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Seven ways to future-proof your IT contracts post-Brexit

By Sue McLean, Morrison & Foerster | July 12, 2016
Some key considerations for renegotiating your IT outsourcing contracts in these uncertain times.

EU laws come in different varieties. There are directives that have been implemented into UK law by the UK Parliament, and the implementing legislation will continue to apply unless and until the laws are amended or replaced. There are also regulations that have direct application on the UK as a member state. These laws will not apply to the UK when it is no longer part of the EU, and so the UK will have to decide how to replace such laws, if it decides to at all.

But, that's what we don't know - yet. What we do know is that for at least the next two years, existing laws and regulations will continue to apply and companies must operate in accordance with them.

What's also clear is that, even if the UK doesn't yet have a Brexit plan, organisations should now be considering the potential impact of Brexit on their IT and outsourcing contracts.

That means auditing existing contracts, revisiting standard templates and assessing carefully any draft contracts that are being negotiated. This will help to ensure that risks are mitigated as much as possible, whichever Brexit model is ultimately adopted.

Here are some of the key issues to consider:

1. Term

Given the current uncertainty, consider carefully before entering into any contracts with a long duration. In these circumstances, agreeing a shorter initial term with rights of renewal will provide more flexibility if Brexit impacts on the business case for the deal.

2. Change in law

Many large IT contracts include a "change in law" provision that governs how the parties monitor, react to, and share the risk of changes in law that affect the contract and services. Typically, these clauses don't have a significant impact during the life of an IT deal because material legal and regulatory changes don't tend to happen very often - or at least not without a lot of advance warning.

But when Brexit is implemented this could result in a whole series of changes in law that affect the contract. Therefore, particularly in material contracts, it will be important to identify upfront how such changes of law should be treated.

Firstly, the parties should set out who is responsible for monitoring changes in law. Responsibility for monitoring typically falls to the party best placed to identify the change in law, i.e., (i) laws specific to the customer, the customer will monitor, (ii) laws specific to the supplier, the supplier will monitor, and (iii) laws that apply to each party, each party will monitor.

The parties will then need to decide who bears the risk and costs of any changes of law. The customer will generally expect the supplier to bear the costs of implementing changes required as a result of changes in laws that are specific to the supplier.

 

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