to reasonable manner. the This is not to say to that the termination provisions prior arrangement the A well-drafted outsourcing contract enables either party to terminate shall subcontractors its provide uponterminationoftheagreement. and supplier the assistance termination post- of duration and type the consider also should customer The ■ ■ ■ ■ ■ an outsourcingagreement: in included usually are terminate to rights additional following The 13.2 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ termination rights? compensation forearlytermination. require may supplier the instances, certain In period. notice agreed an on customer the by convenience for Termination party withanyorallofitscreditors. a by composition or arrangement of its scheme Acompromise, of portion material A significantchangeofcontrolinthesupplier. a of party a undertaking orasset. by disposal The not remediedwithintheprescribedtimeperiod. A material breach which is not capable of remedy or which is Can thepartiesexcludeoragreeadditional be) ofaparty’s normallineofbusiness. may case the (as cessation or default of a prospect reasonable or cessation or default a is there where circumstances In finally. or provisionally whether management, judicial under party a Provisional or final liquidation of a party or the placement of composition byapartywithitscreditors. or compromise threatened or composition or compromise A Repudiation onthepartofoneparties. the supplier. to court or actually applies to court for the business rescue of apply to step any taking, or take, to proposing is person Any business rescueorproposestodoanyofthesethings. the in any to agrees or change considering, contemplating, is supplier The material or control the shareholding ofthesupplier. in change the Any with resources make to ability necessary experienceandskillsavailabletothecustomer. its on impact members which staff certain of supplier the by non-retention its the of to portion ability its material on render theservices. impact a may which of assets or supplier undertaking the by Disposal the Insolvency Act, 1936(asamended). of terms in insolvency of act an be individual, an been party that had would, which omission or act any of Commitment

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135 South Africa OUT19_04_07_Layout 104/07/201914:46Page136 136 South Africa the of property intellectual rights oftheotherparty. respect the in and information imposed such of restrictions confidentiality right the this to that but subject them remains by learned or developed techniques or which clause knowledge residual allows a both parties to utilise the generic ideas, concepts, know-how, by covered usually is This The parties specifically need to deal with this issue in the agreement. 14.4 are generallylimitedtouseonlyforthedurationofagreement. the in (either terms licence which document), post-termination separate a or supplier agreement outsourcing the by rights those of use with the outsourcing, the licence terms connection generally govern the continued in supplier the to rights IP licenses customer the Where 14.3 effectively protectedunder South African commonlaw. trade be can governing they know-how,though or information confidential legislation secrets, specific have not does Africa South 14.2 are developments bespoke Any typically ownedbythecustomer. services). the provide to uses and methodologies” (i.e. the intellectual property rights the supplier purposes of providing the services. The supplier retains for all its supplier “tools the to provides it materials other or information data, The rights. such customer typically owning retains its outsourcing intellectual property rights in party and to all the the of in commencement vested remain the agreement at as party a by owned rights property intellectual all that is position starting general The 14.1 supplier toterminatetheagreementforitsconvenience. bank enters a into for a material which outsourcing arrangement may agreement not allow the outsourcing an that requires above) 1.3 question in to (referred outsourcing on Note Guidance SARB The 13.3 Cliffe DekkerHofmeyrInc. WWW.ICLG.COM liability; of forms most exclude to free generally are parties The 15.1 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 15 14 under nationallaw? can itmakeofit? and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? supplier’s know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight To whatextent canapartylimitorexcludeliability Liability Intellectual Property

16.1 parties’ the and question in arrangement respective riskrequirements. outsourcing the of generally better than a fixed sum, but this will depend on the nature (for value is percentage contract a practice In the value). contract of the of 150% example, multiple or percentage a or amount, fixed a be may This liability. on limit a agree can parties Yes,the 15.2 party’s interest”. In party’sinterest”. side each other the to of regard without ... self-interest matter own her or a his pursuing “be cannot contract a honouring that fact the about spoke court the reason, this For contract. of law the into fairness of degree greater a infuse to equality and dignity freedom, of values foundational the of construction communitarian more a (4) SA 124 (CC), the Constitutional Court nodded in the direction of In a series of cases culminating in 17.1 Informal dispute resolution (negotiation), arbitration and the courts. in practice. the under negotiation to subject be able, will These revenue). and business profit, is it of loss direct (including that losses direct its ensure all recover the to agreement, to contrast, try In usually loss. will or direct customer profit a constitute business, these of where loss revenue, and loss consequential for and liability exclude indirect to aim will supplier a above, the to Subject or innocentmisrepresentation. parties may in certain circumstances exclude liability for negligence however, a contract to exclude liability for fraud is unlawful but the od at i te es hog wih e oe o understand to come we which through contracts inthatway lens the is faith Good or her own self-interest without regard to the other party’s interests. deal thereforecannot contract that a his pursuing side each of matter a be reached have invariably parties involving performances by each almost in order two to benefit both. areHonouring where contracts ventures this Bilateral cooperative within and others. dignity the of for respect squarelyfreedom as well as freedom falls and dignity own reciprocity of understanding of good faith and freedom of contract, based on one’s principle “The (CC) NkabindeJdevelopedthisapproachfurtherbysaying: 16 17 used? liability? reasonableness undergenerallaw? What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Dispute Resolution Good Faith

2014 (4) SA124 (4) 2014 Others and NO Rich v Botha .”

ICLG TO: OUTSOURCING 2019

Botha v Rich NO and Others

South Africa

2014

OUT19_04_07_Layout 104/07/201914:46Page137 ICLG TO: OUTSOURCING 2019 Cliffe DekkerHofmeyrInc. Cliffe Dekker Hofmeyr Inc is one of the largest business law firms in South Africa, with more than 350 lawyers and a track reco years. The Technology & Sourcing practice of Cliffe Dekker Hofmeyr Inc is widely recognised as market leaders for their work w of the top financial institutions in South Africa on their headline technology projects. The team is renowned across the techn the across renowned is team The projects. technology headline their on Africa South in institutions financial top the of noain n ecmec lw itleta poet ad data and property digital intellectual fintech, law, protection andprivacyissues. agreements, e-commerce level and service innovation and outsourcing law, in both the public and private sector,and on technology and communications services ICT of customers as and sector ICT the within both clients, major numerous advises She TelecommunicationsPractice. rea hgtje s drco i te ehooy Mda and Media Technology, the in director a is Bhagattjee Preeta industries for its market-leading position in advising on information technology, telecoms, and privacy and data protection. T protection. data and privacy and telecoms, technology,domestic andglobalmandatesisinvolvedinchangestokeylegislationaffecting thesesectors. information on advising in position market-leading its for industries URL: Email: Tel: South Africa Sandown Johannesburg 1 ProteaPlace Cliffe DekkerHofmeyrInc. Preeta Bhagattjee www.cliffedekkerhofmeyr.com/en/ [email protected] +27 115621038

services. financial especially sectors, industry of range diverse a across issues Christoff alsoadvisesongeneralcommercialandintellectualproperty support transactions. and licensing software and development software disaster services, recovery services, managed services, consultancy IT maintenance, business outsourcing, and acquisitions hardware integration, technology systems outsourcing, process systems, payment in particular has expertise and matters commercial and technology information information technology and intellectual property law. He specialises in Technology, our commercial, Telecommunicationsand on Media advises of He practice. Head National and Director is Pienaar Christoff

Email: Tel: South Africa Cape Town 11 BuitengrachtStreet Cliffe DekkerHofmeyrInc. Christoff Pienaar URL: [email protected] +27 214816350 www.cliffedekkerhofmeyr.com/en/

WWW.ICLG.COM rd spanning over 164 South Africa ith a large proportion ology and telecoms and ology

e em handles team he

137 South Africa OUT19_04_07_Layout 104/07/201914:46Page137 ICLG TO: OUTSOURCING 2019 Cliffe DekkerHofmeyrInc. © Published andreproduced withkindpermission byGlobalLegal Group,Ltd industries for its market-leading position in advising on information technology, telecoms, and privacy and data protection. T protection. data and privacy and telecoms, technology,domestic andglobalmandatesisinvolvedinchangestokeylegislationaffecting thesesectors. information on advising in position market-leading its for techn the industries across renowned is team The projects. technology headline their on Africa South in institutions financial top the of years. The Technology & Sourcing practice of Cliffe Dekker Hofmeyr Inc is widely recognised as market leaders for their work w data and property digital intellectual fintech, law, protection andprivacyissues. agreements, e-commerce level and service innovation and outsourcing law, and in both the public and private sector,and on technology and communications services ICT Media of customers as Technology,and sector ICT the the within both in director clients, major numerous advises She a TelecommunicationsPractice. is Bhagattjee Preeta Cliffe Dekker Hofmeyr Inc is one of the largest business law firms in South Africa, with more than 350 lawyers and a track reco URL: Email: Tel: South Africa Sandown Johannesburg 1 ProteaPlace Cliffe DekkerHofmeyrInc. Preeta Bhagattjee www.cliffedekkerhofmeyr.com/en/ [email protected] +27 115621038

Email: Tel: South Africa Cape Town 11 BuitengrachtStreet Cliffe DekkerHofmeyrInc. Christoff Pienaar URL: [email protected] +27 214816350 www.cliffedekkerhofmeyr.com/en/

WWW.ICLG.COM rd spanning over 164 South Africa ith a large proportion ology and telecoms and ology

e em handles team he

137 South Africa OUT19_04_07_Layout 1 04/07/2019 14:46 Page 138

Chapter 19 Spain Javier Fernández-Samaniego

SAMANIEGO Law Blas Piñar Guzmán

the Rome I Regulation. In any case, it must be considered that 1 Regulatory Framework Spanish mandatory provisions will prevail over any foreign law chosen by the parties when the outsourcing transaction affects 1.1 Are there any national laws or regulations that corporate, tax, labour, intellectual property or data protection issues specifically regulate outsourcing transactions, either in the Spanish territory. generally or in relation to particular types of In practice, there is strong pressure to choose Spanish law as the outsourcing transactions (e.g. business process governing law of an outsourcing contract, not only for those aspects outsourcings, IT outsourcings, telecommunications of the deal where application of Spanish law might be partially or outsourcings)? totally mandatory, but also in relation to the whole commercial relationship. Adapting some of the key international outsourcing Except for construction, outsourcing transactions are not regulated practices and contracting policies of global outsourcing suppliers to by any specific piece of legislation in Spain. Therefore, outsourcing Spanish legislation, case law and legal practice is a challenging is subject to, as any other voluntary relationship, what the parties exercise, both from the perspective of the Spanish judiciary and the foresee contractually without prejudice of the whole legal order and, commercial culture. specifically, commercial, tax and labour regulations.

Outsourcing in the construction sector is governed by Law 32/2006, of October 18th and Royal Decree 1109/2007, of August 24th. 2 Legal Structure

1.2 Are there any additional legal or regulatory 2.1 What are the most common types of legal structure requirements for outsourcing transactions used for an outsourcing transaction? undertaken by government or public sector bodies? BPO (Business Process Outsourcing), SaaS (Software as a Service) Public sector transactions must comply with public procurement platforms, cloud solutions, mobility, offshoring and new shared th regulations, mainly Law 9/2017, of 8 November, on public sector service concepts offer promising potential to organisations contracts, but also additional regulations from the specific public (customers) which embrace the strategic golden rules of sourcing: administration currently contracting. be the best at your core business; ensure technological innovations are used to their maximum potential; and ensure underlying 1.3 Are there any additional legal or regulatory operations and IT are being utilised in the best possible way. In requirements for outsourcing transactions Spain, despite that outsourcing transactions were initially legally undertaken in particular industry sectors, such as for structured as simple business-to-business agreements, the market example the financial services sector? has become more developed. It can be said that joint ventures are now the most common legal vehicle, permitting better articulation Even though there are no additional material requirements regarding of the operation’s assets to the parties. financial services and telecommunications transactions, it is true that some types of outsourcing operations made by financial entities or communication operators may be communicated to, authorised 3 Procurement Process by or registered with the relevant supervisory body, i.e. the Bank of Spain or the National Commission on Markets and Competition 3.1 What is the most common type of procurement (‘CNMC’ in Spanish). process that is used to select a supplier?

1.4 Is there a requirement for an outsourcing transaction The Request for Proposals (‘RFPs’) between a number of specialists to be governed by local law? If it is not to be local is widely used within the medium and large-sized companies in law, is there any generally accepted norm relating to Spain, especially by listed companies which are subject to special the choice of governing law? transparency requirements. In any case, procurement processes are not compulsory in Spain except for public administrations. No; outsourcing transactions are subject to the general choice of

governing law regime for business-to-business contracting, mainly

138 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page139 5.1 been have periods agreed, caselawforbidsunfairorsuddennoticeperiods. specific no if that note please However, No. 4.2 approximately fiveyears. No. Typically,of duration a has Spain in agreement outsourcing an 4.1 SAMANIEGO Law ICLG TO: OUTSOURCING 2019 (escrow). public deed before a notary, which is widely used for software rights Registration, if needed. Voluntary registration is possible through a 6.3 public deedandthenberegisteredwiththeLandRegistry. a within notary public a before granted be should agreement The 6.2 the beyond formalities more agreement betweenthepartiesarerequired. no registration, public to and subject trademarks be not asset the Should rights, production. energy and vehicles; authorial patents; software, including property public a to registration subject regime, such as: land; is corporate; guarantees; intellectual licensed or leased transferred, is that asset the when Registry the by required formalities are there general, In 6.1 outsourcing transactions. service in costs provisions, to relation in elements key are penalties benchmarking related and levels requirements; service the of Pricing review mechanisms are used where there has been a change 5.2 the outsourcing’s costreduction. of achievement the to related remuneration variable and fee fixed a is there rule, general a as However, transaction. outsourcing of There is no typical charging method, it depends on the specific type © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 5 4 6 outsourcing transactions? outsourcing transactions? outsourcing contract? minimum termforanoutsourcingcontract? license assetsonanoutsourcingtransaction? Charging Term ofanOutsourcing Agreement Transfer of Assets What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? What formalitiesarerequiredtotransfer, leaseor What otherkeytermsareusedinrelationtocosts

biain ta te mlye hd ih h fre employer, former the with plans. pension private and security social regarding those including had employees the that obligations and rights labour the all assumes undertaking an of transferee The 7.2 unit capableofcarryingoutservicesandactivities. production autonomous an of acquisition the includes transaction Employees are transferred by operation of law when the outsourcing 7.1 publication. relevant registrar, payment of the fee and obtainment of the relevant the before request a filing including observed, be must formalities some registration, public to subject is transferred asset the case In 6.4 No, apartfromconsolidatedrights oftheemployees. employees’ 7.6 the with period consultation a representatives andbasedonobjectivegrounds. through Yes, 7.5 renders thespecificservicesthataregoingtobeoutsourced. who employee an dismiss can it reasons’ ‘objective on Yes,based 7.4 for theemployees. consequences and transfer the for reasons date, transfer anticipated the as such transfer, the to prior representatives employees’ the to information certain provide must both but parties, the by disclosed There are no particular requirements for employee information to be 7.3 new oneisagreed. a or expires it until apply to continue will undertakings of transfer otherwise unless agreements, agreed, the agreement that applies to the transferor at the time of the bargaining collective Regarding the employeesbecomeoftransferee. the former employer. Once the transfer of undertakings takes effect, by employed remain to right a have not do employees addition, In transferee toterminateanyoftheexistingemploymentcontracts. the or employees the entitle not does itself transfer the Therefore, 7 take place? existing workforce? employee forareasonconnectedtotheoutsourcing? provide toeachother? Employment Law On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties

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139 Spain OUT19_04_07_Layout 104/07/201914:46Page140 140 Spain n Dgtl ihs r fly plcbe o n outsourcing any to internally or transferred fromonecompanytoanother. imported applicable exported, are fully data personal if are transaction Rights Digital and eogn t te ae ru (rltd ate’ etr no an into enter parties’) (‘related group outsourcing transaction. companies same where the case to the in belonging apply will rules pricing Transfer 9.3 will notbetaxdeductiblefortheprincipal. principal the to services outsourced the on provider the by charged VAT,from exempt is outsourcing, the to related VATcase which in No, unless the trade or business activity carried out by the principal, 9.2 apply ifthetransferincludesrealestateassets. may tax transfer case VAT,to which subject in not is transfer the unit, economic autonomous of transfer a as qualifies transfer the If or anexemptionfrom VAT mayapply. VAT, generally at a rate of 21%. In certain cases, a reduced tax rate to subject be will business outsourced the to respect with taxpayer The supply of services or the transfer of goods undertaken by a VAT 9.1 No, therearenot. 8.2 5 December of 3/2018, Law Organic the and (‘GDPR’) Regulation Protection Data General European the Both 8.1 No, therearenot. 7.7 SAMANIEGO Law WWW.ICLG.COM within used outsourcing transactions in Spain often to measure the performance of the quite are (‘SLAs’) Agreements Level Service 10.1 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 10 9 8 levels andservicecredits? under theoutsourcingcontract? terminating thecontract? requirements concerninginformationsecurity? transaction? Tax Issues Security Data ProtectionIssuesandInformation What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? What istheusualapproachwith regardtoservice Service Levels

th , on Data Protection Data on ,

needs. of assessment prior or insurance rights, ownership opinion, expert including indemnities, and/or warranties of variety broad a is There 11.3 Additional protectionsincludestep-inrightsorpenaltyclauses. 11.2 damages inthecaseofabreachcontract. for claims and performance correct for requests including remedies general for provide Codes Commercial and Civil Spanish the Both 11.1 No, therearenot. 13.3 are observed. Code Civil the by foreseen limits mandatory that Yes,extent the to 13.2 in thecaseofafriendlytermination. contracting general the to regime regarding termination. Hidden defects may be claimed even subject are agreements Outsourcing 13.1 should beconsidered. losses, IT for cover as well as insurance, Officers’ and Directors’ 12.1 complex long-termtransactions. to restricted are credits service Conversely, execution. contract’s 11 13 12 that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? to seeinanoutsourcingcontract? termination rights? for damagesfromtheterminatedparty? transaction? What arethetypicalwarrantiesand/orindemnities What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin Customer Remedies Termination Insurance

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OUT19_04_07_Layout 104/07/201914:46Page141 provisions beforeSpanishcourts. serious concerns on the adaptation and enforceability of contractual cases, some in and, differences strong imply systems, law common on based damages, while of types different courts, on exclusions and or limitations lawyers Spanish by accepted and understood better are the caps justified and Reasonable Spanish of advisers. and and stages customers operators outsourcing later global at between (frequently negotiation) appear clearly differences, legal cultural other and systems, legal law common and continental between difference the where points the of one is this because also but itself, issue the of relevance economic the of because only gross not cases, some suppliers request from customers usually leads in to tough negotiation, and, outsourcing that provisions liability of limitation misconduct The negligence. wilful on restriction agree otherwise, typicallythroughanescrowagreement. can parties the but post-termination, know-how supplier’s information. Law,Law Tradeand Law,Secrets Law Patents Competition Unfair software materials, pre-existing regarding developments andthird-partylicences. taken be should ICLG TO: OUTSOURCING 2019 Limitation or even exclusion of liability is fair in Spain with the sole 15.1 the to whatsoever access any gain cannot customer the principle, In 14.4 No, unlessthepartiesagreeonthatpoint. confidential 14.3 critical business for resources legal provide Law,TrademarksProperty Intellectual Code, Commercial Yes,the 14.2 care Special contractually. agree parties the what by Primarily 14.1 SAMANIEGO Law 15 14 can itmakeofit? supplier's know-howpost-terminationandwhatuse and canthesebeexcludedfromtheagreement? To whatextentcanapartylimitorexclude liability To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto law? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty under nationallaw? Liability Intellectual Property

rfsinl sal c wt te iiec o a ‘devoted a of according tothesuitabledecision-makingprocedure. personal without diligence faith, and information enough with good decided, being matters the in the interest in act with to implying act businessman’, shall professionals law, corporate Spanish on 1/2010 Decree Royal the of 226.1 and 225.1 Articles to according Furthermore, code). Civil Spanish the of 1258 (Article for parties the of rule behaviour and specific contracts construing a additionally, and, Code) Civil Spanish the of 7.1 (Article system legal Spanish the in rule general a is faith Good 17.1 used. often are arbitration and courts national before litigation Both 16.1 cases. negligence gross and misconduct wilful consider please but Yes, 15.2 oe n mr, eito i big nrdcd o complex to introduced being is mediation more, and More the specificoutsourcingprojectandcompaniesinvolved). resolution of circumstances and features the considering basis, case-by-case a dispute such on done be to needs that assessment (an assessed carefully be must of courts to submission the The of those with disadvantages comparison in mechanisms considered. and seriously be advantages to options become arbitration) and mediation IT (including clauses in escalation implied projects, matters outsourcing technical the and used typically concepts legal the of some of nature international the with together above, mentioned issues legal the of nature sector-specific and complex where agreements of highly the given parties, the by solved be cannot enforcement and arise disputes the of perspective the clauses. From escalation of form the in even transactions, outsourcing 17 16 used? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolution liability? Are thepartiesfreetoagreeafinancialcapon reasonableness undergenerallaw? Good Faith Dispute Resolution

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141 Spain OUT19_04_07_Layout 104/07/201914:46Page141 ICLG TO: OUTSOURCING 2019 provisions beforeSpanishcourts. serious concerns on the adaptation and enforceability of contractual cases, some in and, differences strong imply systems, law common on based damages, while of types different courts, on exclusions and or limitations lawyers Spanish by accepted and understood better are the caps justified and Reasonable Spanish of advisers. and and stages customers operators outsourcing later global at between (frequently negotiation) appear clearly differences, legal cultural other and systems, legal law common and continental between difference the where points the of one is this because also but itself, issue the of relevance economic the of because only gross not cases, some suppliers request from customers usually leads in to tough negotiation, and, outsourcing that provisions liability of limitation misconduct The negligence. wilful on restriction Limitation or even exclusion of liability is fair in Spain with the sole 15.1 agree otherwise, typicallythroughanescrowagreement. can parties the but post-termination, know-how supplier’s the to whatsoever access any gain cannot customer the principle, In 14.4 No, unlessthepartiesagreeonthatpoint. confidential 14.3 critical business for resources information. legal provide Law,Law Tradeand Law,Secrets Law Patents Competition Unfair Law,TrademarksProperty Intellectual Code, Commercial Yes,the 14.2 software materials, pre-existing regarding developments andthird-partylicences. taken be care Special contractually.should agree parties the what by Primarily 14.1 SAMANIEGO Law © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 15 14 law? protected inanoutsourcingtransaction? under nationallaw? can itmakeofit? and canthesebeexcludedfromtheagreement? supplier's know-howpost-terminationandwhatuse To whatextentcanapartylimitorexclude liability To whatextentcanthecustomergainaccess tothe continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty Liability Intellectual Property

the specificoutsourcingprojectandcompaniesinvolved). resolution of circumstances and features the considering basis, case-by-case a dispute such on done be to needs that assessment (an assessed carefully be must of courts to submission the The of those with disadvantages comparison in mechanisms considered. and seriously be advantages to options become arbitration) and mediation IT (including clauses in escalation implied projects, matters outsourcing technical the and used typically concepts legal the of some of nature international the with together above, mentioned issues legal the of nature sector-specific and complex where agreements of highly the given parties, the by solved be cannot enforcement and arise disputes complex the of to perspective the introduced clauses. From escalation of being form the is in even transactions, mediation outsourcing more, and More used. often are arbitration and courts national before litigation Both 16.1 cases. negligence gross and misconduct wilful consider please but Yes, 15.2 rfsinl sal c wt te iiec o a ‘devoted a of according tothesuitabledecision-makingprocedure. personal without diligence faith, and information enough with good decided, being matters the in the interest in act with to implying act businessman’, shall professionals law, corporate Spanish on 1/2010 Decree Royal the of 226.1 and 225.1 Articles to according Furthermore, code). Civil Spanish the of 1258 (Article for parties the of rule behaviour and specific contracts construing a additionally, and, Code) Civil Spanish the of 7.1 (Article system legal Spanish the in rule general a is faith Good 17.1 16 17 used? liability? reasonableness undergenerallaw? What arethemainmethodsofdisputeresolution Are thepartiesfreetoagreeafinancialcapon according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Dispute Resolution Good Faith

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141 Spain OUT19_04_07_Layout 104/07/201914:46Page142 142 Spain SAMANIEGO Law WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd Madrid and Miami. The firm is a hybrid that combines an international commercial law firm, a legal strategy consultancy firm a firm consultancy strategy legal a firm, law commercial international an combines that hybrid a is firm The Miami. and Madrid resolutio dispute and law IT in specialising firm law alternative Ibero-American an is 2017, January in Law,launched SAMANIEGO infcn rdcin n es h fr’ cins r tpcly ehooy opne ad rvdr o dgtl rnfrain s transformation digital of providers and companies technology typically are clients firm’s The fees. in reduction significant technology,allowing of use smart and structure organisational flexible and simple boasts firm The managers. interim legal and solutions platform. The team comprises lawyers and strategic and IT consultants, with support from a long-standing network of expanding intoEuropeand, organisations that want to reinvent their business. The firm has a clear focus on the Latin Atlantic region and regularly advi the for Centre (Spanish CDTI and Development ofIndustrial Technology). Cuatrecasas at worked Javier that Before Linklaters, decade. a over for teams IT and Managing DR and Founding was Javier Partner of the Spanish office 2017, of Bird & Bird and head in of its Commercial, Law SAMANIEGO European their Latin its developing in Atlantic Techlaunching Before their Collaborative. law clients in US University,International clients Florida at and Fellow Senior is Javier expansion. America European Latin assisting into experience expansion etc.). vast programs, has review Javier protection data transactions, outsourcing models, business data big and cloud (new projects privacy and tech major and negotiations and ADR) and arbitration (litigation, disputes commercial/IT on mainly focuses practice international his and Law SAMANIEGO of Director Managing is Fernández-Samaniego Javier Email: Tel: Spain Madrid c/ Serrano16,6D,28001 SAMANIEGO Law Javier Fernández-Samaniego URL: vice versa,Europeancompaniesexpandingintothe Americas.

[email protected] +34 687855619 https://samaniegolaw.com

Groups ofBird&(International)LLP, basedinMadrid. then Senior Associate in the Commercial & IT and Dispute Resolution to joining SAMANIEGO Law, from social 2008 to 2017 he was Associate and e-commerce, agreements, on consumption issues and insolvency assessments. Prior disputes distribution with familiar also is He and economy. sharing and networks advice includes practice contract drafting, revision, negotiation and localisation. His extensive with deals usually He Court. Supreme the before appeals cassation and arbitration international His includes experience resolution matters. dispute protection data and privacy in and has involvement also He valuable IP ADR. and litigation IT, in both resolution dispute in energy and experience software on focus a with lawsuits, practical and matters law commercial and his knowledge has focusing Blas significant Law, mediation). and arbitration SAMANIEGO (litigation, and resolution at contracting dispute commercial Lawyer technologies, in Senior practice professional a is Blas Email: Tel: Spain Madrid c/ Serrano16,6D,28001 SAMANIEGO Law Blas PiñarGuzmán URL: ICLG TO: OUTSOURCING 2019

[email protected] +34 679640439 https://samaniegolaw.com ses American companies trusted professionals ltos a wl as well as olutions,

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OUT19_04_07_Layout 104/07/201914:46Page143 wteln i a intr t teWO oenet Procurement Government WTO the to signatory a is Switzerland pi 21, hc cnan te euaoy eurmns for requirements regulatory the insurance (new) as well contains as dealers securities banks, by outsourcing which 2018, April 1 of as applicable 2018/03, Circular Outsourcing revised its issued on certainaspectsofgovernmentprocurement. EU the with agreement bilateral a into entered has and Agreement a for provide mandatory competitivetenderprocessifcertainthresholdsaremet. which laws procurement public by level cantonal contracts outsourcing in safeguards necessary. additional render obligations secrecy which extended to subject is sector healthcare The are providers telecoms however, subject totelecomsregulations. sector; telecoms the or sector IT the to applicable requirements regulatory specific no are There outsourcing contractwiththesupplier. the in addressed be to need obligations such documents; supporting and records accounting of storage reports, audit reports, annual to pertaining laws Swiss with comply F&Amust an BPO to customer Albeit business process outsourcing is not specifically regulated, the such asemploymentlaw, dataprotectionlawandmerger law. transactions, outsourcing of aspects certain govern that to adhered be must provisions statutory mandatory course, Of transactions. h Sis iaca Mre Sprioy uhrt FNA has FINMA Authority Supervisory Market Financial Swiss The 1.3 and federal a on regulated is sector public the in Outsourcing 1.2 outsourcing regulate specifically not does law Swiss No, 1.1 Arioli Law ICLG TO: OUTSOURCING 2019 Switzerland Chapter 20 1 Regulatory Framework example thefinancialservices sector? outsourcings)? undertaken inparticularindustry sectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory undertaken bygovernmentorpublicsectorbodies? requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory outsourcings, ITtelecommunications Are thereanynationallawsorregulationsthat outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

( contrary the to immediate provision contractual any Irrespective of the choice of law, mandatory Swiss law overrides law Swiss mandatory law, of choice the of Irrespective utmr fiits rcr srie fo te upir iety as contractual parties. directly supplier the from services procure affiliates customer the up, set contractual decentralised a in whereas affiliates, group its of behalf on services supplier the procures customer the up, set the contractual centralised entities, a in global complex: more is group structure contractual For multiple involving companies. transactions outsourcing independent two between agreement Generally, the outsourcing relationship is based on a master services 2.1 customer. the of domicile the at applicable law to parties the the for choose is norm the however, law; Swiss be by to governed transaction outsourcing an for requirement no is there No, 1.4 outsourcings bySwissfinancialinstitutions. with connection in considered be must requirements Notification business applicabletotheindividualcustomercontract. such consent may be obtained based upon the bank’s general terms of is supplier a to data non-encrypted of disclosure Further,any rules. only permitted with the express consent of each banking customer; banking each of consent express the with permitted only contain the supplier’s obligation to comply with the banking secrecy ntttos n wteln (akn scey. n outsourcing An secrecy). agreement with a customer subject to (banking banking secrecy must therefore Switzerland in institutions customer- protects Act Banking related data from disclosure to third Federal parties and applies to all banking Swiss the of 47 Article dropped toavoidinconsistencieswithgeneraldataprotectionlaws. protection data been have circular on outsourcing FINMA provisions previous the in The contained data. to of provisions availability as well secure as right, audit comprehensive suppliers, a of including control and instruction selection, the on provisions contains 2018/03 Circular Outsourcing The supervision. FINMA to subject are which insurers and dealers securities banks, foreign law,of Swiss branches organisedunder Swiss companies including 2 Legal Structure the choiceofgoverninglaw? law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot used foranoutsourcingtransaction? What arethemostcommontypesoflegalstructure Is therearequirementforanoutsourcingtransaction ).

Martina Arioli

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os d’application lois

143 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 143

Chapter 20 Switzerland

Arioli Law Martina Arioli

companies organised under Swiss law, including Swiss branches of 1 Regulatory Framework foreign banks, securities dealers and insurers which are subject to FINMA supervision. The Outsourcing Circular 2018/03 contains 1.1 Are there any national laws or regulations that provisions on the selection, instruction and control of suppliers, specifically regulate outsourcing transactions, either including a comprehensive audit right, as well as provisions to generally or in relation to particular types of secure availability of data. The provisions on data protection outsourcing transactions (e.g. business process contained in the previous FINMA outsourcing circular have been outsourcings, IT outsourcings, telecommunications dropped to avoid inconsistencies with general data protection laws. outsourcings)? Article 47 of the Swiss Federal Banking Act protects customer- related data from disclosure to third parties and applies to all banking No, Swiss law does not specifically regulate outsourcing institutions in Switzerland (banking secrecy). An outsourcing transactions. Of course, mandatory statutory provisions must be agreement with a customer subject to banking secrecy must therefore adhered to that govern certain aspects of outsourcing transactions, contain the supplier’s obligation to comply with the banking secrecy such as employment law, data protection law and merger law. rules. Further, any disclosure of non-encrypted data to a supplier is Albeit business process outsourcing is not specifically regulated, the only permitted with the express consent of each banking customer; customer to an F&A BPO must comply with Swiss laws pertaining such consent may be obtained based upon the bank’s general terms of to annual reports, audit reports, storage of accounting records and business applicable to the individual customer contract. supporting documents; such obligations need to be addressed in the Notification requirements must be considered in connection with outsourcing contract with the supplier. outsourcings by Swiss financial institutions. There are no specific regulatory requirements applicable to the IT sector or the telecoms sector; however, telecoms providers are subject to telecoms regulations. 1.4 Is there a requirement for an outsourcing transaction to be governed by local law? If it is not to be local The healthcare sector is subject to extended secrecy obligations law, is there any generally accepted norm relating to which render additional safeguards in outsourcing contracts the choice of governing law? necessary. No, there is no requirement for an outsourcing transaction to be 1.2 Are there any additional legal or regulatory governed by Swiss law; however, the norm is for the parties to requirements for outsourcing transactions choose the law applicable at the domicile of the customer. undertaken by government or public sector bodies? Irrespective of the choice of law, mandatory Swiss law overrides any contractual provision to the contrary (lois d’application Outsourcing in the public sector is regulated on a federal and immediate). cantonal level by public procurement laws which provide for a mandatory competitive tender process if certain thresholds are met. 2 Legal Structure Switzerland is a signatory to the WTO Government Procurement Agreement and has entered into a bilateral agreement with the EU on certain aspects of government procurement. 2.1 What are the most common types of legal structure used for an outsourcing transaction?

1.3 Are there any additional legal or regulatory Generally, the outsourcing relationship is based on a master services requirements for outsourcing transactions undertaken in particular industry sectors, such as for agreement between two independent companies. For global example the financial services sector? outsourcing transactions involving multiple group entities, the contractual structure is more complex: in a centralised contractual The Swiss Financial Market Supervisory Authority FINMA has set up, the customer procures the supplier services on behalf of its issued its revised Outsourcing Circular 2018/03, applicable as of 1 group affiliates, whereas in a decentralised contractual set up, the April 2018, which contains the regulatory requirements for customer affiliates procure services from the supplier directly as outsourcing by banks, securities dealers as well as (new) insurance contractual parties.

ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 143 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page144 144 Switzerland have seenashifttoshorterterms. years with automatic renewal unless terminated. In recent years we 10 to three of term fixed a have Typically,agreements outsourcing o rglr n peitbe oue n soe f evcs or services, of scope and volume consumption/transaction-based charging. predictable and regular for pricing fixed margin), profit pre-agreed a plus supplier by incurred The most common charging methods include cost plus (actual costs 5.1 the resource or insource to takes services obtainedbythesupplier. it time the account into take should customer the period, notice a negotiating when However, No, there are no mandatory notice periods for outsourcing contracts. 4.2 duration. the determine to free an are parties the contract; outsourcing for terms maximum or minimum mandatory no are there No, 4.1 and A federal with. direct awardisonlypermittedinexceptionalcircumstances. complied in be to out need laws set procurement public processes cantonal the procurement, public into For directly enter or supplier’s standardcontracts. tender to invitation customer’sthe or upon based supplier preferred a with negotiations an to choose issue companies some simply consuming, time and costly be can and the commercial terms offered. Given a fully blown RFP process quality service the to addition in terms legal such to adherence the and, upon assessing the submissions, select the supplier based upon define key legal to terms of the outsourcing agreement at (RFP) an early stage proposal to for position the in is RFP,customer an Withthe request suppliers. selected a issue companies private Most 3.1 customer mayalsoestablishan(offshore) captiveentity. or enter into a contractual joint venture or partnership agreement. The Further, the customer and supplier may choose to set up a joint venture Arioli Law WWW.ICLG.COM ■ control andadequateadjustmentof charges, including: The outsourcing agreement should provide for a mechanism for cost 5.2 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 5 4 3 outsourcing transactions? outsourcing transactions? outsourcing contract? minimum termforanoutsourcingcontract? process thatisusedtoselectasupplier? charge variation mechanisms; Charging Term ofanOutsourcing Agreement Procurement Process What arethemostcommonchargingmethodsusedin notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum What isthemostcommontypeofprocurement What otherkeytermsareused inrelationtocosts

party. third such of consent the require may agreements licence relevant the as account into taken be must property intellectual party Third (cf. question6.2). Only for the transfer of land does Swiss law prescribe a public deed respective registriesassoonpossible. the in patents and trademarks of transfers register to recommended intellectual as such strongly is it Further, assets, recommended. is of form written the property, license or lease transfer, the For 6.1 if the employer assigns its business or a business unit to an acquirer, that stipulates (“CO”) Obligations of Code Swiss the of 333 Article 7.1 above). which is generally constitutive for the transfer (see also question 6.2 register, land cantonal a into entered be must land of transfer The of IntellectualProperty. Institute Federal Swiss the by administered registries respective the into entered be should and can patents and trademarks Transfersof 6.4 None, otherthanthoseunderquestion6.4. 6.3 highly is agreement outsourcing an within uncommon. land of transfer The required. is authority cantonal competent the of authorisation an site, contaminated any transfer Similarly,to order estate. in real commercial or living for land acquiring as such apply, exceptions certain unless authority cantonal competent the by authorisation an Land acquisition authorisations. in Switzerland by further a non-Swiss resident to may be subject to subject be may land of some transfers addition, In Act). Merger Swiss the to according transfers for apply (exceptions land of transfer the for constitutive generally notarised and written a on based contract (public deed). In addition, the entry into be the land register is must land of transfer Any 6.2 ■ ■ ■ ■ ■ ■ ■ 6 7 license assetsonanoutsourcingtransaction? Transfer of Assets Employment Law What formalitiesarerequiredtotransfer, leaseor Whenareemployeestransferred byoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? What aretheformalitiesfortransferofland? pre-agreed inflationadjuster. disputed charges; and benchmarking; auditing; and parties the between savings provide anincentivetothesupplierachievethese; cost share to measures service levelcreditsorbonus/malus; change managementprocedures;

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OUT19_04_07_Layout 104/07/201914:46Page145 the employee’s objectiontothetransfer. can effectively be terminated or until its actual termination based on relationship employment the date the to up due become will (ii) or severally transfer, and the to prior due are jointly (i) which employee’sclaims for liable are acquirer the and employer former the The modify can acquirer holiday the accrued transfer,employment terms,seequestion7.5. as the After well as entitlements. agreement, bargaining a collective on based or agreement employment the under granted benefits including conditions, and terms existing all essentially on acquirer the to transferred automatically are agreements employment The 7.2 (Article 333aCO). place takes transfer the before time good in themselves employees the with consult or employees’ representativesor, ifthereisnorepresentation,withthe inform to obliged is employer previous The affected employee transfers inaccordancewith Article 27oftheSwissMerger Act. any of objects tosuchtransfer. This alsoappliestomergers, splitsorasset relationship affectedthe unless employee acquirer the to transfers automatically employment the Arioli Law ICLG TO: OUTSOURCING 2019 the CO, 333 Article under transferred are employees When 7.6 employment of terms changed once thecontractualnoticeperiods haveexpired. only on force into enter can terms new The dismissal). agreements (constructive new offer and agreements employment the terminate also may acquirer The the non-material aspectsonly. the modify to to may pertains subject modification the that provided employee and employer consent employee’s transferring new the of the terms transfer,employment the after Yes, 7.5 CO. 333 Article contravene would termination such rule, a As 7.4 order fortheacquirertofulfilitsobligationsasemployer. in agreements employment necessary the of performance all the for information with provided be must acquirer the transfer, Upon and conditions,function,senioritylevel,salarynoticeperiod. terms employment on details include may Information possible. extent the to anonymised be should and basis know” to “need a to transfer the date, the to data on employees Prior disclosed to the acquirer must be agreement. limited outsourcing an to parties the by exchanged be must information what on rule statutory no is There 7.3 oee, f h rsetv ntc pro i osre, the observed, is period transfer. notice respective employment agreement may be terminated after or even prior to the the if However, © Published andreproduced withkindpermission byGlobalLegal Group,Ltd provide toeachother? take place? existing workforce? employee forareasonconnectedtotheoutsourcing? On whattermswouldatransferbyoperationoflaw Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties

■ following the Act, Protection Data requirements foroutsourcingtransactionsapply: Federal current the requirements Under regulatory sector-specific governing datasecurityandprotectionmattersmayapply. industry addition, In will becompletedandenterintoforce. in – for decision process adequacy Switzerland. However, to date it remains EU unclear when the revision revision the maintaining the of of view in part particular second the in implemented be will protection data of level adequate without countries to data of transfer the as well as processing data to pertaining GDPR the into force on 1 March 2019. It is expected that provisions similar to (SDPA)entered Act Protection Data Schengen transitional the and 8.1 preserves itsidentitypost-transfer.concerned business the if applies only CO employment 333 Article given the law whether assess business to of contracts of the affected employees actually transfer by need operation of transfer parties the the entails offshore, agreement outsourcing the If 7.7 ■ ■ ■ Schengen the with compliant remain to order In debate. parliamentary to subject still currently is and 2017 September in DPApublished revised was the for The draft and revised. being currently is technical Act Protection Data Federal the The include data Such also organisational datasecurity measuresimplementedbythesupplier. shall agreement. outsourcing agreement the processing in included be GDPR must 28 Article with compliance in agreement processing data a processing, data involves service outsourced the and controller in multijurisdictional outsourcings. Where the GDPR applies to the for the processing of personal data under in Article 3 GDPR as well as apply not companies Swiss does to apply may – GDPR the However, rule Switzerland. a as – (GDPR) Regulation Data General Protection the EU, the of member a not is Switzerland Given olcie lis o prin f h nncmitd ud (free funds non-committed reserves) inadditiontotheirordinaryclaimsthevestedbenefit. the of portion a or to individual claims have collective then employees The liquidated. partially be must scheme pension respective the substantially, reduces scheme pension employer’s former the of part forms that workforce the If the newscheme’s regulations. transfer, the employees’ pension benefits are calculated according to the After scheme. pension acquirer’s the to transferred are scheme pension employer’s former the under benefits vested employees’ 8 the partiesmustconcludeawrittenprocessingagreement; transaction? security in accordance with the requirements of the Ordinance data for provides supplier the that ensure shall customer the statutory orcontractualdutyofconfidentiality; and a by prohibited be not must data personal of processing the to theinstructionsofcustomer; pursuant and itself customer the to permitted in processing the supplier the by processed of limits the within and defined purpose the with accordance be only may data personal Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? , the revision process was split was process revision the acquis,

WWW.ICLG.COM Switzerland

145 Switzerland OUT19_04_07_Layout 104/07/201914:46Page146 146 Switzerland pl a iblt cp o bece o dt poeto o other or protection data of breaches for regulatory requirementsinoutsourcingagreements. cap liability a apply the growing importance of data protection, there is a tendency not to the reflecting for and supplier, the by data subject personal of handling data compliant the towards liable remains customer the Data As Federal the in stipulated Protection Act regardingcross-borderdatatransfers. requirements the with comply Transborder Data Flow Agreement, which allows data processors to Data Federal Swiss the Swiss sample a provides Commissioner Information and Protection outsourcing, cross-border of cases For WWW.ICLG.COM supplier the to assets of constitutes a supply of transfer goods or services and is, in principle, subject every law, Swiss to Pursuant 9.2 constructive a of taxation shift offunctionsshouldnotbetaxed. mere to the doctrine, prevailing rise to According give shift. dividend/profit may period notice a The termination of contracts without adequate compensation and/or with line in general transferpricingprinciples. and length arm’s at be must outsourcing Intragroup transfer tax,federalsecuritiesand VAT. The transfer of assets may trigger corporate income taxes, real estate 9.1 Bankers Swiss the of Guidelines Cloud Association, aguidetosecurecloudbanking(March2019). the or 2018) (May of the by SMEs” for Reporting and Checklist Analysis Centre for Information Security Assurance MELANI “Information the as such guidelines and checklists have been issued by various organisations, regulatory regimes and certifications such as ISO. Further, multiple Information Rather, Security is left to the responsibility of the private sector within self- enacted. be to Swiss yet the has to government apply Federal shall that Act Security Information draft the instance, For data. personal processing when to security data ensure measures organisational and technical appropriate to implement Act Protection Data Federal Swiss the to pursuant obligations (NCS) specific statutes have been enacted so far that go no beyond the general However, Strategy 2018. April in Cyber updated was which 2012, National in already the issued government Swiss The Security. Information govern that laws specific no are There 8.2 Arioli Law © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 9 requirements concerninginformationsecurity? loss, alteration, copying,accessorotherunauthorisedprocessing. accidental unauthorised use, destruction, unlawful or theft forgery, confidentiality, faults, technical accidental from data or protecting ensure by unauthorised data of shall integrity and availability measures and technical organisational The art. the of state data current the the and to subjects risks possible the of assessment an the of processing, extent and nature the as well as implementing purpose the account by into Protection taking measures, Data organisational and technical on adequate Act Federal the to under theoutsourcingcontract? terminating thecontract? Tax Issues Is thereanyVAT leakageonthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory

breaches orpersistentperformancefailures, the to prejudice customer’s more extensive rights without in relation to more serious however,contract concerned, failure particular Service credits are typically the sole remedy of the customer for the partial a facilitate to pursue aclaimfordamagesorterminatetheagreement. and to levels need the without service poor for customer the of service compensation agreed consistently the to supplier achieve the incentivise shall credits service The and 15%ofthefeesdueinthatparticulartimeperiod. 5% of range the in amount at-risk an at capped usually are period a levels, service to the supplier as a service credit. Service upon credits for a specific time agreed the payable fees service the from deducted is amount small) (relatively achieve not does supplier This entails detailed reporting and monitoring. In the event that the which performance can be measured (key performance indicators). performance (key measured be can by performance which criteria service be the as to well as services levels, service the the define and provided parties the Work, of Statement the In services, IT to pertains business processes,facilitymanagement,etc. outsourcing the whether considerably on differs depending and depends transaction Credits outsourcing Service the on and entirely Levels Service of definition The 10.1 optimising measures. tax identify outsourcings, intragroup for and, taxes income reduce source to taxation, double avoid to order in planning tax holistic consider to recommended is it outsourcings, multijurisdictional For 9.3 biain o te usucn areet ae en breached. been have agreement outsourcing the of obligations contractual what on dependent highly are remedies corresponding corporations. Consequently, the applicable statutory provisions and Moreover, to and contracts sales to services, and work for contracts to relating breach. contract and outsourcing agreements contain elements of the statutory provisions agreement outsourcing the governing provisions statutory specific contain not does law Swiss 11.1 ■ to determineremediesintheoutsourcingagreement,suchas: Given the statutory provisions are not mandatory, the parties are free neutralised bygrouptaxation. VATa be in can result which may leakage, outsourcing Intragroup VAT mustbenotified. to VAT. If transferred assets are part of a transferred business entity, ■ ■ ■ ■ 10 11 levels andservicecredits? general lawifthesupplierbreachescontract? eeito o dfcs ihn eemnd ie limits, time determined within including e.g.replacementofhardware; defects of remediation What istheusualapproachwithregardtoservice What othertaxissuesmayarise? What remediesareavailabletothecustomerunder termination orrescission oftheoutsourcingagreement. step-in rights;and reduction ofoutsourcingfees; damages; liquidated including damages, for compensation monetary Service Levels Customer Remedies

ICLG TO: OUTSOURCING 2019

cf. section11.

Switzerland

OUT19_04_07_Layout 104/07/201914:46Page146 146 Switzerland pl a iblt cp o bece o dt poeto o other or protection data of breaches for regulatory requirementsinoutsourcingagreements. cap liability a apply the growing importance of data protection, there is a tendency not to the reflecting for and supplier, the by data subject personal of handling data compliant the towards liable remains customer the Data As Federal the in stipulated Protection Act regardingcross-borderdatatransfers. requirements the with comply Transborder Data Flow Agreement, which allows data processors to Data Federal Swiss the Swiss sample a provides Commissioner Information and Protection outsourcing, cross-border of cases For WWW.ICLG.COM supplier the to assets of constitutes a supply of transfer goods or services and is, in principle, subject every law, Swiss to Pursuant 9.2 constructive a of taxation shift offunctionsshouldnotbetaxed. mere to the doctrine, prevailing rise to According give shift. dividend/profit may period notice a The termination of contracts without adequate compensation and/or with line in general transferpricingprinciples. and length arm’s at be must outsourcing Intragroup transfer tax,federalsecuritiesand VAT. The transfer of assets may trigger corporate income taxes, real estate 9.1 Bankers Swiss the of Guidelines Cloud Association, aguidetosecurecloudbanking(March2019). the or 2018) (May of the by SMEs” for Reporting and Checklist Analysis Centre for Information Security Assurance MELANI “Information the as such guidelines and checklists have been issued by various organisations, regulatory regimes and certifications such as ISO. Further, multiple Information Rather, Security is left to the responsibility of the private sector within self- enacted. be to Swiss yet the has to government apply Federal shall that Act Security Information draft the instance, For data. personal processing when to security data ensure measures organisational and technical appropriate to implement Act Protection Data Federal Swiss the to pursuant obligations (NCS) specific statutes have been enacted so far that go no beyond the general However, Strategy 2018. April in Cyber updated was which 2012, National in already the issued government Swiss The Security. Information govern that laws specific no are There 8.2 Arioli Law 9 nuhrsd r cietl etuto, cietl loss, alteration, copying,accessorotherunauthorisedprocessing. accidental unauthorised use, destruction, unlawful or theft forgery, confidentiality, faults, technical accidental from data or protecting ensure by unauthorised data of shall integrity and availability measures and technical organisational The art. the of state data current the the and to subjects risks possible the of assessment an the of processing, extent and nature the as well as implementing purpose the account by into Protection taking measures, Data organisational and technical on adequate Act Federal the to Tax Issues under theoutsourcingcontract? Is thereanyVAT leakageonthesupplyofservices terminating thecontract? outsourced business–eitheronenteringintoor What arethetaxissuesontransferring requirements concerninginformationsecurity? Are thereindependentlegaland/orregulatory

and 15%ofthefeesdueinthatparticulartimeperiod. 5% of range the in amount at-risk an at capped usually are period a levels, service to the supplier as a service credit. Service upon credits for a specific time agreed the payable fees service the from deducted is amount small) (relatively achieve not does supplier This entails detailed reporting and monitoring. In the event that the breaches orpersistentperformancefailures, the to prejudice customer’s more extensive rights without in relation to more serious however,contract concerned, failure particular Service credits are typically the sole remedy of the customer for the partial a facilitate to pursue aclaimfordamagesorterminatetheagreement. and to levels need the without service poor for customer the of service compensation agreed consistently the to supplier achieve the incentivise shall credits service The which performance can be measured (key performance indicators). performance (key measured be can by performance which criteria service be the as to well as services levels, service the the define and provided parties the Work, of Statement the In services, IT to pertains business processes,facilitymanagement,etc. outsourcing the whether considerably on differs depending and depends transaction Credits outsourcing Service the on and entirely Levels Service of definition The 10.1 optimising measures. tax identify outsourcings, intragroup for and, taxes income reduce source to taxation, double avoid to order in planning tax holistic consider to recommended is it outsourcings, multijurisdictional For 9.3 biain o te usucn areet ae en breached. been have agreement outsourcing the of obligations contractual what on dependent highly are remedies corresponding corporations. Consequently, the applicable statutory provisions and Moreover, to and contracts sales to services, and work for contracts to relating breach. contract and outsourcing agreements contain elements of the statutory provisions agreement outsourcing the governing provisions statutory specific contain not does law Swiss 11.1 ■ to determineremediesintheoutsourcingagreement,suchas: Given the statutory provisions are not mandatory, the parties are free neutralised bygrouptaxation. VATa be in can result which may leakage, outsourcing Intragroup VAT mustbenotified. to VAT. If transferred assets are part of a transferred business entity, ■ ■ ■ ■ 10 11 eeito o dfcs ihn eemnd ie limits, time determined within including e.g.replacementofhardware; defects of remediation levels andservicecredits? What istheusualapproachwithregardtoservice What othertaxissuesmayarise? general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder termination orrescission oftheoutsourcingagreement. step-in rights;and reduction ofoutsourcingfees; damages; liquidated including damages, for compensation monetary Service Levels Customer Remedies

ICLG TO: OUTSOURCING 2019

cf. section11.

Switzerland

OUT19_04_07_Layout 104/07/201914:46Page147 ICLG TO: OUTSOURCING 2019 termination regards as particular, In periods. notice applicable the including convenience, for termination and cause on for agree termination typically parties the termination outsourcing, specific regards for as provide provisions not does law Swiss that Given 13.1 adequate obtain to obligations contractual insurance policiesandprovidethecustomerswithcopiesthereof. explicit to place in coverage insurance requisite the has supplier outsourcing an that and assumption mere the from shift a been has there decade, past the In insurance interruption Switzerland. in available business more and more become have insurance cybersecurity contingent Further, officers’ and directors’liability insuranceandlegalprotectioninplace. insurance, liability liability professional corporate insurance, insurance, property and liability personal It is recommended that both parties to an outsourcing have sufficient 12.1 ■ ■ include: agreements outsourcing in indemnities and/or warranties Typical suited totheirneedsandthetypeofoutsourcingtransaction. The parties are free to choose the warranties and/or indemnities best 11.3 ■ ■ ■ Additional protectionmeasuresmayinclude: 11.2 Arioli Law ■ ■ ■ ■ © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 12 13 that areincludedinanoutsourcingcontract? contract documentationtoprotectthecustomer? for damagesfromtheterminatedparty? transaction? n i acrac wt apial lw ad recognised and laws applicable industry standards; with accordance in and reasonable skill and care, in a timely and professional manner with services the of performance diligent the for warranties warranties forhardwareandsoftware; audit andbenchmarking. contract changemanagement;and regular charge oraserviceprovisionreviewmechanism; order tocovertherisksinvolvedinanoutsourcing terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities What additionalprotectionscouldbeincludedinthe employees transferredtothesupplier. affected by forward put outsourcing claims to regards with the indemnities into enter to entitled agreement; and be to warranties property rights; intellectual party third of infringement the for indemnities phase andduediligence; tender the during provided information regarding warranties

Insurance Termination

ih meit efc fr motn raos ht edr it render that reasons important for unreasonable fortheaggrievedpartytoupholdagreement. effect immediate with terminated be can agreement long-term law,any Swiss to Pursuant 13.3 additional control, upon of multiple/persistent minorbreaches. agree change events, or insolvency as exclude such to rights termination free are parties the Yes, 13.2 termination. post- rights IP any of use the regulate explicitly should agreement outsourcing Accordingly,rights. the implied such no are there No, 14.3 in apply not does disclosure and Switzerland. use acquisition, their unlawful against secrets) (trade information business and know-how EU the undisclosed of protection the on 2016 June 8 of 2016/943 Directive that Note breach. of event the in paid be to penalties for provides that agreement outsourcing the in clauses extensive confidentiality including by information confidential other critical and business secrets trade know-how, protect the to recommended and is It secrets trade of breach the exploitation ofsuchsecrets. for penalties for provide The Federal Act Against Unfair Competition and the Criminal Code 14.2 avoid to order in agreement outsourcing difficult terminationnegotiations. the in IP all and any detail specifically to advisable is It upon. agreed be may licences of IPassignment in the ownership or of transfer the transaction, the on depending Further, products”). (“work agreement outsourcing the of context the in developed materials in rights of allocation the and IP pre-existing use to rights the on agree Typically,parties the 14.1 deemed materialornot. be may breach a whether on discussions direct preclude necessarily not does However,this arise. not should party terminated the from the to adheres party a damages for If claims provisions, termination stipulated contractually respective out. spelt and are on obligations agreed contractual specifically are breach material such for material breach, it is recommended that scenarios that constitute 14 to seeinanoutsourcingcontract? termination rights? and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty Intellectual Property

WWW.ICLG.COM

Switzerland

147 Switzerland OUT19_04_07_Layout 104/07/201914:46Page148 148 Switzerland cap canbeafixedamountorpercentageofthecontractvalue. and liability on limit financial The 15.1. question in out set limitations the to subject indemnities, a on agree may parties the Yes, 15.2 such damagescontractuallydeemedasdirectdamages. have to aims typically customer the business, contrast, By revenue. or profit of loss for damages, or for loss liability consequential and exclude indirect extensively to aims supplier the Typically, injury personal resulting fromanegligentbreachofcontract. or death for liability limit or exclude to possible not Further,is it negligence. gross or intent by caused damages for liability limit or exclude cannot parties the law, Swiss to Pursuant 15.1 be cannot forced to share confidential business information with a typically competitor. supplier incumbent the course, Of supplier. new or customer the to services the of transfer smooth the in assist the customer or new supplier and to oblige the incumbent supplier to the of incumbent supplier post-termination obligations to ensure know-how transfer specific to on agree to recommended highly is It 14.4 Arioli Law WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 15 liability? under nationallaw? can itmakeofit? supplier's know-howpost-terminationandwhatuse Are thepartiesfreetoagreeafinancialcapon To whatextentcanapartylimitorexcludeliability To whatextentcanthecustomergainaccessto Liability

on provisions include may alternative disputeresolution(“ADR”). agreement outsourcing an Further, period toensureexpeditedresolution. time resolution dispute a to Any limited be however, arbitration. must, or process resolution court a process to resort resolution can party dispute a before a governing agreement outsourcing Thus, it is recommended that detailed provisions are included in the in goodfaith(Article2oftheSwissCivilCode). act must parties that principle general the Yes,stipulates law Swiss 17.1 contract on rules law. statutory contract in Swiss no used in escalation resolution are and governance dispute management, there for and methods main Switzerland no are There 16.1 17 16 reasonableness undergenerallaw? used? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolution Good Faith Dispute Resolution

ICLG TO: OUTSOURCING 2019

Switzerland

OUT19_04_07_Layout 104/07/201914:46Page149 ICLG TO: OUTSOURCING 2019 Arioli Law atn Ail suid a, hlspy n pltcl cec a the at science ( 1996 in graduated political she where Bern of University and philosophy law, studied Arioli Martina Company andUBS AG, aswellWalder Insurance Wyss Ltd. Zurich at roles senior include positions Previous lawyer. in-house as projects global such implementing of experience the with complex on contractual knowledge matters in outsourcing and information technology in-depth projects combines Arioli Martina supplier. new to resourcing and termination mediation, conflict transition, contract and implementation from to agreements local stages, and global all negotiating drafting, in engagements outsourcing supported has She outsourcing. and ITlaw in specialised practice, international The renownedSwissbusinessmagazineBILANZhasconsistentlyranked Arioli LawamongsttheSwitzerland’s 5toplawfirmsin TMT entertainment law. Martina Arioli is an experienced legal counsel, with almost 20 years of Arioli Law is a boutique law firm established in 2013 in the heart of Zurich, one of the first to specialise in outsourcing, IT Chambers Europe Legal Who Who’s by 2016 since continuously lawyers business Switzerland’sleading of at law lectures various Swiss universities. Martina She Arioli has been recognised as one Switzerland. in protection data on conference in IP annual in prestigious a chaired has she decade (LSE) a than more For Science 2001. Political and Economics of School London from LL.M. an received and excellence with 1999 in Bar the passed for TMT in2019. and has been listed as “recognised practitioner” by practitioner” “recognised as listed been has and

Tel: Switzerland CH-8001 Zurich Napfgasse 4 Arioli Law Martina Arioli URL: Email: +41 442016611 www.arioli-law.ch [email protected]

magna cum laude cum magna

-law, data protection law and WWW.ICLG.COM Switzerland andIP law.

149 Switzerland OUT19_04_07_Layout 104/07/201914:46Page149 ICLG TO: OUTSOURCING 2019 Arioli Law © Published andreproduced withkindpermission byGlobalLegal Group,Ltd The renownedSwissbusinessmagazineBILANZhasconsistentlyranked Arioli LawamongsttheSwitzerland’s 5toplawfirmsin TMT entertainment law. the at science ( 1996 in graduated political she where Bern of University and philosophy law, studied Arioli Martina Company andUBS AG, aswellWalder Insurance Wyss Ltd. Zurich at roles senior include positions Previous lawyer. in-house as projects global such implementing of experience the with complex on contractual knowledge matters in outsourcing and information technology in-depth projects combines Arioli Martina supplier. new to resourcing and termination mediation, conflict transition, contract and implementation from to agreements local stages, and global all negotiating drafting, in engagements outsourcing supported has She outsourcing. and ITlaw in specialised practice, international Martina Arioli is an experienced legal counsel, with almost 20 years of Arioli Law is a boutique law firm established in 2013 in the heart of Zurich, one of the first to specialise in outsourcing, IT Chambers Europe Legal Who Who’s by 2016 since continuously lawyers business Switzerland’sleading of at law lectures various Swiss universities. Martina She Arioli has been recognised as one Switzerland. in protection data on conference in IP annual in prestigious a chaired has she decade (LSE) a than more For Science 2001. Political and Economics of School London from LL.M. an received and excellence with 1999 in Bar the passed for TMT in2019. and has been listed as “recognised practitioner” by practitioner” “recognised as listed been has and

Tel: Switzerland CH-8001 Zurich Napfgasse 4 Arioli Law Martina Arioli URL: Email: +41 442016611 www.arioli-law.ch [email protected]

magna cum laude cum magna

-law, data protection law and WWW.ICLG.COM Switzerland andIP law.

149 Switzerland OUT19_04_07_Layout 1 04/07/2019 14:46 Page 150 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 151

Chapter 21 Yazıcıoğlu Attorneys at Law Turkey

provisions set forth in the communiqué are included in the contract, ■ Indirect outsourcing: In this structure the supplier and the (iii) access to information systems of the supplier is limited to customer enter into a contract and the supplier subcontracts necessities for the provision of the relevant service, (iv) the supplier the work to different sub-suppliers. hosts the system and its back-ups in Turkey, and (v) if the supplier ■ Multi outsourcing: In this structure the customer enters into Turkey provides cloud services for the processing, hosting and transferring a contract with several suppliers for different parts of the sensitive payment data or personal data, such cloud services are outsourced work. Bora Yazıcıoğlu provided as “private cloud service models” over hardware and ■ Joint venture: In this structure the customer and the supplier software, which are specifically allocated to such e-money establish a joint venture for the provision of the outsourced institutions. work. Moreover, depending on the type of transaction, usually master

Outsourcing of a service by payment and securities settlement Turkey system operators is subject to Regulation on Activities of Payment service contracts, intellectual property licence or transfer and Securities Settlement Systems. Pursuant to such regulation, a (undertaking for transfer) contracts and immovable goods transfer Yazıcıoğlu Attorneys at Law Nevzat Ali Anı system operator can outsource a service on information systems contracts are executed. provided that it (i) informs the Central Bank of the Republic of Turkey on obtaining such outsourcing service, and (ii) takes 3 Procurement Process necessary measures set forth in relevant legislation. ■ Services Provided in the Premises of the Customer (i.e. to its shareholders, directors, etc.) are met, and (iv) certain subcontracting in Turkish Labour Law) 3.1 What is the most common type of procurement 1 Regulatory Framework provisions set forth in such regulation are included in the contract. process that is used to select a supplier? Some services such as catering, transportation, cleaning, If a supplier: a) carries out (i) an auxiliary work for its customer, or (ii) a part 1.1 Are there any national laws or regulations that maintenance, repair, consultancy (including legal consultancy/ of its customer’s main work (because of operational In the private sector, the customer collects requests for proposals specifically regulate outsourcing transactions, either dispute resolution services) and advertising services are not subject requirements or necessity of technological expertise) in the from the relevant suppliers and evaluates such proposals, then enters generally or in relation to particular types of to such regulation. premises of such customer; and into a contract with the chosen supplier. outsourcing transactions (e.g. business process ■ Insurance outsourcings, IT outsourcings, telecommunications b) employs the relevant employees exclusively to carry out such As for the public sector, there are four main procurement processes Outsourcing of a support service by insurance or pension companies outsourcings)? work, defined under the Public Procurement Act and Public Procurement is subject to the Regulation on Insurance Support Services. such relationship may be regarded as “subcontracting” under Contracts Act, namely open procedure, restricted procedure, Pursuant to this regulation, an insurance or pension company can There is no national law that specifically regulates outsourcing in Turkish Labour Law (TLL). negotiated procedure and direct procurement. The public institution outsource a support service provided that (i) outsourcing of such Turkey. may initiate one of the procedures based on the required service, service is allowed in such regulation, (ii) a report on risks of In a subcontracting arrangement, the customer and the supplier shall technical necessities and fees. On the other hand, general provisions of the Turkish Code of outsourcing is prepared and electronically submitted to the be jointly liable toward the supplier’s employees with respect to Obligations, Turkish Commercial Code and Turkish Civil Code are Insurance Information and Monitoring Centre, (iii) the supplier is employees’ rights under TLL, such as their severance pay, annual applicable to outsourcing transactions depending on the type of based in Turkey for the services to be rendered in Turkey, (iv) leaves, etc. 4 Term of an Outsourcing Agreement transaction. qualifications regarding the supplier are met, and (v) certain provisions set forth in such regulation are included in the contract. 1.4 Is there a requirement for an outsourcing transaction 1.2 Are there any additional legal or regulatory Some services such as consultancy (including legal to be governed by local law? If it is not to be local 4.1 Does national or local law impose any maximum or requirements for outsourcing transactions consultancy/dispute resolution services and tax consultancy) and law, is there any generally accepted norm relating to minimum term for an outsourcing contract? undertaken by government or public sector bodies? advertising services are not subject to such regulation. the choice of governing law? ■ Capital Markets Turkish law does not impose a maximum or a minimum term for Yes. Public institutions must comply with the Public Procurement In principle there is no requirement for an outsourcing outsourcing contracts. Under the Communiqué on Management of Information Systems, Act for the purchase of goods or services from suppliers. In these contract/transaction to be governed by local law. certain institutions and public companies, which are subject to transactions, suppliers must execute a contract, certain provisions of Capital Market Law, can outsource services regarding information On the other hand, depending on the type of transaction, certain 4.2 Does national or local law regulate the length of the which are pre-drafted and announced by the relevant public systems provided that they (i) establish a monitoring structure for restrictions in Turkish private international law may be applicable. notice period that is required to terminate an institution, in accordance with the Public Procurement Act and risk allocation and management of relationship between supplier For instance, if the contract/transaction relates to a real estate, then outsourcing contract? Public Procurement Contracts Act. and customer, (ii) prepare a technical qualification report on the the law of the country, in which the real estate is located, shall be Please note that public-private partnerships and build-operate- supplier, and (iii) execute a written contract which includes certain applicable. There is no rule that regulates the length of the notice period to transfer models, which are subject to specific laws and regulations, provisions set forth in such communiqué. Furthermore, although there is no clear restriction in the Public terminate an outsourcing contract. are excluded from this analysis. ■ Payment and Electronic Money Services Procurement Contracts Act, this piece of law states that the Turkish On the other hand, certain regulations may impose certain Under the Regulation on Payment Services, Electronic Money Code of Obligations shall be applicable with respect to matters, requirements for the continuation of the service. For instance, 1.3 Are there any additional legal or regulatory Issuance, Payment Institutions and Electronic Money Institutions, a which are not regulated under such law. Hence, in practice, Turkish outsourcing contracts between a bank and a supplier must include a requirements for outsourcing transactions payment or an electronic money institution (“e-money institution”) law is usually chosen for such contracts as per the request of the termination provision that imposes an obligation on the supplier to undertaken in particular industry sectors, such as for can outsource a service provided that (i) the scope of the service is relevant public institution. continue the provision of the support services until the bank example the financial services sector? specified in a written contract, and (ii) it complies with the provides this service by itself or finds another supplier. obligations set forth in such regulation. Some services such as Yes. Some of the regulations which govern transactions, for 2 Legal Structure catering, transportation, cleaning, maintenance, repair, training, and 5 Charging regulated sectors in particular, are as follows: also consultancy (including legal consultancy/dispute resolution ■ Banking services) and advertising services are not subject to these 2.1 What are the most common types of legal structure Outsourcing of a support service by banks is subject to “Regulation restrictions. used for an outsourcing transaction? 5.1 What are the most common charging methods used in on the Procurement of Support Services by Banks”. Pursuant to this Outsourcing of a service on information systems by e-money outsourcing transactions? regulation, a bank can outsource a support service provided that (i) institutions is subject to Communiqué on Management and Audit of The most common types of legal structures used for outsourcing outsourcing of such activity is not prohibited under such regulation, Information Systems of Payment Institutions and Electronic Money transactions in Turkey are the following: The most common charging methods used in outsourcing (ii) prerequisites such as preparation of risk management plan, risk Institutions. Pursuant to such communiqué, e-money institutions ■ Direct outsourcing: In this structure the supplier and the transactions are as follows: analysis plan and technical qualification reports are met, (iii) can outsource a service on information systems provided that (i) a customer enter into a contract and the supplier carries out the ■ Interim payment or per piece method: Payment is made qualifications regarding the supplier (e.g. certain conditions relating monitoring structure for risk allocation is established, (ii) certain work. upon the completion of certain stages or delivery of each piece of goods.

Chapter 21 Yazıcıoğlu Attorneys at Law Turkey

150 WWW.ICLG.COM ICLG TO: OUTSOURCING 2019 ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 151 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page152 152 Turkey uh rnfr ut e eitrd ih h Tae eity and Registry Trade the with registered announced inthe Trade RegistryGazette. be must transfer such and contract, written a by transferred be can enterprise commercial WWW.ICLG.COM from theministryregardingsuchproject. approval obtain and land such of acquisition upon years two within project construction a submit must persons real and legal Foreign, applicable forthetransferofland. be also shall estate real of transfer the for rules and conditions All 6.2 Enterprise Commercial a by licensed be also written contract. may rights These public. notary a before contract transfer a executing by transferred be can models) utility and patent design, trademark, (i.e. rights property industrial certain Law, Property Industrial the Under Rights: Property Industrial an over rights such moralrights. moral transfer use to customer cannot the authorise may but work, artistic or intellectual supplier The is created. work such when executed be must contract transfer separate a only can execute parties an undertaking for contract, the transfer of such the work. In such of a case, yet execution of not time is the work at created such if However, contract. written a executing by freely licensed or transferred be can work artistic or intellectual created) already (i.e. existing an over rights Financial Copyrights: is persons legal, and real subject tocertainlimitationsunderLandRegistryLaw. foreign, by estate real of Acquisition notary public. a before agreement sell) to contract (preliminary sell to promise a If parties wish to transfer a real estate in the future, they may execute officialDirectorate. Registry Land relevant the before deed transfer an executing by transferred be only can estate Real Estate: Real executing acontractbeforenotarypublic. subject to any formalities. However, vehicles must be transferred being by without leased and transferred be can Movables Movables: 6.1 ■ ■ ■ as are follows: outsourcing in used are that terms key common most The 5.2 ■ ■ ■ Yazıcıoğlu AttorneysatLaw © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 6 license assetsonanoutsourcingtransaction? outsourcing transactions? of theservices). scope the to as requested are changes case (in charges Extra taxes, rawmaterialcosts,etc.). wages, minimum in changes from (arising costs Incremental Transportation andfoodcosts. once. method payment Lump-sum Retainer-fee method: A fixed payment is made periodically. effort spentonman/hourorman/daycriteria. method Hourly/daily-fee Transfer of Assets What aretheformalitiesfortransferofland? What formalitiesarerequiredtotransfer, leaseor What otherkeytermsareusedinrelationtocosts

: Under the Turkish Commercial Code, a Code, Commercial Turkish the Under : Pyet s ae ae o the on based made is Payment :

A ie pyet s made is payment fixed A :

be liabletowardssuchemployeesfortheirrightsunder TLL. the supplier remain employed by the supplier, but the customer shall of employees 1.2, question in explained as supplier, the and client In case of the existence of a subcontracting relationship between the the to transferred transferee. automatically are transferor the workplace), of a employees of workplace, nationalisation or a privatisation workplace, of a rent of or sale owner the of (i.e. death workplace, a on right is usufruct of party establishment workplace, third a of a part to or transferred workplace, a when TLL, the Under 7.1 Trademark Office bytheapplicationofparties. and Patent Turkish the with registered is rights property industrial Trade the with registered of transfer/license (iv) and parties, the of application the by Registry is enterprise commercial a (iii) of sale, the transfer of execution the at public notaries the by registered is vehicles of transfer (ii) sale, the of execution the at Directorates (i) Transfer of immovable property is registered by the Land Registry 6.4 registrations setforthinquestion6.4mustbemade. the rights, other the for As vehicles). for or (except goods copyrights movable for required actions post-completion no are There 6.3 otat i de o cnmc tcnlgcl r organisational remains unaffected. or technological economic, necessities, or to (ii) based on valid or justified grounds as due per the TLL, employment (i) the terminate contract to the right However, transferee’s transfer. and such transferor’s to due only an contract terminate to employment entitled is supplier the nor customer the Neither 7.4 the with transferee the provides transferor information thatitkeepsinaccordancewiththe TLL. the practice, In 7.3 be paid totheemployees. to pay severance the to applicable be not shall limitation year the two- of such However, time transfer. the following the years two at for transfer due is that employees any the for towards transferee the obligation with liable jointly be shall transferor The the transferee. to transferred be also shall etc.) allowance, transfer and food rights, employment contract (e.g. salary, term of employment, annual leave In case of such a transfer, all rights and obligations arising out of the 7.2 7 employee forareasonconnectedtotheoutsourcing? provide toeachother? take place? Employment Law Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? Is acustomer/supplierallowedtodismissan What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw

ICLG TO: OUTSOURCING 2019

Turkey

OUT19_04_07_Layout 104/07/201914:46Page152 152 Turkey uh rnfr ut e eitrd ih h Tae eity and Registry Trade the with registered announced inthe Trade RegistryGazette. be must transfer such and contract, written a by transferred be can enterprise commercial WWW.ICLG.COM from theministryregardingsuchproject. approval obtain and land such of acquisition upon years two within project construction a submit must persons real and legal Foreign, applicable forthetransferofland. be also shall estate real of transfer the for rules and conditions All 6.2 Enterprise Commercial a by licensed be also written contract. may rights These public. notary a before contract transfer a executing by transferred be can models) utility and patent design, trademark, (i.e. rights property industrial certain Law, Property Industrial the Under Rights: Property Industrial an over rights such moralrights. moral transfer use to customer cannot the authorise may but work, artistic or intellectual supplier The is created. work such when executed be must contract transfer separate a only can execute parties an undertaking for contract, the transfer of such the work. In such of a case, yet execution of not time is the work at created such if However, contract. written a executing by freely licensed or transferred be can work artistic or intellectual created) already (i.e. existing an over rights Financial Copyrights: is persons legal, and real subject tocertainlimitationsunderLandRegistryLaw. foreign, by estate real of Acquisition notary public. a before agreement sell) to contract (preliminary sell to promise a If parties wish to transfer a real estate in the future, they may execute officialDirectorate. Registry Land relevant the before deed transfer an executing by transferred be only can estate Real Estate: Real executing acontractbeforenotarypublic. subject to any formalities. However, vehicles must be transferred being by without leased and transferred be can Movables Movables: 6.1 ■ ■ ■ as are follows: outsourcing in used are that terms key common most The 5.2 ■ ■ ■ Yazıcıoğlu AttorneysatLaw 6 of theservices). scope the to as requested are changes case (in charges Extra taxes, rawmaterialcosts,etc.). wages, minimum in changes from (arising costs Incremental Transportation andfoodcosts. once. method payment Lump-sum Retainer-fee method: A fixed payment is made periodically. effort spentonman/hourorman/daycriteria. method Hourly/daily-fee Transfer of Assets What aretheformalitiesfortransferofland? license assetsonanoutsourcingtransaction? What formalitiesarerequiredtotransfer, leaseor outsourcing transactions? What otherkeytermsareusedinrelationtocosts

: Under the Turkish Commercial Code, a Code, Commercial Turkish the Under : Pyet s ae ae o the on based made is Payment :

A ie pyet s made is payment fixed A :

be liabletowardssuchemployeesfortheirrightsunder TLL. the supplier remain employed by the supplier, but the customer shall of employees 1.2, question in explained as supplier, the and client In case of the existence of a subcontracting relationship between the the to transferred transferee. automatically are transferor the workplace), of a employees of workplace, nationalisation or a privatisation workplace, of a rent of or sale owner the of (i.e. death workplace, a on right is usufruct of party establishment workplace, third a of a part to or transferred workplace, a when TLL, the Under 7.1 Trademark Office bytheapplicationofparties. and Patent Turkish the with registered is rights property industrial Trade the with registered of transfer/license (iv) and parties, the of application the by Registry is enterprise commercial a (iii) of sale, the transfer of execution the at public notaries the by registered is vehicles of transfer (ii) sale, the of execution the at Directorates (i) Transfer of immovable property is registered by the Land Registry 6.4 registrations setforthinquestion6.4mustbemade. the rights, other the for As vehicles). for or (except goods copyrights movable for required actions post-completion no are There 6.3 otat i de o cnmc tcnlgcl r organisational remains unaffected. or technological economic, necessities, or to (ii) based on valid or justified grounds as due per the TLL, employment (i) the terminate contract to the right However, transferee’s transfer. and such transferor’s to due only an contract terminate to employment entitled is supplier the nor customer the Neither 7.4 the with transferee the provides transferor information thatitkeepsinaccordancewiththe TLL. the practice, In 7.3 be paid totheemployees. to pay severance the to applicable be not shall limitation year the two- of such However, time transfer. the following the years two at for transfer due is that employees any the for towards transferee the obligation with liable jointly be shall transferor The the transferee. to transferred be also shall etc.) allowance, transfer and food rights, employment contract (e.g. salary, term of employment, annual leave In case of such a transfer, all rights and obligations arising out of the 7.2 7 Employment Law Whenareemployeestransferredbyoperationoflaw? How isthetransferregistered? What post-completionmattersmustbeattendedto? employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan provide toeachother? What employeeinformationshouldtheparties take place? On whattermswouldatransferbyoperationoflaw

ICLG TO: OUTSOURCING 2019

Turkey

OUT19_04_07_Layout 104/07/201914:46Page153 diitaie esrs o rvd te euiy f esnl data. personal of security the provide to measures administrative and technical adequate take to Controller Data the with responsible jointly only is Processor Data The DPL. the with compliant is data The Data Controller is obliged to ensure that processing of personal a Controller basedontheauthoritygrantedbysuchDataController. is Processor” “Data Data the system. of behalf on data personal processes who person real/legal filing data the and of establishment the management for processing responsible is of who means and data, and personal purposes the determines who person as data, personal of real/legal a is Controller” “Data follows: as are DPL, the in defined processing to respect with roles main Two such performance ofacontract)setforthintheDPL. services, outsourcing data or interest the legitimate (e.g. grounds legal other the of of one or subject of consent the on provision based either be the must process/transfer is in data)” or outsourcing an (personal contract, executing of person course the natural in processed/transferred identifiable or identified an to relating “data If protection. data and security data to relating ■ ■ transferred be can data abroad if: personal DPL, the under Furthermore, and todrafttheoutsourcingcontractbasedontheirroles. supplier, the and customer the of Processor) Controller/Data Data (i.e. roles the determine to is matter material most the Therefore, ICLG TO: OUTSOURCING 2019 ( Law Protection Data Turkish The 8.1 services andprivatesecurityservices,etc. Turkish by out carried be citizens, such as legal services on Turkish law, customs consultancy only can services certain Moreover, permit shouldbeobtainedforsuchemployee. Turkey,to abroad from employee work an a of transfer a of case In 7.7 Social SecurityInstitution. Turkish the to premiums security social the pay its must and under payroll employees transferred the register must transferee The 7.6 existing its of those workforce, itmustobtainthetransferredemployee’s consent. with conditions these transferee harmonise the to If wishes workplace. former his/her of conditions the as The transferred employee’s work conditions should remain the same 7.5 Yazıcıoğlu AttorneysatLaw © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 transaction? existing workforce? country where the data will be transferred, or (ii) if there is there if (ii) or transferred, the be will in data the protection where country data of level adequate an is there (i) and applicable is DPL the under forth set exemptions the of such one for consent explicit his/her transfer; or gives subject data the Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment

) is applicable on matters on applicable is DPL)

the paid,andreceived, VAT amounts. offset to able be VATwill supplier the and customer the as leakage If the customer and the supplier are based in Turkey, there will be no 9.2 18%, dependingonthetypeofservice. be paid by the customer to the supplier. VAT varies between 1% and exemptions, certain for Save VATto fees service to applied be shall The contract. the of maximum amountofstampdutyfor2019is counterpart TRY 2,642,810. each for levied is It contract. a for but contract; of type standard service contract it the is 0.948% of the monetary onamount of the based varies It certain for (save exemptions). contracts written to applicable is duty stamp A 9.1 and/or legal on independent requirements no are some regulatory requirementsconcerninginformationsecurity. there include security, legislation, information markets capital and services financial as such legislation, sectoral some Although 8.2 abroad. data personal of transfer the on rules above-mentioned the account into take must services, cloud using or hosting outsourcing, of way by instance for abroad, data personal transfer who customers The certain measuresfortransferringsuchdata. while processing such data in a physical environment, and (v) taking such data in an electronic environment, (iv) taking certain measures processing when measures certain taking (iii) data, such processing personal data, (ii) taking certain measures for employees involved in of categories special processing for procedure and policy separate special a preparing (i) are rules the processing of Some protection. of level for higher a rules announced also categories of personal data, which are specified in the DPL and has have Board The measures laiddowninthisparagraphabove. administrative and technical adequate take to Controller Data the with responsible jointly only is Processor Data the Controller,then Data the of behalf on data personal processes/transfers Processor unlawful prevent (i) data; and (iii) ensure the retention of personal data. to: In case the Data order in a processing of personal data; (ii) prevent security unlawful access to personal provide of to level measures sufficient administrative and technical all take to necessary obliged are Controllers Data the Data security, data Turkish for As the by announced been Protection Board( yet not has protection data of level adequate an have which countries foreign of list The 9 under theoutsourcingcontract? terminating thecontract? requirements concerninginformationsecurity? Tax Issues Is thereanyVAT leakage onthesupplyofservices outsourced business–eitheronenteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory obtain the Data Protection Board’s approval for such transfer. (b) and DPL, the by imposed level be adequate an in will protected data the that undertake (a) country foreign such in foreign such in protection data country, then Data of Controllers/Data Processors in Turkey and level adequate an not Board) asof1June2019.

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Turkey

153 Turkey OUT19_04_07_Layout 104/07/201914:46Page154 154 Turkey WWW.ICLG.COM the of contract. breach a of case in claim penalty a to customer the entitle make the payment only after approving/accepting the work, and (ii) in a and work, the customer give examine to customer (i) the for the period which time prolonged provisions for inserting methods are contracts protection outsourcing common most The 11.2 arising outofsuchtermination. damages all for compensation request and contract the terminate to damages all (iii) or contract, the under obligations compensate its fulfilling not from arising to supplier the from request (ii) delay, its fulfil to supplier the for customer the the compensate and contract the under obligations from request the (i) contract, to the entitled breaches is supplier customer the case in TCO, the Under 11.1 law-based US from derived agreements agreements. the in seen be can but law,Turkish under common very not is mechanism credit Service by apenaltytobeappliedincaseofbreachtheSLA. SLAcontract. The outsourcing strengthened usually are provisions the in agreement) level (service SLA precise and is clear a quality inserting service adequate ensure to method common most The 10.1 in amount aswithholdingtax. based both are supplier person Turkey,invoice net the of 20% pay to required is customer the then real the and customer the If (income tax). income his/her of amount the on depending income, his/her of 35% and 15% between of tax income an pay to required is he/she then of 20% of its income (corporate tax). If the supplier is a real person, tax corporate a pay to required is it person, legal a is supplier the If 9.3 VATfees. apply service to such required to is supplier Turkey,the of outside customer the to provided is Turkey,in service the unless based is of Turkeysupplier outside the based and is customer the If from the VAT thatitreceivesfromitsowncustomers. the by received offsetsuch VAT services to entitled supplier.also is However,customer the those VAT for a Turkey in authorities tax to pay and calculate to required is Turkey,customer in the then based is of Turkeycustomer outside the based and is supplier the If Yazıcıoğlu AttorneysatLaw scenario, therewillbea VAT leakageagainstthecustomer. offset such to Turkish able VATbe not will with any tax Turkey,it paid by of it in outside its country.based is In this customer the As © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 10 levels andservicecredits? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice What othertaxissuesmayarise?

Customer Remedies Service Levels

If the contract is executed for an indefinite term indefinite an for executed is contract the If giving priornoticetotheotherparty. parties, may be entitled to terminate the agreement without cause by the Parties may also agree in the contract that either party, terminate or one of the may party non-breaching the agreement withimmediateeffect. then case, the of providing a time period will not be effective based on the particulars of amount time, if a notice reasonable period is not specified in the contract). However, if a (or a party of non-breaching receipt the the from upon notice contract the in specified period time a for breach such with continues and contract, the in obligation material a breaches party other the if contract the terminate can party any nild o emnt te otat y iig ro ntc (ih a (with notice prior reasonable periodoftime)totheotherparty. giving by contract the terminate to entitled insurance, liability financial third-party construction insuranceandelectronicequipmentinsurance,etc. insurance, employer’s insurance, liability liability professional risks as such cover transaction, of to type the on considered depending transaction, be outsourcing an in may involved insurance of types Certain 12.1 ■ ■ ■ ■ ■ Typical supplierwarrantiesincludedinacontractare: 11.3 e. ate my xld o are n diinl termination additional on agree or provisions. exclude may Parties Yes. 13.2 term definite a for executed is contract the If 13.1 12 13 transaction? that areincludedinanoutsourcingcontract? termination rights? for damagesfromtheterminatedparty? – usuallytwoyears). of change or repair goods free in case of a defective a good for a certain amount offerof time (and delivered are goods the if defects from free is workmanship the that warrant to third-party intellectualpropertyrights;and infringe not does services of use or provision that confirm to and regulations; laws care applicable with accordance in of services the perform duty to a with and professionally expectedfromit; agreement, the and of terms the conditions with accordance in services the perform to to performtheservicesinquestion; to confirm that it has the necessary expertise, skill and licence order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin What arethetypicalwarrantiesand/orindemnities Can thepartiesexcludeoragreeadditional terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement Insurance Termination

ICLG TO: OUTSOURCING 2019

: As a general rule, general a : As

: Either party is party Either :

Turkey

OUT19_04_07_Layout 104/07/201914:46Page155 a timelimit. specifically agree that the licence is granted without being subject to parties. or disclosure the in paid be to penalty a on agree parties Usually, unfair commit who persons on competition. However, thisprovisionisalsoveryrarelyapplied. years two to up of fine judicial unfair competition. constitutes that action the of prevention other and compensation request the that provided may party injured an case, a such In met. are law Code, the in conditions Commercial Turkish the competition unfair under as regarded be may information confidential or profession.However, thisprovisionisveryrarelyapplied. commercial the persons unauthorised secrets which are obtained as a matter of their title, duty, occupation to disclose on who days 5,000 persons to up to) (corresponding fine judicial a and years such rightswillremainwiththeowner. formalities, the certain satisfy and rights such transfer to agree specifically to subject are parties unless Hence, 6.4. and 6.1 rights questions in forth set formalities property intellectual of Transfers etc. the Law on Intellectual and Artistic Works, Industrial Property Law, Supervision and Regulation Authority requeststhebanktoterminateagreement. Banking the or bank, risks the creates affecting and process audit the prevents transaction/supplier such that decides bank the if contract the terminate to right a bank the gives that provision a (ii) and supplier, another finds bank the on the supplier to continue the provision of the support services until obligation an imposes that provision termination a (i) include must However, outsourcing contracts between banks and support services rights ofthepartiestoanoutsourcingcontract. h Trih omril oe lo moe ipiomn o a or imprisonment imposes also Code Commercial Turkish The ICLG TO: OUTSOURCING 2019 may parties However, post-termination. rights use IP to continue to licensed supplier the for right implied an not is There 14.3 misuse of know-how, trade secrets or confidential information of the Moreover, any act of unauthorised use of know-how, trade secrets or three to year one from imprisonment imposes law Turkishcriminal 14.2 Intellectual property rights are protected under specific laws such as 14.1 termination the overrides that regulation mandatory no is There 13.3 Yazıcıoğlu AttorneysatLaw 14

and canthesebeexcludedfromtheagreement? continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto law? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight to seeinanoutsourcingcontract?

Intellectual Property

good faithandhonesty principleonacase-by-case basis. the consideration into take Courts reasonableness. or fairness for the in and rights its of performance of its exercise obligations. However, there the is no established test in manner honest an in and faith good in act must person every Code, Civil Turkishthe Under 17.1 Istanbul established arbitration recently institutions in used Turkey. commonly and and reputable are Centre Commerce, Arbitration Istanbul the of of member a is Chamber parties the of one if authorised be can which Commerce Centre, of Arbitration Chamber Istanbul The In cross-bordertransactions,partiesoftenpreferarbitration. out ofanoutsourcingcontract. Usually, parties choose the Turkish courts to resolve disputes arising 16.1 restrictions inquestion15.1above. Parties can determine a financial cap on liability, which is subject to 15.2 its of actions assistants orassociates). or negligence slight from arising those (including agreement prior by liability its exclude or limit cannot supplier the state, the by granted or law the on based licence, a with out carried be only can supplier the by provided service a if hand, other the On prior by associates or agreement. assistants their of actions the liabilities from their arising exclude or limit can parties However, associates. or assistants their by caused are that damages for liable are Parties negligence orwilfulmisconduct. gross of out arising liabilities its exclude nor limit may parties the of Neither contract. prior a through negligence slight of out arising liability its exclude or limit can contract outsourcing an to Aparty 15.1 use ofsupplier’s know-howpost-termination. the allow not do contract the in provisions Usually,confidentiality contract. the in regulated be must matter this Hence, termination. There is no law or established practice on the use of know-how post- 14.4 17 16 15 can itmakeofit? supplier's know-howpost-terminationandwhatuse according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolutionused? Are thepartiesfreetoagreeafinancialcaponliability? To whatextentcanapartylimitorexcludeliability To whatextentcanthecustomergainaccessto reasonableness undergeneral law? under nationallaw? Good Faith Dispute Resolution Liability

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155 Turkey OUT19_04_07_Layout 104/07/201914:46Page154 154 Turkey WWW.ICLG.COM the of contract. breach a of case in claim penalty a to customer the entitle make the payment only after approving/accepting the work, and (ii) in a and work, the customer give examine to customer (i) the for the period which time prolonged provisions for inserting methods are contracts protection outsourcing common most The 11.2 arising outofsuchtermination. damages all for compensation request and contract the terminate to damages all (iii) or contract, the under obligations compensate its fulfilling not from arising to supplier the from request (ii) delay, its fulfil to supplier the for customer the the compensate and contract the under obligations from request the (i) contract, to the entitled breaches is supplier customer the case in TCO, the Under 11.1 law-based US from derived agreements agreements. the in seen be can but law,Turkish under common very not is mechanism credit Service by apenaltytobeappliedincaseofbreachtheSLA. SLAcontract. The outsourcing strengthened usually are provisions the in agreement) level (service SLA precise and is clear a quality inserting service adequate ensure to method common most The 10.1 in amount aswithholdingtax. based both are supplier person Turkey,invoice net the of 20% pay to required is customer the then real the and customer the If (income tax). income his/her of amount the on depending income, his/her of 35% and 15% between of tax income an pay to required is he/she then of 20% of its income (corporate tax). If the supplier is a real person, tax corporate a pay to required is it person, legal a is supplier the If 9.3 VATfees. apply service to such required to is supplier Turkey,the of outside customer the to provided is Turkey,in service the unless based is of Turkeysupplier outside the based and is customer the If from the VAT thatitreceivesfromitsowncustomers. the by received offsetsuch VAT services to entitled supplier.also is However,customer the those VAT for a Turkey in authorities tax to pay and calculate to required is Turkey,customer in the then based is of Turkeycustomer outside the based and is supplier the If Yazıcıoğlu AttorneysatLaw scenario, therewillbea VAT leakageagainstthecustomer. offset such to Turkish able VATbe not will with any tax Turkey,it paid by of it in outside its country.based is In this customer the As 11 10 contract documentationtoprotectthecustomer? What additionalprotectionscouldbeincludedinthe general lawifthesupplierbreachescontract? What remediesareavailabletothecustomerunder levels andservicecredits? What istheusualapproachwithregardtoservice What othertaxissuesmayarise?

Customer Remedies Service Levels

If the contract is executed for an indefinite term indefinite an for executed is contract the If giving priornoticetotheotherparty. parties, may be entitled to terminate the agreement without cause by the Parties may also agree in the contract that either party, terminate or one of the may party non-breaching the agreement withimmediateeffect. then case, the of providing a time period will not be effective based on the particulars of amount time, if a notice reasonable period is not specified in the contract). However, if a (or a party of non-breaching receipt the the from upon notice contract the in specified period time a for breach such with continues and contract, the in obligation material a breaches party other the if contract the terminate can party any iblt isrne tidpry iaca laiiy insurance, liability financial third-party construction insuranceandelectronicequipmentinsurance,etc. insurance, employer’s insurance, liability liability professional risks as such cover transaction, of to type the on considered depending transaction, be outsourcing an in may involved insurance of types Certain 12.1 ■ ■ ■ ■ ■ Typical supplierwarrantiesincludedinacontractare: 11.3 e. ate my xld o are n diinl termination additional on agree or provisions. exclude may Parties Yes. 13.2 a (with notice prior reasonable periodoftime)totheotherparty. giving by contract the terminate to entitled term definite a for executed is contract the If 13.1 12 13 – usuallytwoyears). of change or repair goods free in case of a defective a good for a certain amount offerof time (and delivered are goods the if defects from free is workmanship the that warrant to third-party intellectualpropertyrights;and infringe not does services of use or provision that confirm to and regulations; laws care applicable with accordance in of services the perform duty to a with and professionally expectedfromit; agreement, the and of terms the conditions with accordance in services the perform to to performtheservicesinquestion; to confirm that it has the necessary expertise, skill and licence transaction? order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin that areincludedinanoutsourcingcontract? What arethetypicalwarrantiesand/orindemnities termination rights? Can thepartiesexcludeoragreeadditional for damagesfromtheterminatedparty? terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement Insurance Termination

ICLG TO: OUTSOURCING 2019

: As a general rule, general a : As

: Either party is party Either :

Turkey

OUT19_04_07_Layout 104/07/201914:46Page155 ICLG TO: OUTSOURCING 2019 may parties However, a timelimit. post-termination. specifically agree that the licence is granted without rights being subject to use IP to continue to licensed supplier the for right implied an not is There 14.3 parties. misuse of know-how, or trade secrets disclosure or confidential the information of the in paid be to penalty a on agree parties Usually, unfair commit who persons on competition. However, thisprovisionisalsoveryrarelyapplied. years two to up of a fine or judicial imprisonment imposes also Code Commercial Turkish The unfair competition. constitutes that action the of prevention other and compensation request the that provided may party injured an case, a such In met. are law Code, the in conditions Commercial Turkish the competition unfair under as regarded be may information confidential Moreover, any act of unauthorised use of know-how, trade secrets or or profession.However, thisprovisionisveryrarelyapplied. commercial the persons unauthorised secrets which are obtained as a matter of their title, duty, occupation to disclose on who days 5,000 persons to up to) (corresponding fine judicial a and years three to year one from imprisonment imposes law Turkishcriminal 14.2 such rightswillremainwiththeowner. formalities, the certain satisfy and rights such transfer to agree specifically to subject are parties unless Hence, 6.4. and 6.1 rights questions in forth set formalities property intellectual of Transfers etc. the Law on Intellectual and Artistic Works, Industrial Property Law, Intellectual property rights are protected under specific laws such as 14.1 Supervision and Regulation Authority requeststhebanktoterminateagreement. Banking the or bank, risks the creates affecting and process audit the prevents transaction/supplier such that decides bank the if contract the terminate to right a bank the gives that provision a (ii) and supplier, another finds bank the on the supplier to continue the provision of the support services until obligation an imposes that provision termination a (i) include must However, outsourcing contracts between banks and support services termination the rights ofthepartiestoanoutsourcingcontract. overrides that regulation mandatory no is There 13.3 Yazıcıoğlu AttorneysatLaw © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14

and canthesebeexcludedfromtheagreement? law? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight

Intellectual Property

icuig hs aiig rm lgt elgne r cin o its of actions assistants orassociates). or negligence slight from arising those (including agreement prior by liability its exclude or limit cannot supplier the state, the by granted or law the on based licence, a with out carried be only can supplier the by provided service a if hand, other the On prior by associates or agreement. assistants their of actions the liabilities from their arising exclude or limit can parties However, associates. or assistants their by caused are that damages for liable are Parties negligence orwilfulmisconduct. gross of out arising liabilities its exclude nor limit may parties the of Neither contract. prior a through negligence slight of out arising liability its exclude or limit can contract outsourcing an to Aparty 15.1 use ofsupplier’s know-howpost-termination. the allow not do contract the in provisions Usually,confidentiality contract. the in regulated be must matter this Hence, termination. There is no law or established practice on the use of know-how post- 14.4 good faithandhonesty principleonacase-by-case basis. the consideration into take Courts reasonableness. or fairness for the in and rights its of performance of its exercise obligations. However, there the is no established test in manner honest an in and faith good in act must person every Code, Civil Turkishthe Under 17.1 Istanbul established arbitration recently institutions in used Turkey. commonly and and reputable are Centre Commerce, Arbitration Istanbul the of of member a is Chamber parties the of one if authorised be can which Commerce Centre, of Arbitration Chamber Istanbul The In cross-bordertransactions,partiesoftenpreferarbitration. out ofanoutsourcingcontract. Usually, parties choose the Turkish courts to resolve disputes arising 16.1 restrictions inquestion15.1above. Parties can determine a financial cap on liability, which is subject to 15.2 15 17 16 under nationallaw? can itmakeofit? reasonableness undergeneral law? To whatextentcanapartylimitorexcludeliability supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccessto according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolutionused? Are thepartiesfreetoagreeafinancialcaponliability? Liability Good Faith Dispute Resolution

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Turkey

155 Turkey OUT19_04_07_Layout 104/07/201914:46Page156 156 Turkey Yazıcıoğlu AttorneysatLaw WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd ‘great expertiseincontractsandlitigation’ ‘Very Holding. Boyner and Foriba Jeans, Mavi include Clients programmes. card loyalty impressive’and GDPR Bora head practice telecommunications. The firm has solid expertise in data protection, M&A, joint ventures, private equity investments, cross-bo emplo estate, real investments, e-commerce, compliance, property,transfer,regulatory equity intellectual technology matters, corporate/commercial private ventures, joint M&A, protection, data in expertise solid has firm The telecommunications. and e-commercematters regulatory,notably issues, IT in expertise outsourcing protection, data and “ having as him to referred by Turkey in Law TMT in Law in Turkey by ITin individuals and leading two Telecomsthe of one as listed is Bora Attorney Gökçe of 2016. left Bora beginning the at 2011.Law Yazıcıoğlu establish at to Attorneys Partnership in Partnership Attorney Gökçe Denton as Wilde Sapte) between 2005 and (formerly 2010, he became an officeequity partner at Dentons-Istanbul for later and Firm Law Yarsuvat & Yarsuvat for working After and matters. commercial property agreements intellectual goods/distribution of contracts, sales international commercial disputes, transactions, corporate/M&A protection, data technology/media/communications, on focuses Bora resolution. resolution. aıığu tony a Lw s n sablbsd a fr. h fr hs srn fcs n ea mtes eae t technology, to related matters legal on focus strong a has firm The firm. law Istanbul-based an is Law at Attorneys Yazıcıoğlu Chambers and Partners The Legal 500 Legal The The Legal 500 ”. Email: Tel: Turkey İstanbul No:1 Kat:734732Kadıköy Bora Sokak NidaKule –Göztepe,MerdivenköyMahallesi Yazıcıoğlu Attorneys atLaw Bora Yazicioğlu URL: referred to the firm as: “Yaziciogluprotection, as: data firm licensing, the matters, to e-commerce referred handling at adept is Law at Attorneys intensive experience in IT-relatedmatters in experience intensive hmes n Partners and Chambers

referred to him as “widely admired for his . He is also listed as a Ranked Lawyer [email protected] +90 2164688850 www.yazicioglulegal.com .”

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imz Prnr bten 07 n 21. e ond Yazıcıoğlu joined He Attorneys atLawin2018. 2018. and 2017 data between Partners & Yilmaz Nevzat technology/media/communications, contracts. and 2016, and 2015 between Partnership Gökçe commercial Attorney for worked and on resolution dispute protection, focuses Nevzat URL: Email: Tel: Turkey İstanbul No:1 Kat:734732Kadıköy Bora Sokak NidaKule –Göztepe,MerdivenköyMahallesi Yazıcıoğlu Attorneys atLaw Nevzat Ali Anı ICLG TO: OUTSOURCING 2019 www.yazicioglulegal.com [email protected] +90 2164688850 yment and dispute and yment rder transactions, rder

Yazıcıoğluhas

ei and media

Turkey

OUT19_04_07_Layout 104/07/201914:46Page157 ■ the Regulations,awardingauthoritymayberequiredto: by caught If 2015. Regulations Contracts Public the to subject be the natureofsuchimpactisatpresentunclear. uncertain, currently are EU the with relationship future its of form However, as the manner of the UK’s departure from and the precise chapter.UK this in to an referred law of have areas of number could a on impact Brexit place. in deal a without 2019, October 31 (and assuming no further extension is agreed), the UK will leave on is deal that which in month the of day last the on EU the leave the to extension second a agreed EU and UK the 11 2019, On April EU. the from withdraw to intention UK’s the of Council Depending on its nature and value, a public sector outsourcing may outsourcing sector public a value, and nature its on Depending 1.2 No, therearenot. 1.1 ratified. Alternatively,ratified be cannot agreement withdrawal a if if a withdrawal deal is agreed prior to 31 October 2019, the UK will that is writing of time the at position The date. withdrawal original On 29 March 2017, the Government formally notified the European Bird &LLP ■ ■ ■ ■ effect onthe: significant a have also will 2015 Regulations Contracts Public The ICLG TO: OUTSOURCING 2019 United Kingdom Chapter 22 1 Note advertise the contract in the Official Journal of the EU and EU the of Journal Official the in contract the advertise follow specialprocedures;and ensure thatallbiddersaretreatedequally. duration oftheoutsourcingcontract. award criteriaadopted;and timing ofthepre-contractprocedure; Regulatory Framework outsourcings)? undertaken bygovernmentorpublicsectorbodies? requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory outsourcings, ITtelecommunications Are thereanynationallawsorregulationsthat outsourcing transactions(e.g.businessprocess generally orinrelationtoparticulartypesof specifically regulateoutsourcingtransactions,either

b) a) 1.3 ■ to ■ therefore as regulator We relevant the whether anysuchregulationsexist. with requirements. checking sector-specific recommend these of sector-specific outsourcing. It is beyond the scope to of this book to outline all subject to are addition regulation and which may include requirements in relation to (in which sectors services) industry main financial other the out sets list non-exhaustive following the sectors: industry Other which shouldbeinplacewhenafirmoutsourcesfunction. arrangements governance necessary the and arrangements money outsourcing outsourcing of of electronic documentation contractual the monitoring arrangements, and assessment and the to relation institutions in requirements out set payment EBA’sGuidelines The institutions. to also on Guidelines not only to banks, building societies and investment firms but (EBA) apply will they – Authority’seffect take will Outsourcing Arrangements Banking European for arrangements critical or important outsourcing functions. From 30 September 2019, the terminating into, and entering when managing also diligence and must care and skill, conditions, due exercise of in number a arrangements with outsourcing compliance into enter must regulations MiFID of the PRA Rulebook. Firms the falling within the scope of these of Part Outsourcing the 30–32 and 8 SYSC Articles Regulation, Organisation by governed investment now and is societies firms building banks, for outsourcing 2018, January 3 on legislation implementing associated the Organisationand MiFID MiFIR and Regulation, Directive II to MiFID the changes of implementation the material Following arrangements. any of and arrangement outsourcing or PRA (as applicable) of any proposal to enter into a material FCA the to notice (as advance give must and outsourcing, when area obligations regulatory its of this out contract or delegate cannot in businesses PRA of the FCAor the by regulated is that Aapplicable). firm conduct the supervises and guidance and rules issues them of each and FSMA, the Conduct under empowered and Financial established regulators the Authority are The (PRA) Regulation Prudential the UK. and (FCA) the Authority in services financial regulates that legislation of piece main the is (FSMA) 2000 services Financial example thefinancialservicessector? undertaken inparticularindustrysectors,suchasfor requirements foroutsourcingtransactions Are thereanyadditionallegalorregulatory ■ ■ Consumer credit(FCA). Aviation (Civil Aviation Authority). Energy (Ofgem). Education andchildcare(Ofsted). : the Financial Services and Markets Act Markets and Services Financial the :

Mark Leach

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157 OUT19_04_07_Layout 1 04/07/2019 14:46 Page 157

Chapter 22 United Kingdom

Bird & Bird LLP Mark Leach

Note 1.3 Are there any additional legal or regulatory

requirements for outsourcing transactions On 29 March 2017, the Government formally notified the European undertaken in particular industry sectors, such as for Council of the UK’s intention to withdraw from the EU. On 11 example the financial services sector? April 2019, the UK and EU agreed a second extension to the original withdrawal date. The position at the time of writing is that a) Financial services: the Financial Services and Markets Act if a withdrawal deal is agreed prior to 31 October 2019, the UK will 2000 (FSMA) is the main piece of legislation that regulates leave the EU on the last day of the month in which that deal is financial services in the UK. The Financial Conduct ratified. Alternatively, if a withdrawal agreement cannot be ratified Authority (FCA) and the Prudential Regulation Authority (PRA) are the regulators established and empowered under (and assuming no further extension is agreed), the UK will leave on the FSMA, and each of them issues rules and guidance and 31 October 2019, without a deal in place. Brexit could have an supervises the conduct of businesses in this area (as impact on a number of areas of law referred to in this UK chapter. applicable). A firm that is regulated by the FCA or the PRA However, as the manner of the UK’s departure from and the precise cannot delegate or contract out of its regulatory obligations form of its future relationship with the EU are currently uncertain, when outsourcing, and must give advance notice to the FCA the nature of such impact is at present unclear. or PRA (as applicable) of any proposal to enter into a material outsourcing arrangement and of any material changes to arrangements. Following the implementation of the MiFID 1 Regulatory Framework II Directive and MiFID Organisation Regulation, MiFIR and the associated implementing legislation on 3 January 2018, outsourcing for banks, building societies and investment 1.1 Are there any national laws or regulations that firms is now governed by Articles 30–32 of the MiFID specifically regulate outsourcing transactions, either Organisation Regulation, SYSC 8 and the Outsourcing Part generally or in relation to particular types of of the PRA Rulebook. Firms falling within the scope of these outsourcing transactions (e.g. business process regulations must enter into outsourcing arrangements in outsourcings, IT outsourcings, telecommunications compliance with a number of conditions, and must also outsourcings)? exercise due skill, care and diligence when entering into, managing and terminating outsourcing arrangements for No, there are not. critical or important functions. From 30 September 2019, the European Banking Authority’s (EBA) Guidelines on Outsourcing Arrangements will take effect – they will apply 1.2 Are there any additional legal or regulatory not only to banks, building societies and investment firms but requirements for outsourcing transactions also to payment institutions and electronic money undertaken by government or public sector bodies? institutions. The EBA’s Guidelines set out requirements in relation to the assessment and monitoring of outsourcing Depending on its nature and value, a public sector outsourcing may arrangements, the contractual documentation of outsourcing be subject to the Public Contracts Regulations 2015. If caught by arrangements and the necessary governance arrangements the Regulations, the awarding authority may be required to: which should be in place when a firm outsources a function. ■ advertise the contract in the Official Journal of the EU and b) Other industry sectors: the following non-exhaustive list follow special procedures; and sets out the other main industry sectors (in addition to financial services) which are subject to sector-specific ■ ensure that all bidders are treated equally. regulation and which may include requirements in relation to The Public Contracts Regulations 2015 will also have a significant outsourcing. It is beyond the scope of this book to outline all effect on the: of these sector-specific requirements. We therefore ■ timing of the pre-contract procedure; recommend checking with the relevant regulator as to whether any such regulations exist. ■ award criteria adopted; and ■ Aviation (Civil Aviation Authority). ■ duration of the outsourcing contract. ■ Consumer credit (FCA).

■ Education and childcare (Ofsted). ■ Energy (Ofgem).

ICLG TO: OUTSOURCING 2019 WWW.ICLG.COM 157 © Published and reproduced with kind permission by Global Legal Group, Ltd OUT19_04_07_Layout 104/07/201914:46Page158 158 United Kingdom WWW.ICLG.COM ■ ■ A typicalprocurementprocesswouldusuallyworkasfollows: 3.1 in anoffshore jurisdiction. venture joint a up company, set partnership or to contractual joint venture, supplier perhaps operating and customer the alternative for an is game, option the in skin more desires customer a Where supplier different(usually non-UK-based). a to subcontracts immediately that UK-based) In an indirect outsourcing, the customer appoints a supplier (usually suppliers forseparateelementsofitsrequirements. In a multi-sourcing, the customer enters into contracts with different the customerandsupplier. between outsourcing direct a is structure outsourcing simplest The 2.1 law wherethecustomeranditsbusinessarebased. the be to law governing the for is norm the however, law; local by There is no requirement for outsourcing transactions to be governed 1.4 Bird &LLP © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 3 2 used foranoutsourcingtransaction? the choiceofgoverninglaw? ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ process thatisusedtoselectasupplier? upirs aaiiis n cmeec. t s legal 2015 a Regulations is Contracts It Public the under competence. obligation and capabilities supplier’s the to relating questions ask and outsource, to is considering customer the that areas the outline generally will which suppliers, (RFI) potential to information (ITT) Tender for to Invitation request an and/or a send may customer The scope duringthetenderexercise. requirements and reduce the potential for having to widen the the function to be outsourced so as to give it a clear idea of on its diligence due conduct to have will customer the this, do plans to outsource and a list of potential suppliers. In order to it that business the of specification a up draws customer The Procurement Process Legal Structure law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot What isthemostcommontypeofprocurement What arethemostcommontypesoflegalstructure Is therearequirementforanoutsourcingtransaction Water andsewerageservices(Ofwat). services (Ofcom). postal and broadcasting Telecommunications, Security services(SecurityIndustry Authority). Office ofRailandRoad). Road transport (Driver and Vehicle Standards Agency and Rail (Office ofRailandRoad). and (Medicines Pensions (PensionsRegulator). devices medical Healthcare ProductsRegulatory Agency). and Medicines Health andsocialcare(CareQualityCommission). Gambling (GamblingCommission). Food (FoodStandards Agency).

No, thisislefttothepartiesnegotiate. 4.2 Public the to subject be may extension Contracts Regulations2015. any and contract the In general, no. However, in a public sector outsourcing, the term of 4.1 ■ ■ ■ ■ ■ ■ 5.2 ■ ■ ■ The mostcommoncharging methodsareasfollows: of riskbetweentheparties. outsourced, the nature of the supplier’s appointment and the balance being services of type the on depend will charging of method The 5.1 ■ ■ 4 5 outsourcing contract? minimum termforanoutsourcingcontract? outsourcing transactions? outsourcing transactions? Continuous improvementprogrammes. KPIs/SLAs. Benchmarking. Indexation. Payment terms/interestonlatepayment. Charge variationmechanisms. for taken), price calls often basedonaratecard. of volumes unit as (such pre-agreed service of a items specific pays customer the whereby parties may decide to opt for a pay as you go charging model Where the level and volume of service is less predictable, the option foracustomer.better a be will price fixed true greater a budget, have its to over certainty wants customer the and services of and volume scope predictable and regular a be will there Where profit agreed an margin. and services the the providing both of cost supplier actual the pays customer the where plus, Cost Term ofanOutsourcing Agreement Charging notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof Does nationalorlocallawimposeanymaximum What otherkeytermsareusedinrelationtocosts What arethemostcommonchargingmethodsusedin rfre bde, eedn uo te ie n sae and scale and size budget oftheoutsourcingtransaction. the upon depending bidder, one preferred the or suppliers shortlisted of number a with This be could begin. negotiations detailed more shortlisting, After of possiblesuppliers. the responses from the suppliers and shortlist a small number assess will customer the RFI/ITT, the of receipt Following contract, proposed the upon whichsupplierscancommentintheirresponse. of draft a contain to procurements (detailed in question 1.2(a) above) for the ITT in public sector

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OUT19_04_07_Layout 104/07/201914:46Page159 land (which is most of the land in England and Wales), the standard registered For deed. by made be must land freehold of Transfers which itstands. leasehold title. is dealtwithinquestion8.1(d)below. or data transferred in the writing as referred to above. in Transfer of personal data copyright is there be to have will If copyright the then transferred, is which information used. is it how and information, regulating or data such to access providing for provisions contractual include to advised are parties However, information. No formalities exist for the transfer, leasing or licensing of data and Data andinformation recognised underEnglishlaw. ■ ■ should alsotransfertothesupplier, eitherby: the to services the counterparty asagentofthecustomerona“back-to-back”basis. supply to supplier the allow and contract the of ownership retain can customer the permit, contract the of terms the if Alternatively, necessary. if consent such obtain to attempt ensure to stage early an at contracts such of terms the check parties should The writing. in be must contracts key of assignment The Key contracts the transfercanrequirecounterparty’s consent. leased, are assets purposes. Where evidential for property movable A written assignment or lease is usually sufficient to transfer or lease Movable property Property Intellectual UK Office. the with licence exclusive the to trademarks) register registered or patents as (such rights IP registered usually also is It rights. IP of types other license to agreement the licensor. It is also considered best practice to enter into a written by signed and writing in be must trademarks registered of Licences on assignment). restriction express an is there or personal be to expressed is licence the (where consent written by be should IPlicences of transfer The Office, dependingontheIP rightsinvolved. Property Intellectual UK the at transfer the of registration may require and writing in be generally must rights IP UK of transfer A IP rightsandlicences below. reod s h otih onrhp f rpry n te ad on land the and property of ownership outright the is Freehold Freehold land ICLG TO: OUTSOURCING 2019 or freehold with either held be can land Wales, and England In 6.2 generally not is licensed or leased being contract a of concept The contract the of burden the whether considered be also should It and consent counterparty’s the without assign to able are they that of licensee exclusive an for requirement) legal a not (but advisable 6.2 question at with dealt are land of transfer the for Formalities 6.1 Bird &LLP 6 express indemnity (which leaves some residual risk with the with risk residual some leaves (which indemnity express novation; or transferor). Transfer of Assets What aretheformalitiesfortransferofland? license assetsonanoutsourcingtransaction? What formalitiesarerequiredtotransfer, leaseor

n h cs o bt fehl ad eshl ln, t ut be transfer orassignmentisenteredinto. are must the consents before obtained it be party must consent the third land, needed, Where required. other leasehold or and bank any freehold whether both considered of case the In Bank or Third PartyConsent to required be consent. also a may under landlord(s) land superior the the of lease) tenant superior a itself a is of landlord way the by (i.e. held is sublease land leasehold the If Assign”. to “Licence a of form the in given typically is consent and delayed, or withheld unreasonably be cannot landlord a of consent the that state usually been granted over has the leasehold title or the chargelandlord’s title. a The lease will whom of any favour in of lender consent any and/or the landlord obtain to required be also may assignor The of deed by made be must assignment. lease existing an of assignment The an as (known sale the assignment). of terms the contain will which contract a into enter often will assignee) (the buyer the and assignor) (the seller the land leasehold of transfer a on land, freehold to Similar and rent,toacquiretherightoccupy). premium a of combination a or rent, nominal a only and outset the periodic (e.g. for 99 years) it may instead be that the party making pays a premium at leases long (usually for particularly although time rent of form of the in payments length given a for building) a of part (or building a or land occupy to right the one acquires where party tenure property or tenure land of form a is Leasehold Leasehold land making adeclaration,whichgenerallywillbethecase. only execute the transfer deed where it is entering into a covenant or need buyer The deed. transfer the execute always must seller The negotiation for matter a is between thebuyerandseller, butoftentheform TR1 isused. deed of form the land, unregistered form of deed is a prescribed Land Registry form called “TR1”. For ad eity pirt sac” cnutd ro t completion). to prior (conducted search” “priority Registry Land property within a 30-working-day “priority period” conferred by the at the Land Registry as the new owner/lessee (as appropriate) of the lease is over seven years) must submit an application for registration The buyer of freehold land or the lessee of leasehold land (where the 6.4 just thepricepaid. than more include can consideration circumstances, some in that Land Tax,Duty based on consideration Stamp thresholds. It is of also worth noting level the higher the consideration, the completed. higher is The lease or transfer the before has occupation buyer early the taken example, for the if, but forward completion brought be be may usually deadline will date” “effective The lease. land or Welshtransfer the for (for consideration gave days buyer the if 30 tax) transaction within or Tax) Land Duty Stamp (for an if date” “effective the of tax days 14 within submitted forms relevant all transaction land Welsh (or acquisition of Welsh Tax land on or after 1 April 2018) must be paid and Land Duty Stamp 6.3 For shorter leases, or where unregistered land is involved, there are there involved, is land unregistered where or leases, shorter For the LandRegistry. other potential registration applications that need to be submitted to How isthetransferregistered? What post-completionmattersmustbeattendedto?

United Kingdom

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159 United Kingdom OUT19_04_07_Layout 104/07/201914:46Page158 158 United Kingdom WWW.ICLG.COM ■ ■ A typicalprocurementprocesswouldusuallyworkasfollows: 3.1 in anoffshore jurisdiction. venture joint a up company, set partnership or to contractual joint venture, supplier perhaps operating and customer the alternative for an is game, option the in skin more desires customer a Where supplier different(usually non-UK-based). a to subcontracts immediately that UK-based) In an indirect outsourcing, the customer appoints a supplier (usually suppliers forseparateelementsofitsrequirements. In a multi-sourcing, the customer enters into contracts with different the customerandsupplier. between outsourcing direct a is structure outsourcing simplest The 2.1 law wherethecustomeranditsbusinessarebased. the be to law governing the for is norm the however, law; local by There is no requirement for outsourcing transactions to be governed 1.4 Bird &LLP 3 2 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ upirs aaiiis n cmeec. t s legal 2015 a Regulations is Contracts It Public the under competence. obligation and capabilities supplier’s the to relating questions ask and outsource, to is considering customer the that areas the outline generally will which suppliers, (RFI) potential to information (ITT) Tender for to Invitation request an and/or a send may customer The scope duringthetenderexercise. requirements and reduce the potential for having to widen the the function to be outsourced so as to give it a clear idea of on its diligence due conduct to have will customer the this, do plans to outsource and a list of potential suppliers. In order to it that business the of specification a up draws customer The Procurement Process Legal Structure process thatisusedtoselectasupplier? What isthemostcommontypeofprocurement used foranoutsourcingtransaction? What arethemostcommontypesoflegalstructure the choiceofgoverninglaw? law, isthereanygenerallyacceptednormrelatingto to begovernedbylocallaw?Ifitisnot Is therearequirementforanoutsourcingtransaction Water andsewerageservices(Ofwat). services (Ofcom). postal and broadcasting Telecommunications, Security services(SecurityIndustry Authority). Office ofRailandRoad). Road transport (Driver and Vehicle Standards Agency and Rail (Office ofRailandRoad). and (Medicines Pensions (PensionsRegulator). devices medical Healthcare ProductsRegulatory Agency). and Medicines Health andsocialcare(CareQualityCommission). Gambling (GamblingCommission). Food (FoodStandards Agency).

■ ■ ■ No, thisislefttothepartiesnegotiate. 4.2 Public the to subject be may extension Contracts Regulations2015. any and contract the In general, no. However, in a public sector outsourcing, the term of 4.1 ■ ■ ■ ■ ■ ■ 5.2 The mostcommoncharging methodsareasfollows: of riskbetweentheparties. outsourced, the nature of the supplier’s appointment and the balance being services of type the on depend will charging of method The 5.1

■ ■ 4 5 hrb te utmr as peare ui pie for taken), price calls often basedonaratecard. of volumes unit as (such pre-agreed service of a items specific pays customer the whereby parties may decide to opt for a pay as you go charging model Where the level and volume of service is less predictable, the option foracustomer.better a be will price fixed true greater a budget, have its to over certainty wants customer the and services of and volume scope predictable and regular a be will there Where profit agreed an margin. and services the the providing both of cost supplier actual the pays customer the where plus, Cost Continuous improvementprogrammes. KPIs/SLAs. Benchmarking. Indexation. Payment terms/interestonlatepayment. Charge variationmechanisms. Term ofanOutsourcing Agreement Charging outsourcing contract? notice periodthatisrequiredtoterminatean Does nationalorlocallawregulatethelengthof minimum termforanoutsourcingcontract? Does nationalorlocallawimposeanymaximum outsourcing transactions? What otherkeytermsareusedinrelationtocosts outsourcing transactions? What arethemostcommonchargingmethodsusedin rcrmns o oti a rf o te rpsd contract, proposed the upon whichsupplierscancommentintheirresponse. of draft a contain to procurements (detailed in question 1.2(a) above) for the ITT in public sector rfre bde, eedn uo te ie n sae and scale and size budget oftheoutsourcingtransaction. the upon depending bidder, one preferred the or suppliers shortlisted of number a with This be could begin. negotiations detailed more shortlisting, After of possiblesuppliers. the responses from the suppliers and shortlist a small number assess will customer the RFI/ITT, the of receipt Following

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OUT19_04_07_Layout 104/07/201914:46Page159 ICLG TO: OUTSOURCING 2019 land (which is most of the land in England and Wales), the standard registered For deed. by made be must land freehold of Transfers on land the and which itstands. property of ownership outright the is Freehold Freehold land or freehold with either leasehold title. held be can land Wales, and England In 6.2 is dealtwithinquestion8.1(d)below. or data transferred in the writing as referred to above. in Transfer of personal data copyright is there be to have will If copyright the then transferred, is which information used. is it how and information, regulating or data such to access providing for provisions contractual include to advised are parties However, information. No formalities exist for the transfer, leasing or licensing of data and Data andinformation recognised underEnglishlaw. generally not is licensed or leased being contract a of concept The ■ ■ contract the of burden should alsotransfertothesupplier, eitherby: the whether considered be also should It the to services the counterparty asagentofthecustomerona“back-to-back”basis. supply to supplier the allow and contract the of ownership retain can customer the permit, contract the of terms the if Alternatively, necessary. if consent such obtain to attempt and consent counterparty’s the without assign to able are they that ensure to stage early an at contracts such of terms the check parties should The writing. in be must contracts key of assignment The Key contracts the transfercanrequirecounterparty’s consent. leased, are assets purposes. Where evidential for property movable A written assignment or lease is usually sufficient to transfer or lease Movable property Property Intellectual UK Office. the with licence exclusive the to trademarks) register registered or patents as (such rights IP registered usually also is of licensee exclusive It an for requirement) legal a not (but advisable rights. IP of types other license to agreement the licensor. It is also considered best practice to enter into a written by signed and writing in be must trademarks registered of Licences on assignment). restriction express an is there or personal be to expressed is licence the (where consent written by be should IPlicences of transfer The Office, dependingontheIP rightsinvolved. Property Intellectual UK the at transfer the of registration may require and writing in be generally must rights IP UK of transfer A IP rightsandlicences 6.2 below.question at with dealt are land of transfer the for Formalities 6.1 Bird &LLP © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 6 license assetsonanoutsourcingtransaction? transferor). the with risk residual some leaves (which indemnity express novation; or Transfer of Assets What aretheformalitiesfortransferofland? What formalitiesarerequiredtotransfer, leaseor

n h cs o bt fehl ad eshl ln, t ut be transfer orassignmentisenteredinto. are must the consents before obtained it be party must consent the third land, needed, Where required. other leasehold or and bank any freehold whether both considered of case the In Bank or Third PartyConsent to required be consent. also a may under landlord(s) land superior the the of lease) tenant superior a itself a is of landlord way the by (i.e. held is sublease land leasehold the If Assign”. to “Licence a of form the in given typically is consent and delayed, or withheld unreasonably be cannot landlord a of consent the that state usually been granted over has the leasehold title or the chargelandlord’s title. a The lease will whom of any favour in of lender consent any and/or the landlord obtain to required be also may assignor The of deed by made be must assignment. lease existing an of assignment The an as (known sale the assignment). of terms the contain will which contract a into enter often will assignee) (the buyer the and assignor) (the seller the land leasehold of transfer a on land, freehold to Similar and rent,toacquiretherightoccupy). premium a of combination a or rent, nominal a only and outset the periodic (e.g. for 99 years) it may instead be that the party making pays a premium at leases long (usually for particularly although time rent of form of the in payments length given a for building) a of part (or building a or land occupy to right the one acquires where party tenure property or tenure land of form a is Leasehold Leasehold land making adeclaration,whichgenerallywillbethecase. only execute the transfer deed where it is entering into a covenant or need buyer The deed. transfer the execute always must seller The negotiation for matter a is between thebuyerandseller, butoftentheform TR1 isused. deed of form the land, unregistered form of deed is a prescribed Land Registry form called “TR1”. For ad eity pirt sac” cnutd ro t completion). to prior (conducted search” “priority Registry Land property within a 30-working-day “priority period” conferred by the at the Land Registry as the new owner/lessee (as appropriate) of the lease is over seven years) must submit an application for registration The buyer of freehold land or the lessee of leasehold land (where the 6.4 just thepricepaid. than more include can consideration circumstances, some in that Land Tax,Duty based on consideration Stamp thresholds. It is of also worth noting level the higher the consideration, the completed. higher is The lease or transfer the before has occupation buyer early the taken example, for the if, but forward completion brought be be may usually deadline will date” “effective The lease. land or Welshtransfer the for (for consideration gave days buyer the if 30 tax) transaction within or Tax) Land Duty Stamp (for an if date” “effective the of tax days 14 within submitted forms relevant all transaction land Welsh (or acquisition of Welsh Tax land on or after 1 April 2018) must be paid and Land Duty Stamp 6.3 the LandRegistry. other potential registration applications that need to be submitted to are there involved, is land unregistered where or leases, shorter For How isthetransferregistered? What post-completionmattersmustbeattendedto?

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159 United Kingdom OUT19_04_07_Layout 104/07/201914:46Page160 160 United Kingdom outsourcing. with consult and appropriate representatives of its employees inform who are affected by the to transferor the enable transferring to date expected the transfer the before to enough long done relation be must This in employees. any taking of envisages details it with transferor “measures” the provide with must transferee consultations The whether (iii) unions/employee representativeshavecommenced. and agreements; collective existing any are there whether so, if (ii) to involved; unions any have are also there will whether (i) factors: parties (non-exhaustive) following The the consider contracts. employment disclose their of and employees collate of number to the involved in the outsourcing, their job descriptions as and the key terms have such transferee the therefore to the information will of transferor commencement The (normally, transfer outsourcing term). relevant the of liability “employee with supplier is date the before days 28 least at statute) by (prescribed information” new applicable) the (as provide supplier to existing required or customer The transfer. to scope in are who employees those identify must transferor The 7.3 always beentheemployer. has transferee the though as is it legally and transferor the of shoes the into steps transferee The allowance). car entitlement, holiday limited (e.g. benefits contractual with accrued and claims) discrimination pay, transfer employment exceptions. This includes any of pre-existing liabilities (e.g. arrears of contracts transferring the with employees’ connection in or under employer outgoing the of duties and powers liabilities, rights, the of all TUPE, Under 7.2 may alsobecovered. outsourced the to assigned mainly customer.the to back transfer service subcontractors of Employees or wholly are who supplier customer the of employees the the in-house, back services outsourced and the brings end an to comes agreement outsourcing the If service outsourced transfer the automatically from the existing supplier to to the new supplier. assigned mainly supplier, or of wholly change employees a On will supplier. outsourced are, the be to to transfer service who automatically the to basis) employees temporary a on customer’s than the apply, (other assigned mainly or transfer,wholly the to prior immediately does TUPE a If for test the of element “relevant transfer”ismet. each whether determine to required is analysis legal and factual careful a but transactions, outsourcing to apply to likely are (TUPE) 2006 Regulations Employment) of the undertaken, Transferbe (Protection will Undertakings it of how or work the of nature the in change fundamental a is there Unless 7.1 Bird &LLP WWW.ICLG.COM © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 7 provide toeachother? take place? Employment Law What employeeinformationshouldtheparties On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw?

simply bedismissed. case and it should not be assumed that the supplier’s employees can Union are more relaxed than those within, but this is not always the It is commonly thought that employment laws outside the European 7.6 any termswhicharelessfavourable. are more that beneficial than his terms or her those old contract, but of will not any be bound by on rely to able be will transfer TUPE a with connection in introduced terms harmonised to agrees who void. be to likely employee is An supplier’sworkforce the existing A change to terms and conditions purely to harmonise with those of 7.5 on atransferee’s ETO tojustifypre-transferdismissals. will transfer a before usually not fall effectedwithin the ETO defence and a transferor cannot rely Dismissals dismissal. justify to dismissing the and sufficientas (ETO)ETOreason the treating in reasonably acted employer workforce” the in changes entailing the dismissal is for an “economic, technical or organisational reason dismissed sole or principal reason for the dismissal is the transfer itself, unless the where unfair the where years’and more service or continuous two has employee automatically be will dismissal A 7.4 brings them back in-house at the end of the outsourcing agreement. outsourcing the of end the at in-house back them brings or services outsourced the retenders to customer the when attention laws local pay should outsourcing offshore in redundancy involved Parties pre-transfer a in upon transfer. immediately redundant participate made being employees with to consultation, transferee the for basis legal a is there circumstances, some TUPE in a and, consultation alongside consultation redundancy a run to decide may transferor the practice, In relocate). to wish not do or relocated be cannot employees the (assuming appropriate as effectredundancies to supplier transferee the for then is it and supplier the to transfer UK the carrying outtherelevantservices.Intheory, theemployeesshould in employees the of before grouping organised immediately an is as there transfer, insofar offshoring to applies TUPE 7.7 contractual transferor’s the transfer, Where TUPE obligations tocontributetheseschemeswilltransfer. the before circumstances. place certain in be may stakeholder, personal or group TUPE personal pension arrangements are in retirement) early under or redundancy transferred on benefits to rights that occupational pension rights falling outside these categories (e.g. established has Justice of Court European the However, transfer. pension occupational under schemes which relate to old age, survivor rights or disability benefits from exempts specifically TUPE existing workforce? employee forareasonconnectedtotheoutsourcing? Are thereanypensionsconsiderations? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment Is acustomer/supplierallowedtodismissan Are thereanyoffshoreoutsourcingconsiderations?

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OUT19_04_07_Layout 104/07/201914:46Page161 ICLG TO: OUTSOURCING 2019 (a) Key issues: 8.1 Bird &LLP (d) (c) (b) 8 ciiis S mn ofhr atvte wl b regulated. be will activities offshore many So monitoring undertaking activities. or services their supplying when EU the in located individuals of data personal when process they jurisdiction law’s the under fall also processors and “ processed activities is data personal where 2018. May 25 on effect took GDPR The laws: Applicable An EU-based data controller and processor falls into its scope Data ProtectionIssuesandInformation Security transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Despite being a Regulation, the GDPR allows Member States with theGDPR’s datatransferrules. complies export the Economic that ensure must European controllers data the Area, outside data personal of transfer International transfers : Where the outsourcing involves the €20 million. or turnover worldwide of 4% of greater the being GDPR the under fines maximum with especially review, will careful provisions need liability processed, is data personal where contracts outsourcing all In GDPR. the of 26 Article under is a joint controller, more detailed provisions will be required, measures to demonstrate their compliance. Where a supplier are organisations required to adopt GDPR, significant new technical the and organisational Under forgotten. be to right in the and controller includes portability data as such rights, user which end with dealing the GDPR, the assist under obligations to its fulfilling processor the on obligations an the controller’s behalf. The controller must place contractual on under activities processing for appointed placed sub-processor any to be should security provisions protection data a same processors the down flow to obligation of Data controller the notify breach). to and data place in personal put to controller, protect to measures the organisational and technical appropriate of instructions the on act relating to data protection on its data processors (including to obligations contractual necessary all imposes it matter, that ensure subject the must controller The processing). the of nature (including and duration processing information the key out regarding set to processors data with contracts requires GDPR the of 28 Article provisions : Contractual for different activitiesrelating tothesamedataandcontract. possible for a company to be both a controller and a processor is It instructions). controller’s data the on data process only independent no will and has purposes, own its for data the processing (it for reason controller data a of behalf on data personal processes which entity legal a is processor data a ‘why’ and ‘how’) of the processing of personal data, whereas (the means and purposes or the determines alone others the which with jointly entity legal with a is data controller compliance and data A for controllers GDPR. data responsibility both have that Note processors facts? the on Supplier’s role: Are they a data processor or a data controller data other customer, the protection lawsmayapply. of location and activities the on not normally be caught by the GDPR. Noting that, depending under the GDPR to additional types of processing that would obligations of application the extends and GDPR the under available the derogations DPAexercises (replacing The 2018 DPA 2018 1998). May 25 on force into came also 2018 to legislate in many areas. In the UK, the Data Protection Act ” – a broadly interpreted test. Non-EU controllers Non-EU test. interpreted broadly a – ”

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161 United Kingdom OUT19_04_07_Layout 104/07/201914:46Page161 ICLG TO: OUTSOURCING 2019 (a) Key issues: 8.1 Bird &LLP (d) (c) (b) © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 8 transaction? ciiis S mn ofhr atvte wl b regulated. be will activities offshore many So monitoring undertaking activities. or services their supplying when EU the in located individuals of data personal when process they jurisdiction law’s the under fall also processors and “ processed activities is data personal where An EU-based data controller and 2018. processor falls into May its scope 25 on effect took GDPR The laws: Applicable Security Data ProtectionIssuesandInformation and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory with theGDPR’s datatransferrules. complies export the Economic that ensure must European controllers data the Area, outside data personal of transfer International transfers : Where the outsourcing involves the €20 million. or turnover worldwide of 4% of greater the being GDPR the under fines maximum with especially review, will careful provisions need liability processed, is data personal where contracts outsourcing all In GDPR. the of 26 Article under is a joint controller, more detailed provisions will be required, measures to demonstrate their compliance. Where a supplier are organisations required to adopt GDPR, significant new technical the and organisational Under forgotten. be to right in the and controller includes portability data as such rights, user which end with dealing the GDPR, the assist under obligations to its fulfilling processor the on obligations an the controller’s behalf. The controller must place contractual on under activities processing for appointed placed sub-processor any to be should security provisions protection data a same processors the down flow to obligation of Data controller the notify breach). to and data place in personal put to controller, protect to measures the organisational and technical appropriate of instructions the on act relating to data protection on its data processors (including to obligations contractual necessary all imposes it matter, that ensure subject the must controller The processing). the of nature (including and duration processing information the key out regarding set to processors data with contracts requires GDPR the of 28 Article provisions : Contractual for different activitiesrelating tothesamedataandcontract. possible for a company to be both a controller and a processor is It instructions). controller’s data the on data process only independent no will and has purposes, own its for data the processing (it for reason controller data a of behalf on data personal processes which entity legal a is processor data a ‘why’ and ‘how’) of the processing of personal data, whereas (the means and purposes or the determines alone others the which with jointly entity legal with a is data controller compliance and data A for controllers GDPR. data responsibility both have that Note processors facts? the on Supplier’s role: Are they a data processor or a data controller data other customer, the protection lawsmayapply. of location and activities the on not normally be caught by the GDPR. Noting that, depending under the GDPR to additional types of processing that would obligations of application the extends and GDPR the under available the derogations DPAexercises (replacing The 2018 DPA 2018 1998). May 25 on force into came also 2018 to legislate in many areas. In the UK, the Data Protection Act Despite being a Regulation, the GDPR allows Member States ” – a broadly interpreted test. Non-EU controllers Non-EU test. interpreted broadly a – ”

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the facilitate or enable to the order customer’s continuedcompliance withtheNISR. in to contract outsourcing access the to having supplier the customer’s IT systems, additional obligations may need to be added involves outsourcing the an and NISR the of scope the within falls customer of the if outsourcing, context the in Accordingly, authority. competent their relevant to incidents significant report their to ready of be security (iii) and the systems; affecting incidents of impact the (ii) minimise systems; information or prevent and to place in measures appropriate network have they demonstrate their have to posed they risks demonstrate the (i) therefore: must appropriate and proportionate security measures in place to manage and provide they continue to be accountable for the protection of the essential service and health engines and cloud computing service providers. OES and DSPs will water, energy, include operators of online marketplaces, operators of online search the which in (DSPs), providers service digital and sectors, transportation of (OES) operators to services apply NISR essential the of provisions the full terms, A broad outsourcing. in but, chapter an this of scope of the beyond is NISR context the of discussion the in relevant be may and (NISR), security information Regulations to apply 2018, May in force into came Security which Information & Network the Yes, 8.2 a. (a) tax a purposes. for The maintaxissuesthatmightariseare: supplier be the to business may a of there part and/or assets arrangement, of transfer outsourcing an into entering On 9.1 (e) c. b. 9 the nexteditionofthisguide. Electronic before and 2003)) Regulations e- Privacy Directive) (EC Communications the EU (including the Directive implements Privacy which legislation State Member EU replace will Regulation e-Privacy proposed the that note although 2003, Regulations Directive) (EC Communications Industry-specific legislation may also apply, such 2016). as the Privacy and Electronic Act Powers Investigatory the by of Regulation replaced be to due is the (which 2000 Powers Act Investigatory and 2000 Act Information of Freedom the e.g. services, and parties the of nature the on depending requirements concerninginformationsecurity? terminating thecontract? any chargeable gains; on tax corporation trigger may assets certain of disposal the Direct taxontransfer ofassets. Tax Issues Are thereindependentlegaland/orregulatory outsourced business–eitheronenteringintoor What arethetaxissuesontransferring te legislation Other may giverisetoabalancingcharge orallowance. This pool. allowance capital company’s the to credited be to likely are proceeds disposal However,the gain. taxable a to rise give to unlikely is machinery and plant of transfer the and withotherIP assets,from1 April 2019);and tax business a of corporation acquisition the of part as acquired a if goodwill obtain (including IP such to of cost the of amortisation for able deduction be should a under purchaser) tax corporation to (as supplier The assets. fixed intangible for regime subject separate be could 2002 1 after April or on acquired or created assets) intangible similar other certain and goodwill (including IP any of disposal the Ohr eilto my e relevant be may legislation Other :

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161 United Kingdom OUT19_04_07_Layout 104/07/201914:46Page162 162 United Kingdom h tx sus e ot bv wl teeoe lo e eeat on relevant be also therefore will termination. above out set issues tax The customer. the to back business) (or assets of re-transfer a involve It is likely that the termination of any outsourcing arrangements will b. a. (b) (a) may arise. These include: which arise in an outsourcing context, there are other tax issues that Although tax on transferring assets and VAT are the main tax issues 9.3 (c) (b) (a) exempt” businesses include: “partially such for issue this with dealing for Strategies additional costascomparedtokeepingtheservicesin-house. significant a to rise give will contract outsourcing the under made VATits recover VATfull, not supplies in does the business on a If 9.2 Bird &LLP WWW.ICLG.COM (b) © Published andreproduced withkindpermission byGlobalLegal Group,Ltd for example,thetransferofbackoffice functions. taxable to, apply not may historic such as part and parties) made third to (i.e. supplies the have to requires transferred This being business operation”. business a of separate part of be “capable must transferred assets is the apply, treatment such However, unlikely in the outsourcing context purposes. as, for TOGC VATtreatment to for supply The effect of this would be that the transfer is not treated as a could this VATfor concern” transferred going a of “transfer a to amount being purposes. is business a of part a Where under theoutsourcingcontract? the in reduction a as ongoing considerationprovidedunderthecontract. interpreted such that be possible could is consideration it contract, outsourcing an consideration in no stated is the there VAT if on Even to rise provided. give consideration generally will transfer asset An VAT the with along machinery being and employees. assets plant only be will the transferred however, circumstances, most In rsne o te utmr n h jrsito i wih the (taxable which in supplier isbased. jurisdiction establishment the in permanent customer the of a presence) form may supplier the contract, cross-border a on – establishment Permanent an from difficulties be also employment lawperspective. may There substance. the to HMRC will look beyond the legal status of the arrangements that showing law case is there as however required be would Care contract. employment joint a as supply the structuring anti-avoidance legislation;and VAT customer’s of the light in achieve of to difficult be will part this However, group. be to up supplier the setting b. a. structuring theprovisionofservicesby: What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices ate sol are otatal wo er ta tax, that bears who contractually otherwise thesupplierwillbear wholetaxburden. agree should parties the customer’s jurisdiction and any tax treaty protection. The in treatment the on depending taxes, withholding to subject taxes Withholding upis Ti cud e f atclr eei i the if benefit VAT onsuchsuppliesisrecoverable; particular of be consideration attributable to taxable supplies is low or the could This supplies. exempt and taxable separate into supplies the unbundling supply; exempt an be to service dominant the require would – this supply exempt composite a are supplies the ensuring .

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the of interest commercial customer andarenotacontractualpenalty. legitimate a protect to shown be can or loss customer’s the of pre-estimate genuine a are they provided enforceable, generally are persistent credits Service or performance. in failures contract the of breaches serious more to relation in rights wider customer’s the to prejudice without be should this but the sole remedy of the customer for the particular failure concerned, are credits service stated the that ensure to want will supplier The contract, andtomotivatethesuppliermeetperformancetargets. poor for customer the service without the need compensate to pursue a claim to for damages or is terminate the credits service of aim The ■ ■ service levels). These servicelevelsneedtobecombinedwitha: or (KPIs) indicators performance (key performance supplier’s the identify andagreeasetofobjective,measurablecriteriatomeasure to together try usually parties the contract, the negotiating When 10.1 ■ ■ ■ ■ ■ the followingprotections: In addition to the remedies available at law, the customer could seek 11.2 ■ ■ ■ 11.1 (d) (c) 10 11 levels andservicecredits? contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? utmr f agt ae o mt Tee r rfre t as to referred are These service creditsorliquidateddamages. met. not are targets if customer the to paid is compensation financial which under formula achieving thetargets; and in failure or success on reporting and recording for process tpi rgt alwn te utmr o ae vr the over take third partytomanage theserviceonitsbehalf; to customer a appoint to or service under-performing the an of management allowing rights step-in warranties; of loss supplier ortherighttowithholdpayment; as such the consequences, to payable price minimum the in reduction exclusivity,a financial of the forms other by suffered loss for customer inspecifiedcircumstances; supplier the from indemnities service credits; Termination. of thecourt). discretion the at (available performance/injunction Specific Damages. What istheusualapproachwithregardtoservice What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder in thisrespectwillneedtobesetoutthecontract. risk any bear who persons services. The the of treatment tax the change could this change, contract outsourcing an under Changes to the arrangements – where the services supplied be made. The contract should deal with any specific payments that may pass. also will Contributions Insurance National PAYEand for account to obligation the contract, outsourcing the under Employees Service Levels Customer Remedies

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© Published andreproduced withkindpermission byGlobalLegal Group,Ltd 12 that areincludedinanoutsourcingcontract? transaction? and notmisleading; pre- the in complete accurate, remains and was stages tender and tender provided information material that confirm to and regulations; to perform the services in accordance with all applicable laws and timely a in professional manner; practice, in industry care good and with skill accordance reasonable with services the perform to and contract the into perform itsobligations; enter to entitled is it that confirm to solutions cannoteasilybefound. manage problem areas and to escalate them to under higher levels if structure escalation which each party appoints specified relationship managers to or governance appropriate an a parentcompanyguarantee;and customer’s interestonitsinsurancepolicy; the note and insurance hold to supplier the for requirement a (for example,materialbreachorinsolvency); circumstances defined in termination for provision specific that capacity). and directors officers of a company against claims brought against them in cover (to insurance officers’ and Directors’ Land andbuildingsinsurance. Public liabilityinsurance. against fraudcommittedbyemployees). cover provide (to insurance dishonesty employee or Fidelity Business interruptioninsurance. of outsourced services). performance the in negligence for claims against cover provide to example, (for insurance indemnity Professional Employer’s liabilityinsurance(obligatoryintheUK). What arethetypicalwarrantiesand/orindemnities order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin indemnify thecustomeragainstfutureliabilityunder TUPE. the and where rights); IP third-party infringes situations services the of performance to extend can supplier’s liability is not based solely on or fault (for example, if duty) statutory harm to limited of breach or negligence example, suffered(for default to due be can This the to actions/inactions. due supplier’s suffered harm against customer the indemnify particular a quality assurancesystem). with accordance in operates or accreditations particular has supplier the that example, (for services of type to make other assurances specifically related to the project or hc hs eoe oe motn a a eut f the of result a as important more implementation ofGDPRandthe NISR intheUK). become has which breaches, data or IT-assets digital of of loss as such range risks, related a against cover (to insurance Cyber-liability Insurance

■ ■ ■ ■ considered generally are the termsofcontract: events of regardless following termination, immediate justify to serious sufficiently the addition, In for claim a to rise giving damages fromtheterminatedparty. without justified be would the of contract terms the with accordance in occurs that termination Any 13.1 the other party will be allowed. This will typically be accomplished will be specifically ring-fenced to clarify that only prescribed use by which IP define Background This IP). (Background transaction outsourcing the will parties of start the at party the each to belong rights (IP) property intellectual agreement, outsourcing the In 14.1 No, therearenot. 13.3 ■ ■ ■ ■ ■ ■ where: Examples of further contractual provisions allowing termination are block orextendrightsimpliedbygenerallaw. can which rights, termination specific agree to free are parties The 13.2 13 14 for damagesfromtheterminatedparty? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? termination rights? ae t aial dfeet rm ht a originally was what frustration”. from different envisaged bytheparties. This isreferredtoas“discharge by radically it make the of performance the contract becomes impossible or if external events conspire to parties, the of fault no through if, example throughitsinsolvency;or if a party is unable to perform its duties under the contract, for to continuewiththecontract; a breach that indicates that the counterparty no longer wishes “substantially thewholebenefitofcontract”; of a contractual term that would deprive the innocent party of breach a or condition a of breach a i.e. breach, repudiatory a h pris ge ta oebt o te cn emnt for terminate can them convenience upon the provision of of a prescribed notice one/both period. that agree parties the there isachangeofcontrolonetheparties;and the insolvencyofoneparties; occurred; of event an the within remedied been agreed cureperiod); not has one remediable, (or if breach which, material irremediable an commits party a a partycommitsseriesofminorbutpersistentbreaches; terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional Termination Intellectual Property

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OUT19_04_07_Layout 104/07/201914:46Page165 to beimplied,theyshouldincludeanexpresstermthiseffect. and uncertainty in this area, if the parties do not wish a duty investment of good faith significant outsourcing contractcouldwellfallwithinthiscategory. Giventhe an another,point, the on authority direct one no is there exclusivity.Although in confidence and trust mutual of placing parties degree the collaboration, high and communication a relationship, long-term a establish mutual a to involves intention it if relational considered be to likely more is contract a but determinative, is factor one No implied. be may faith good of obligation an contracts” “relational labelling increasingly are courts the what in that suggested has law case However,recent be resolved byexpertdetermination. can industry-specific) particularly are that disputes (or nature technical a of disputes that agree to parties the for open also is It ■ at ad ar elns n nls cnrc lw n l contracts. all in law contract English in dealings fair and faith successive through decisions of the courts. At present, there is no general duty of good develop to continues law English and years, few last the over area this in activity of deal great a been has There 17.1 Bird &LLP ICLG TO: OUTSOURCING 2019 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd ih oe hn 0 er’ usucn eprec, e ae die o sm o te ot ope ad noaie usucn transac outsourcing innovative and complex most the of some global on support to placed uniquely us advised making integrated, fully and international have is team Our we world. the in anywhere undertaken experience, outsourcing years’ 20 than more With seamless cross-borderservices. to havebeenawardedaplacethisyearintheIAOP’s specialrankingofthe ‘BestoftheWorld’s BestOutsourcing Advisors’. th for IAOP’s100 the Outsourcing in Global world’sadvisors the outsourcing of best one as identified been We’rehave to proud advise onre-tenderingsandexitplanningmatters. issues management contract on advising in expertise Weunparalleled have implementation. and transition negotiation, contract the through deal, a of structuring initial the from relationship, outsourcing an of lifecycle the throughout clients advise We transactions. countries worldwide. We specialise in combining leading expertise across a full range of legal services and aim to deliver tail deliver to aim and services legal client of range full and a across expertise America leading North combining in specialise and We worldwide. countries Asia-Pacific East, Middle the Europe, across offices 29 in lawyers 1,300 than more has Bird & Bird 17 pone t atmt o aiiae h pris n ecig a reaching in negotiated settlement. parties the facilitate to attempt to appointed is power) decision-making binding no has (who party third mediation, being a confidential process under which a neutral reasonableness undergenerallaw? cannot besolvedwithinspecificperiodsoftime;and it if executives parties’ the and committee steering/project according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer Good Faith

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URL: Email: Tel: United Kingdom London EC4A 1JP 12 NewFetterLane Bird &LLP Mark Leach . hmes ud t te K Legal UK the to Guide Chambers www.twobirds.com [email protected] +44 2074156000 United Kingdom

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Chapter 23 USA Mark Heaphy

Wiggin and Dana LLP Tamia Simonis

when personal health information is transmitted or maintained 1 Regulatory Framework electronically. These rules require “covered entities” (such as hospitals, pharmaceutical companies or medical insurers) to have 1.1 Are there any national laws or regulations that “business associate agreements” with suppliers of related services specifically regulate outsourcing transactions, either that create, receive or transmit personal health information, and such generally or in relation to particular types of suppliers are now directly regulated by HIPAA as “Business outsourcing transactions (e.g. business process Associates”. Other federal or state laws and regulations may apply outsourcings, IT outsourcings, telecommunications in such regulated industries as banking, insurance and securities. outsourcings)?

No U.S. federal laws specifically regulate outsourcing contracts. 1.4 Is there a requirement for an outsourcing transaction to be governed by local law? If it is not to be local Rather, they are governed by the law of contracts in each state and law, is there any generally accepted norm relating to relevant state, or federal, statutes. Combinations of state and federal the choice of governing law? legislation apply to various regulated industries (such as banking, insurance and healthcare) and to such important issues as data Parties are generally free to choose and negotiate choices of law and protection, employment and environmental protection, among those choices are likely to be respected. However, particular state others. laws may still apply to some issues within the particular state’s jurisdiction. 1.2 Are there any additional legal or regulatory requirements for outsourcing transactions undertaken by government or public sector bodies? 2 Legal Structure

A number of federal and state laws may apply depending upon the 2.1 What are the most common types of legal structure commercial context, including the services performed and the used for an outsourcing transaction? customer’s industry. For example, both state and federal laws regulate debt collections, there are federal laws regulating The most common structure involves a master contract between the telemarketing and the use of autodials, and there are state and principal customer and the principal supplier of services, supported federal laws which are applicable to such functions as processing of by exhibits or schedules that define the scope of service, healthcare claims and mortgages. Public contracts in the U.S. are performance standards, pricing and other particulars (e.g., highly specialised and regulated. Bidding or tender procedures, and concerning transitional arrangements or transfers of personnel, contract terms (sometimes dictated by regulations), may differ among others). Local or companion agreements may apply between substantially from commercial practice. the parties, or their affiliates, for the performance of services in other countries, with variations for those countries’ tax, 1.3 Are there any additional legal or regulatory employment, or other laws, currencies and other details. Many requirements for outsourcing transactions variations are possible. undertaken in particular industry sectors, such as for

example the financial services sector? 3 Procurement Process Healthcare and related businesses, such as medical insurance and the manufacture and distribution of pharmaceuticals, are subject to various federal laws, including the Health Insurance Portability and 3.1 What is the most common type of procurement process that is used to select a supplier? Accountability Act of 1996 (HIPAA) and the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), which, together with related regulations, apply to the Many U.S. companies favour a competitive bidding process. The protection of personal health information. HIPAA created (a) the buyer or customer may begin with a preliminary request for Privacy Rule or standards for the creation, use and disclosure of information (RFI) and follow with a detailed request for proposal personal health information, and (b) the Security Rule or standards (RFP), requiring bids against a set of detailed performance,

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Chapter 23 Wiggin and Dana LLP USA

financial and other requirements, usually including a proposed form of master agreement. Detailed negotiations then follow with one or 5.2 What other key terms are used in relation to costs in more finalists, leading to a contract based upon the proposal, as outsourcing transactions? refined through negotiation. Many contracts, however, are USA negotiated without competitive bidding, especially where there are Other important cost-related terms may include provisions for ongoing business relationships between organisations. expenses that may be absorbed by the supplier or passed through to Mark Heaphy the customer, as well as the cost of changing regulatory

requirements. Suppliers will not disclose their internal costs (other 4 Term of an Outsourcing Agreement than expenses passed through to the customer). Suppliers require

compensation for changes caused by factors outside of their control, USA such as changes in laws, new or different customer requirements 4.1 Does national or local law impose any maximum or (such as customer policy or technology changes) or additional minimum term for an outsourcing contract? resources required to accommodate customer mergers or Wiggin and Dana LLP Tamia Simonis acquisitions. No; although terms of five to seven years are common, sometimes with extensions by mutual agreement or, at the customer’s request, upon the terms then in effect (often with cost of living, foreign 6 Transfer of Assets exchange or other financial adjustments). when personal health information is transmitted or maintained 1 Regulatory Framework electronically. These rules require “covered entities” (such as 6.1 What formalities are required to transfer, lease or hospitals, pharmaceutical companies or medical insurers) to have 4.2 Does national or local law regulate the length of the license assets on an outsourcing transaction? notice period that is required to terminate an 1.1 Are there any national laws or regulations that “business associate agreements” with suppliers of related services outsourcing contract? specifically regulate outsourcing transactions, either that create, receive or transmit personal health information, and such Asset transfers are much less common than formerly. Assignments generally or in relation to particular types of suppliers are now directly regulated by HIPAA as “Business or other transfers of equipment leases, software licences and other The parties are free to negotiate notice periods. In cases of default outsourcing transactions (e.g. business process Associates”. Other federal or state laws and regulations may apply contracts should be effected in writing, often require consents and outsourcings, IT outsourcings, telecommunications termination, notice and cure periods of at least 30 days are common in such regulated industries as banking, insurance and securities. may require payment of a charge to the lessor, licensor or other third outsourcings)? and usually followed by an orderly disengagement that may take parties. Sales of tangible property (other than land and buildings) months, and sometimes a year or more, depending upon the scale may be effected through bills of sale. No U.S. federal laws specifically regulate outsourcing contracts. 1.4 Is there a requirement for an outsourcing transaction and complexity of the relationship. Notice periods for termination to be governed by local law? If it is not to be local Rather, they are governed by the law of contracts in each state and law, is there any generally accepted norm relating to without cause (for “convenience”) are typically much longer (e.g., relevant state, or federal, statutes. Combinations of state and federal the choice of governing law? 180 days), depending upon the scale and complexity of the 6.2 What are the formalities for the transfer of land? legislation apply to various regulated industries (such as banking, relationship, so that there is adequate time to assure an orderly insurance and healthcare) and to such important issues as data Parties are generally free to choose and negotiate choices of law and transfer of knowledge, data, operations and sometimes personnel. Transfers of land and buildings are comparatively rare in protection, employment and environmental protection, among those choices are likely to be respected. However, particular state Such convenience terminations usually involve payment of a fee to outsourcing transactions. Leased facilities may be transferred others. laws may still apply to some issues within the particular state’s the supplier to cover unamortised or upfront investments, through a sublease or a written assignment of the lease. Title to land jurisdiction. redeployment of personnel, disposal of assets that cannot be and buildings is transferred by deeds, which are recorded in public repurposed and some reasonable portion of unrealised profit due to records. Specialist local advice is essential, not only about title and 1.2 Are there any additional legal or regulatory requirements for outsourcing transactions the premature termination of the relationship. other formalities, but also potential environmental liabilities which undertaken by government or public sector bodies? 2 Legal Structure may pass to new occupants, operators or owners of land and buildings. 5 Charging A number of federal and state laws may apply depending upon the 2.1 What are the most common types of legal structure commercial context, including the services performed and the used for an outsourcing transaction? 6.3 What post-completion matters must be attended to? customer’s industry. For example, both state and federal laws 5.1 What are the most common charging methods used in regulate debt collections, there are federal laws regulating outsourcing transactions? The most common structure involves a master contract between the The most important post-completion activity is the transfer of telemarketing and the use of autodials, and there are state and principal customer and the principal supplier of services, supported operations to the supplier, generally according to a detailed federal laws which are applicable to such functions as processing of by exhibits or schedules that define the scope of service, Many methods are available, ranging from fixed charges to “cost transition plan. Consents to assignments, transfers of software healthcare claims and mortgages. Public contracts in the U.S. are performance standards, pricing and other particulars (e.g., plus” methods (tied to the supplier’s costs), but the most common licences or other transferred contracts are often obtained during the highly specialised and regulated. Bidding or tender procedures, and concerning transitional arrangements or transfers of personnel, methods involve variable charges tied to resource consumption transition period that follows signing and precedes commencement contract terms (sometimes dictated by regulations), may differ among others). Local or companion agreements may apply between (such as numbers of devices or users, volumes of data or storage) or of service by the supplier of outsourced services. Formalities substantially from commercial practice. the parties, or their affiliates, for the performance of services in levels of effort (such as numbers of staff, full-time equivalents, concerning transfers of major assets (such as land and buildings) are other countries, with variations for those countries’ tax, chargeable hours, volumes of transactions or other activities). generally completed at the time of closing. 1.3 Are there any additional legal or regulatory employment, or other laws, currencies and other details. Many Charges for transitions to outsourced operations are often fixed, but requirements for outsourcing transactions variations are possible. allocated, among a number of phases or milestones. Similar undertaken in particular industry sectors, such as for methods are sometimes used for major projects such as the 6.4 How is the transfer registered? example the financial services sector? implementation of new systems. Contracts provide a variety of 3 Procurement Process methods for adjustments, including incremental charges or credits Land titles are not registered in the United States. Rather, state Healthcare and related businesses, such as medical insurance and for increases or reductions in volumes of service or resource recording laws provide for the recording in public records of deeds, the manufacture and distribution of pharmaceuticals, are subject to consumption, change orders for various contingencies (with pricing mortgages and other instruments affecting title in land. Transfers of various federal laws, including the Health Insurance Portability and 3.1 What is the most common type of procurement for net adjustments tied to contract rates or similar criteria) and patents, trademarks and copyrights (rare in outsourcing) are effected process that is used to select a supplier? Accountability Act of 1996 (HIPAA) and the Health Information equitable adjustments (tied to levels of effort and resource usage) through recording or registration at the U.S. Patent and Trademark Technology for Economic and Clinical Health Act of 2009 for large swings in levels of activity. Negotiated cost-of-living and Office or U.S. Copyright Office. Many U.S. companies favour a competitive bidding process. The (HITECH), which, together with related regulations, apply to the foreign exchange adjustments may also apply. protection of personal health information. HIPAA created (a) the buyer or customer may begin with a preliminary request for Privacy Rule or standards for the creation, use and disclosure of information (RFI) and follow with a detailed request for proposal personal health information, and (b) the Security Rule or standards (RFP), requiring bids against a set of detailed performance,

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personal data. outsourcing successful to contains involved pivotal information the when particularly arrangements, is security Data authorities. other and subjects public to payable penalties civil and fines as well as parties, private data to liability potential involve laws Some 8.1 the UnitedStates. both), require that services be performed, or data maintained, within (or reasons regulatory or policy for may, companies private some and agencies Public States. outsourced United the outside performed have services to freedom considerable enjoy companies U.S. 7.7 and dispositions accounts. concerning and plans retirement required of kinds various in held amounts often of transfers is advice 1974. of Expert Act Security Income Retirement Employee the federal statute, comprehensive a by governed are benefits Pension Yes. 7.6 ujc t sls n ue ae ad dpnig n h sae such state, the on depending and, taxes use and be sales the also to subject may to services recipient Outsourced services provider. the service outsourcing from assets of leases other or sales and to equipment apply sometimes taxes use and sales State 9.1 handling, the for storage, treatmentanddestructionofdata. instructions Hence, detailed include with. typically complied parties be also must other regulations and EU jurisdictions’ transactions, global in Moreover, in ways. data different personal own of categories their individual have protecting laws states myriad various The respectively. HITECT, and the fulfil must HIPAAand parties Act Gramm-Leach-Bliley the by down the laid conditions example, for healthcare, or financial address services services the if level, federal the At and level. federal state the at regulated is security data States, United the In 8.2 countries. other in laws comparable than, stringent more cases some in and as, data. stringent as of often are categories requirements legal or Overall, industries specific and on with state based overlapping laws, of federal jurisdictions multitude a other with a approach, takes piecemeal and States United the Union, privacy, to approaches comprehensive European the Unlike 8 9 transaction? terminating thecontract? requirements concerninginformationsecurity? Security Data ProtectionIssuesandInformation Tax Issues and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? outsourced business–eitheron enteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory

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OUT19_04_07_Layout 104/07/201914:46Page168 168 USA WWW.ICLG.COM to employees motivate to remain througha transitionperiod. order in (and customer) offered the be by may subsidised payments incentive example, For transitional period. a for least at otherwise employees or transferring benefits, the and compensate pay former approximate or match to suppliers employing their customers’ former employees may choose Yes, in order to ease transitions and assure high rates of acceptance, 7.5 and otherimproperreasonsisprohibitedbylaw. discrimination origin national sex, beliefs, countries, religious disability,race, age, on based many in as However, for purposes. and forces other work reduce to order in cause without and will at In the United States, employers may generally discharge employees 7.4 proceeding. before checked be should statutes state however, exceptions for vendors retained by employers to maintain such files; have which laws those or of Some in, files. personnel contained in, contained be is should that information to respect with laws but must be sufficient to understand costs. Many states have privacy subject to applicable privacy laws and the companies’ own policies, common, are information anonymised aggregated, of Disclosures 7.3 There arenotransfersbyoperationoflaw. 7.2 for wrongfuldischarges. Expertadviceisessential. liability corresponding with contract unwritten an as at-will employment treat may laws State unfair bargaining. other collective and and practices discrimination closures, plant pensions, leave, other and maternity concerning those including relevant, be may statutes federal and Variousstate negotiable). are details such but benefits, and pay comparable for (often effect takes agreement the when effective is outsourcer,which the from employment of offers an outsourcer, to they are severed transfer by the customer employees and receive conditional When policies). their to according pay severance and notice reasonable provide employers many practice, in (although, obligations severance statutory or cause without and notice upon terminated be may and will, at employed generally are staffcompanies’ U.S. agreement, bargaining collective or contract employment an of absence the employees In law. of operation by Union, outsourcer European the unlike displaced or otherwise affected by outsourcing do States, not transfer to the United the In 7.1 Wiggin andDanaLLP and disciplinaryrecords)arenotdisclosed. evaluations as (such policies personnel Confidential employees. concerning data personal for required be may consent Individual 7 Employment Law existing workforce? terms ofatransferringemployeewiththoseits Is asupplierallowedtoharmonisetheemployment employee forareasonconnectedtotheoutsourcing? Is acustomer/supplierallowedtodismissan provide toeachother? What employeeinformationshouldtheparties take place? On whattermswouldatransferbyoperationoflaw Whenareemployeestransferredbyoperationoflaw?

personal data. outsourcing successful to contains involved pivotal information the when particularly arrangements, is security Data authorities. other and subjects public to payable penalties civil and fines as well as parties, private data to countries. liability potential other involve in laws laws Some comparable than, stringent more cases some in and as, stringent as often are requirements legal Overall, 8.1 the UnitedStates. both), require that services be performed, or data maintained, within (or reasons regulatory or policy for may, companies private some and agencies Public States. outsourced United the outside performed have services to freedom considerable enjoy companies U.S. 7.7 1974. of Act Security Income Retirement Employee the federal statute, comprehensive a by governed are benefits Pension Yes. 7.6 ujc t sls n ue ae ad dpnig n h sae such state, the on depending and, taxes use and be sales the also to subject may to services recipient Outsourced services provider. the service outsourcing from assets of leases other or sales and to equipment apply sometimes taxes use and sales State 9.1 handling, the for storage, treatmentanddestructionofdata. instructions Hence, detailed include with. typically complied parties be also must other regulations and EU jurisdictions’ transactions, global in Moreover, in ways. data different personal own of categories their individual have protecting laws states myriad various The respectively. HITECT, and the fulfil must HIPAAand parties Act Gramm-Leach-Bliley the by down the laid conditions example, for healthcare, or financial address services services the if level, federal the At and level. federal state the at regulated is security data States, United the In 8.2 data. of categories or industries specific and on with state based overlapping laws, of federal jurisdictions multitude a other with a approach, takes piecemeal and States United the Union, privacy, to approaches comprehensive European the Unlike xet die s fe rqie cnenn dsoiin and dispositions accounts. concerning and plans retirement required of kinds various in held amounts often of transfers is advice Expert 9 8 Tax Issues Security Data ProtectionIssuesandInformation transaction? and dataprotectionthatmayariseonanoutsourcing requirements andissuesconcerningdatasecurity What arethemostmateriallegalorregulatory Are thereanyoffshoreoutsourcingconsiderations? Are thereanypensionsconsiderations? terminating thecontract? outsourced business–eitheron enteringintoor What arethetaxissuesontransferring Are thereindependentlegaland/orregulatory requirements concerninginformationsecurity?

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OUT19_04_07_Layout 104/07/201914:46Page169 concerning withholding,value-addedandothertaxes. U.S. a of support arise may questions in tax complex company’soperations, worldwide or offshore, performed are services When 9.3 The UnitedStatesdoesnothaveavalue-addedtax. 9.2 or even ifthetaxisassesseduponsupplierassellerofservice. pay to agree customers and reimburse any sales, use or similar tax upon the services or charges, jurisdiction, own their in taxes outsourcing income net and assets to own their on taxes parties pay to agree Generally,agreements resides. recipient service the where or provided are services the where taxable be may services Wiggin andDanaLLP ICLG TO: OUTSOURCING 2019 (b) (a) the recoveryofdamages. They mayincluderightsto: to addition in remedies, of variety a provide commonly Contracts 11.2 subject tonegotiatedlimits(discussedbelow). other usual criteria are satisfied. Liability for damages is invariably and inadequate are damages direct, money if remedies, equitable other or recover may injunctions seek cases, customers appropriate in and, damages compensatory breached, are contracts When 11.1 monthly. metrics typically objective intervals, of regular set at reported a and as measured documented are levels Service 10.1 measured. tied toconsistent,goodorsuperiorperformance. “earn-backs”) is (or incentives performance through offset be actual often may Credits supplier’s the baselining a where through established period or period) validation confirmed a and during documented adequately (if performance historic monthly of customer’s the upon based be 8–12% may levels service Initial commonly charges). but (negotiable, ceiling overall an to subject charges, those of percentage a as computed generally and charges, supplier’s the against assessed credits of form the in stabilisation or burn-in period generally bear financial consequences initial some following levels service achieve to failures Unexcused © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 11 10 contract documentationtoprotectthecustomer? general lawifthesupplierbreachescontract? levels andservicecredits? under theoutsourcingcontract? uh s xesv nmes f nxue srie level service unexcused of numbers failures); excessive as such examples, specific various include may breach material material (and a if partially, or breach is not cured within the relevant notice and cure period wholly contract, the terminate timely completephasesoftheinitial transition; collect credits for unexcused failures to meet service levels or What othertaxissuesmayarise? Is thereanyVAT leakageonthesupplyofservices What additionalprotectionscouldbeincludedinthe What remediesareavailabletothecustomerunder What istheusualapproachwithregardtoservice Customer Remedies Service Levels

current market rates). In cases of default termination, however,termination, the default of cases In rates). market current then- above threshold reasonable some exceed charges supplier’s price, or other adjustments, after a benchmark determination that the (f) (e) (d) (c) commonly are warranties disclaimed. Implied by established negotiable. are are and themselves, contract indemnities and warranties the like obligations, these indemnitor.of the All by supplied materials processes or specifications, unauthorised modifications or misuse of software, infringing indemnitee’s is an for indemnitor responsible not the generally cases, the infringement of in and extent fault, the indemnitor’s to proportionally limited and generally is taxation, liability employees, transferred or obligations. other and indemnitor’sconfidentiality The of breaches displaced by claims employment-related property, tangible to damage individuals, of as such claims, party third infringement of intellectual mutual property rights, bodily potential injury to or death often of are range a There for indemnities matters. other and staff of experience concerning warranties the quality and efficiency of the service, of the training and variety a contain commonly contracts Outsourcing 11.3 icmtne (uh s nblt t rsoe evc wti a within service other restore of to number inability a after time reasonable limited as (such a circumstances and “convenience”) the (for cause customer’s without termination and periods) cure and applicable notice within default cured not for are breaches material provisions (if termination include typically contracts Outsourcing 13.1 self- through insurance. requirements these of some least at meet suppliers Many (CGL). insurance conventional liability such general commercial under as coverage policies of scope the and risks novel for coverage of availability and cost the including circumstances, other and service outsourced particular the upon depending vary, provide and proof obtain of various kinds of insurance coverage. suppliers Specific requirements that require commonly Customers 12.1 13 12 a b a emnto rgt ih rdcd convenience reduced a with right termination charge. termination a be may current there sample, peer a the with comparison normalised a on based the If range, against competitive agreed an outside fall benchmark. charges supplier’s charges independent an through supplier’s marketplace the measure require performanceofcorrectivework;and the lattercase,onlyforlawfulandlegitimatereasons); (in staff or subcontractors unsatisfactory of removal require negotiated a to ceiling); subject (often charges disputed withhold that areincludedinanoutsourcingcontract? for damagesfromtheterminatedparty? transaction? What arethetypicalwarrantiesand/orindemnities terminate theagreementwithoutgivingrisetoaclaim How canapartytoanoutsourcingagreement order tocovertherisksinvolvedinanoutsourcing What typesofinsuranceshouldbeconsideredin Termination Insurance

forcemajeure

event or failure to agree upon agree to failure or event WWW.ICLG.COM

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169 USA OUT19_04_07_Layout 104/07/201914:46Page170 170 USA (subject to standard terms and conditions, including licence fees). licence service including conditions, or and terms product standard in to commercial (subject a new as only market the then in in offered when (and incorporated customer or developments) new such of is use the customer’s the with connection to property delivered intellectual developments their the extent to contract, the of conclusion following property intellectual their use to the customers permit usually Suppliers for offerings. service expressly created not are particular customer, as well as all rights in but commercial software and performance, of course the during occur may that technologies other and tools processes, Suppliers methods, their using developments in negotiated. ownership retain intensely generally typically are particulars other and reserved, or granted licences of scope the transferred, Rights ownership withbroadcustomerlicencerights. supplier towards is trend the but evolving, still are norms market and discussion, property intellectual the complicated new further have any perform in to continue supplier similar incorporated services can for other customers. supplier Robotics and machine learning the course, be as long may of so developments), that (excluding, property customer intellectual particular some the transfer its for to to agree improvements may the intellectual property Suppliers rights in new developments specifically created own will property. party intellectual of each receipt or and performance for services, necessary extent the to other the to property intellectual its license will party Generally, the other.each or party one by provided property, intellectual other or or technology software, upon depend services which to extent the and the upon depending function outsourced, the extent of any anticipated considerably,new development vary arrangements Specific 14.1 No, therearenot. 13.3 other and breach of varieties circumstances thatmayjustifytermination. include: the periods; negotiated and cure be thresholds; and materiality to notice relevant); likely (where Issues charges termination negotiable. are and Yes. The termination rights referred to above are created by contract 13.2 or confidentiality of limited breach other customer and misappropriation ofthesupplier’s intellectualproperty). non-payment (e.g., to circumstances restricted breach, commonly for damages are rights of termination Suppliers’ claims circumstances. the upon competing depending have may parties Wiggin andDanaLLP WWW.ICLG.COM f evc ofrns ae o tpcly vial atr contracts after available typically expire. not are offerings, service of Proprietary tools, used for internal operations or offered only as part © Published andreproduced withkindpermission byGlobalLegal Group,Ltd 14 termination rights? protected inanoutsourcingtransaction? to seeinanoutsourcingcontract? How aretheintellectualpropertyrightsofeachparty override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight Can thepartiesexcludeoragreeadditional

Intellectual Property

unaided memoriesofthesupplier’s employees). the in retained knowledge residual use to rights normal from (apart concludes contract the when end commonly property intellectual heavily other and information confidential software, customer’s the extensive, use to contain commonly negotiated licences and disclaim implied licences. Suppliers’ rights licences Outsourcing of 14.3 dissemination prevent to order in misappropriated tradesecrets. property of seizure through cases) certain (in including secrets, trade protect to courts federal empowered 2016, of Act Secrets Trade Defend the statute, federal A misappropriation. for damages award cases, appropriate in and, misappropriation secrecy.enjoin maintain may courts State to efforts reasonable of subject the are and ascertainable readily or that processes or derive independent economic techniques value patterns, from not being generally known devices, formulae, programs, including compilations, information protects which law Act, common codified Secrets Trade Uniform have the adopting by secrets states trade of protection U.S. 50 the of Forty-seven 14.2 n ohr iiain ae eeal efrebe bt iblt for liability but intentional wrongdoing(e.g.,fraud) cannotbelimitedbycontract. enforceable; generally are limitations other and upon totalliability, Ceilings exclusionsofindirectorconsequentialdamages contracts. commercial in liability parties’ sophisticated upon limitations contractual respect generally courts and law U.S. 15.1 items providedduringthecontractterm. or expiration after termination, if property it is incorporated in new developments or deliverable intellectual supplier other and how data, of suppliers’use to customers permit generally Contracts plan. know- transfers in exit an for support as well as cooperation personnel, sometimes and knowledge through operations internal customer’s the or supplier another to transition but reverse orderly an available, made assure to help assistance”) be “termination (or support disengagement to likely for available. Arrangements commonly less are substitutes commercial much are operations, suppliers’the internal for used or offerings, service in incorporated terms after service contracts conclude. Other tools and technologies standard on available Suppliers’commonly is software commercial 14.4 15 and canthesebeexcludedfromtheagreement? law? under nationallaw? can itmakeofit? continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness To whatextentcanapartylimitorexcludeliability supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccess tothe Liability

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OUT19_04_07_Layout 104/07/201914:46Page170 170 USA WWW.ICLG.COM fees). licence service including conditions, or and terms product standard in to commercial (subject a new as only market the then in in offered when (and incorporated customer or developments) new such of is use the customer’s the with connection to property delivered intellectual developments their the extent to contract, the of conclusion following property intellectual their use to the customers permit usually Suppliers for offerings. service expressly created not are particular customer, as well as all rights in but commercial software and performance, of course the during occur may that technologies other and tools processes, Suppliers methods, their using developments in negotiated. ownership retain intensely generally typically are particulars other and reserved, or granted licences of scope the transferred, Rights ownership withbroadcustomerlicencerights. supplier towards is trend the but evolving, still are norms market and discussion, property intellectual the complicated new further have any perform in to continue supplier similar incorporated services can for other customers. supplier Robotics and machine learning the course, be as long may of so developments), that (excluding, property customer intellectual particular some the transfer its for to to agree improvements may the intellectual property Suppliers rights in new developments specifically created own will property. party intellectual of each receipt or and performance for services, necessary extent the to other the to property intellectual its license will party Generally, the other.each or party one by provided property, intellectual other or or technology software, upon depend services which to extent the and the upon depending function outsourced, the extent of any anticipated considerably,new development vary arrangements Specific 14.1 No, therearenot. 13.3 other and breach of varieties circumstances thatmayjustifytermination. include: the periods; negotiated and cure be thresholds; and materiality to notice relevant); likely (where Issues charges termination negotiable. are and Yes. The termination rights referred to above are created by contract 13.2 or confidentiality of limited breach other customer and misappropriation ofthesupplier’s intellectualproperty). non-payment (e.g., to circumstances restricted breach, commonly for damages are rights of termination Suppliers’ claims circumstances. the upon competing depending have may parties Wiggin andDanaLLP f evc ofrns ae o tpcly vial atr contracts after available typically expire. not are offerings, service of Proprietary tools, used for internal operations or offered only as part 14 protected inanoutsourcingtransaction? How aretheintellectualpropertyrightsofeachparty to seeinanoutsourcingcontract? override theterminationrightsthatonemightexpect Are thereanymandatorylocallawsthatmight termination rights? Can thepartiesexcludeoragreeadditional

Intellectual Property

unaided memoriesofthesupplier’s employees). the in retained knowledge residual use to rights normal from (apart concludes contract the when end commonly property intellectual heavily other and information confidential software, customer’s the extensive, use to contain commonly negotiated licences and disclaim implied licences. Suppliers’ rights licences Outsourcing of 14.3 dissemination prevent to order in misappropriated tradesecrets. property of seizure through cases) certain (in including secrets, trade protect to courts federal empowered 2016, of Act Secrets Trade Defend the statute, federal A misappropriation. for damages award cases, appropriate in and, misappropriation secrecy.enjoin maintain may courts State to efforts reasonable of subject the are and ascertainable readily or that processes or derive independent economic techniques value patterns, from not being generally known devices, formulae, programs, including compilations, information protects which law Act, common codified Secrets Trade Uniform have the adopting by secrets states trade of protection U.S. 50 the of Forty-seven 14.2 n ohr iiain ae eeal efrebe bt iblt for liability but intentional wrongdoing(e.g.,fraud) cannotbelimitedbycontract. enforceable; generally are limitations other and upon totalliability, Ceilings exclusionsofindirectorconsequentialdamages contracts. commercial in liability parties’ sophisticated upon limitations contractual respect generally courts and law U.S. 15.1 items providedduringthecontractterm. or expiration after termination, if property it is incorporated in new developments or deliverable intellectual supplier other and how data, of suppliers’use to customers permit generally Contracts plan. know- transfers in exit an for support as well as cooperation personnel, sometimes and knowledge through operations internal customer’s the or supplier another to transition but reverse orderly an available, made assure to help assistance”) be “termination (or support disengagement to likely for available. Arrangements commonly less are substitutes commercial much are operations, suppliers’the internal for used or offerings, service in incorporated terms after service contracts conclude. Other tools and technologies standard on available Suppliers’commonly is software commercial 14.4 15 and canthesebeexcludedfromtheagreement? continue touselicensedIP rightspost-termination Are thereanyimpliedrightsforthesupplierto law? critical confidentialinformationprotectedbylocal Are know-how, tradesecretsandotherbusiness under nationallaw? To whatextentcanapartylimitorexcludeliability can itmakeofit? supplier's know-howpost-terminationandwhatuse To whatextentcanthecustomergainaccess tothe Liability

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OUT19_04_07_Layout 104/07/201914:46Page171 (c) (b) for contracts general, (a) in but, outsourced services: considerably, negotiated vary and negotiated, outcomes intensely are Details wrongdoings. intentional own their for liability limit cannot they although Yes, 15.2 Wiggin andDanaLLP ICLG TO: OUTSOURCING 2019 © Published andreproduced withkindpermission byGlobalLegal Group,Ltd liability? infringement andbodilyinjury). (e.g., (generally parties third by claims indemnified certain intentional or negligence others), of gross of rights the and duties claims legal for disregard blatant fraud), involving as: (e.g., such wrongdoing risks, unusual remote, certain for limits foregoing the of excess in recovery permit expenses); and months’ 12 to equal service charges (excluding applicable taxes and amount reimbursable often an ceiling, necessarily) overall not an (though to contract the to related claims limit recovery of damages for breach of the contract and other losses; reputational harm, loss revenue, of good will, unrealised lost savings and other profits, business lost as punitive well as and damages, indirect consequential, of recovery preclude Are thepartiesfreetoagreeafinancialcapon

17.1 Foreign of Enforcement and Arbitral Recognition Awards. York New the the to on party a Convention is U.S. the and laws; arbitration state and Act Arbitration Federal the to subject is Arbitration parties). often the of one contracts of location and the at (often adjudication, venue and jurisdiction of specify place the party to some third nexus requires Jurisdiction factual in courts. arising the by claims decision for litigation and rights property intellectual confidentiality,concerning disputes reserve may parties the agreed, is arbitration When arbitration. binding through or courts the by parties’ management and then, if necessary, adjudication of disputes the between consultations confidential for provide contracts Most 16.1 explicit andmayaddanexpressobligationtoactreasonably. an contracts into implies obligation to deal law fairly and in good faith. common Some contracts make this the states, U.S. many In 17 16 reasonableness undergenerallaw? used? according tosomeobjectivetestoffairnessor and suppliertoactingoodfaithfairly Is thereanyoverridingrequirementforacustomer What arethemainmethodsofdisputeresolution Good Faith Dispute Resolution

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171 USA OUT19_04_07_Layout 104/07/201914:46Page172 172 USA WWW.ICLG.COM Wiggin andDanaLLP © Published andreproduced withkindpermission byGlobalLegal Group,Ltd The firm has an enviable record handling the most demanding legal matters, including sophisticated corporate transactions for i for transactions corporate sophisticated including matters, legal demanding most the handling record enviable an has firm The dedicated tocraftinginnovativesolutionsforourclients. to devoted firm independent proudly a – new and old the of best the exemplifies Dana and Wiggin believe We goals. their achieve Dana forhelpwithspecifictransactionsandcomplexproceedingsinareaswhere thefirmhasparticularknowledgeandexperienc also Clients States. United the across actions enforcement and litigation arbitrations, proceedings, administrative complex and beyond. and implementation procurement through and RFP initial sourcing the the from of process, aspects all His on focuses Group. practice Practice India the of Co-Chair and Group Technology and Outsourcing Dana's and Wiggin of Chair as serves Heaphy Mark eain. e and Mse o At dge i International in degree University ofVirginia SchoolofLaw. Arts of International a and Master and University Yale from a Philosophy Relations earned in He degree Arts Relations. of Bachelor a with Mark graduated systems border technologytransfers. and cross- and development alliances strategic ventures, joint agreements, integration technology transactions transactions, distribution sourcing information and competitively-bid technology business-process outsourcing arrangements, software licensing, support and including world, and the throughout sole-sourced of Europe, Asia, the Middle East and Africa. He has worked on hundreds to complex, global outsourcing strategies in North and South America, document and negotiate related relationships commercial off-shore, and structure, near-shore domestic, clients helps Mark team, legal As the head of a leading supplier-focused outsourcing and technology sciences, life insurance, sectors, manufacturing, telecommunicationsandutilities. healthcare, industry services, of variety financial a including across experience broad has Mark Our primary mission is to provide our clients with the highest quality legal services in an efficient, cost-effective and respo sciences companies,hospitals,universities,start-ups,charitableorganisationsandhigh-net-worthindividuals. range of legal services to a diverse client base, including foreign sovereigns, Fortune 50 and 100 finance, insurance, defence, insurance, finance, 100 and 50 Fortune sovereigns, foreign including base, client diverse a to services legal of range DC and Palm Beach. Consistently recognised by Chambers USA Founded in 1934, Wiggin and Dana is a regional law firm with a global reach with 146 attorneys in Connecticut, New York, Philad Phi Beta Kappa Email: Tel: USA P.O. Box1832,NewHaven,CT 06510 One Century Tower, 265ChurchStreet Wiggin andDanaLLP Mark Heaphy URL:

from the College of William and Mary [email protected] +1 2034984356 www.wiggin.com

ere rm the from degree Doctor Juris

and Benchmark and Litigation

laude Scholar from New York University. She received her her received Tamia license and vertical industries. development of variety a in transactions sourcing and technology information other software and engagements services professional and consulting agreements, complex arrangements, outsourcing create, global off-shoreand near-shore, document and negotiate clients helps regularly She technology- services. of and products enabled use and maintenance procurement, implementation, development, the distribution, in suppliers advising and post-transition support, through RFP initial from arrangements, outsourcing representing encompasses practice outsourcing suppliers in complex, competitively-bid, business process Tamia's Group. and Outsourcing Technology Dana's and Wiggin in Partner a is Simonis Tamia from PaceUniversitySchoolofLaw. among others, Wiggin and Dana’s attorneys offer a full

.. an cm laude cum magna B.S. Email: Tel: USA Stamford, CT 06901 Two StamfordPlaza,281 Tresser Boulevard Wiggin andDanaLLP Tamia Simonis URL: ICLG TO: OUTSOURCING 2019

[email protected] +1 2033637647 www.wiggin.com

nsive manner to help them s Uiest Honour University a as

aerospace, and life and aerospace, elphia, Washington, turn to Wiggin and Wiggin to turn

nternational clients nternational e. J.D. summa cum excellence and excellence

USA

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