IT outsourcing—transition and termination issues

The following TMT practice note provides comprehensive and up to date legal information covering:

  • IT outsourcing—transition and termination issues
  • Termination—why the outsourced IT arrangement has ended
  • Costs on termination
  • Partial termination
  • Planning exit at the outset
  • Agreed position on rights and assets
  • Effective governance processes
  • Key assets and considerations
  • Key provisions in the IT outsourcing agreement relevant to termination

IT outsourcing—transition and termination issues

This Practice Note identifies and explains key legal and practical issues relevant to the termination of an IT outsourcing engagement and the subsequent transition of the services either back in-house to the customer or to a replacement service provider.

Termination—why the outsourced IT arrangement has ended

This is the final stage in the IT outsourcing life cycle. (See Outsourcing lifecycle—UK-based IT services—flowchart and Outsourcing lifecycle—global sourcing of IT services—flowchart.)

The IT outsourcing engagement may end for various reasons, triggering transition of the services to a replacement supplier or back to the customer. These include:

  1. expiry of the IT outsourcing agreement

  2. termination by a party for:

    1. convenience (although often only the customer will have this right)

    2. general material breach by the other party

    3. the other party's breach of particular key contract terms, ie confidentiality, data protection and intellectual property rights (IPRs). The customer may have termination rights triggered by the occurrence of specific events, such as the supplier's failure to comply with regulatory requirements, implement benchmarking findings or achieve the required standard of service level performance, as may the supplier, eg for late payment of charges

    4. change of corporate control by the other party, particularly to a competitor of the first party (although the supplier will not always have this right)

    5. the other party's insolvency or other financial difficulty or ceasing (or threatening

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