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Outsourcing IT - The Legal Aspects
Abstract Purpose — The purpose of this work is to identify commonalities that exist within the contracts between customer and vendor companies, the nature of the problems commonly associated with these contracts, and to provide a theoretical model that exists between customer and vendor companies. Findings — The paper finds that there is a common set of key contractual elements that exist between most outsourcing contracts.
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In their view, an assignment clause can arguably be seen as an indication that the recipient is knowingly arrang- ing to acquire an excessive quantity of property and services.
This provision does not apply to outsourcing contracts. This section identifies and discusses key terms and condi- tions that may be included in outsourcing contracts. Terms and conditions may vary depending on the mat- ter outsourced. Because of this, we include a broad range of terms and conditions to cover as many situa- tions as possible. For example, we include terms cover- ing transit service outsourcings, recognizing that some nontraditional outsourcings may involve contracting out services for a smaller size of a particular service.
We first discuss general principles that should guide every outsourcing contract.
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In general, terms and conditions should address such fundamental issues as names and addresses of the par- ties; the nature of the relationship that will be estab- lished; statement of consideration; description of the duties and obligations of the parties; the term of the contract; assignability of contract; date of contract; plan and schedule; acceptance and payment; procedures to control changes; disputes resolution; ownership of rights and intellectual property; and termination.
Such a provision is sometimes placed at the end of a contract. Definitions In many larger contracts, an early section includes definitions of important terms. Depending on the non- traditional outsourcing involved, definitions may not be necessary if the contract is straightforward and essen- tially focused on a narrow function to be outsourced. General Obligation of the Parties Depending on the type of outsourcing involved, this can be a very extensive part of the contract. In general, a clause should require the contractor to perform the services in accordance with the scope of services and to the reasonable satisfaction of the grantee within the terms of the agreement.
Similarly, the responsibilities of the transit system should be de- tailed, and these can be numerous as well. In a nontra- ditional outsourcing, the general obligations of the par- ties are likely to be limited to very specific matters. It generally does not involve the term of the contract or its cost structure. Often it can be expressed in terms of the deliverables expected under the contract. If the scope is lengthy, it is not uncommon to include it as an attachment to the contract.
Contract Type and Amount; Term of Contract; Change Orders; Notices Early on the type of contract should be specified cost plus fixed fee, for example , and its amount which may be repeated in another section. The term establishes the length of the contract, which is the period of time when the contract is in effect.
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Provi- sions often note that time is of the essence for perform- ance of the contract, and the contractor is to provide sufficient resources to perform the services in accor- dance with the scope of services in a timely manner. Some contracts include notice pro- visions separately, and some describe change orders in a separate provision.
Compliance with Laws and Regulations The contractor should be required to adhere to appli- cable federal, state, and local laws, regulations, orders, and ordinances applicable to the work under the con- tract. This could especially be the case in nontraditional outsourcings involving informa- tion technology work or human resources work. If so, the contract should require the contractor to provide a written description of its procedures to safeguard confi- dential information which, among other things, should designate one individual as the responsible authority over all data collected or used by the contractor in car- rying out the contract and assure adequate supervision and training of those who will have access to any confi- dential data.
Such private or confidential data should remain the property of the transit system. The contractor may also be required to sign a non- disclosure agreement depending on the sensitivity of the data involved. A clause should be included to the effect that no con- fidential data used in connection with the contract may be disseminated except as authorized by law and with the written consent of the transit system during the period of the contract or thereafter. Such confidential data must be returned to the transit system.
If legal process is served upon the contractor for re- cords containing confidential information, the contrac- tor should promptly notify the transit system and coop- erate with it in any lawful effort to protect the confidential information. Transition and Startup In some outsourcing agreements, there is likely to be provision for a transition and startup period because of the significance of the work to be performed.
If security work is outsourced, for example, it may be useful to have a transition and startup period both for the out- side contractors to begin to implement their require- ments and for the transit agency workforce to under- stand what the outside contractors will be doing.
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Training is likely to be involved, and compensation for this transition period may be addressed in this section. If plans are to be submitted during this period, they also should be addressed in this section. Compensation and Payment The section on compensation can take many forms, but at its most basic it should involve the following.
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