Q&As

Do you have guidance on charge variation mechanisms in outsourcing agreements?

read titleRead full title
Published on LexisPSL on 05/02/2018

The following TMT Q&A provides comprehensive and up to date legal information covering:

  • Do you have guidance on charge variation mechanisms in outsourcing agreements?
  • Indexation
  • Post-contract verification
  • Cost-plus pricing
  • Change control

Outsourcing agreements usually run for long periods of time and, as a result, it is common for the parties to agree mechanisms through which the supplier’s charges can be varied. Depending on the nature of the transaction, these mechanisms can be simple, such as an annual increase based on an agreed measure of inflation, or they can be complex, such as a variation method based on the volumes that the supplier processes.

An agreement will often contain a combination of charge variation mechanisms, each addressing a different underlying issue or type of underlying cost.

This response is limited to the following methods of price adjustment in outsourcing, each of which is to some degree intended to address changes in the supplier’s underlying costs:

  1. indexation

  2. post-contract verification

  3. cost-plus pricing

  4. change control

These and related issues are considered in more detail, in Practice Note: Charging models in outsourcing.

Indexation

In some outsourcing situations, it may be appropriate to provide for the charges to be increased in line with an agreed measure of inflation. Provided an appropriate index is chosen, this can be an effective method for the supplier to ensure that its charges keep in line with the underlying cost of providing the services

Related documents:

Popular documents