Outsourcing termination rights
Produced in partnership with Ian Williamson of Bird & Bird

The following TMT practice note produced in partnership with Ian Williamson of Bird & Bird provides comprehensive and up to date legal information covering:

  • Outsourcing termination rights
  • Common general termination rights
  • Outsourcing specific termination rights
  • Customer specific termination rights
  • Supplier specific termination rights
  • Early warning termination rights
  • General
  • Summary of common ‘early warning’ triggers
  • Early warnings in public sector v private sector contracts
  • Practical issues and consequences of ‘early warnings’
  • More...

Outsourcing termination rights

Outsourcing agreements are normally long term, complex, high-value arrangements for services which are critically important to the customer’s business.

There are a number of reasons why termination rights in outsourcing agreements receive particular attention, especially when compared to simpler and shorter term contracts.

For example:

  1. it is often difficult for the customer to replace the supplier at short notice. The services provided are normally tailored to the customer’s requirements with a period of ‘transitioning’ prior to service commencement. If the supplier was able to terminate on short notice the customer may be left without a critical business function, and

  2. the supplier will have anticipated a long term revenue stream for at least the agreed contract term and may not be able to recover all of its costs if the arrangement terminates early

The termination rights a party is able to secure will reflect that party’s relative bargaining position. The customer will commonly have a stronger position during negotiations, particularly if there are a number of potential suppliers, but that is not always the case.

Accordingly, the termination rights listed in this note will not appear in every outsourcing agreement. Similarly, parties may agree on alternative termination rights, particularly where the deal is high value and/or complex.

Common general termination rights

Many termination rights in outsourcing arrangements are similar to those found in simpler contracts. For example, it is

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