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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.

Customers will also often argue that suppliers should bear the costs required by changes in law which apply to their customer base as a whole. What happens if the UK decides to impose stricter technical or health and safety standards than the remaining EU countries, for example? However, suppliers will typically resist this and require customers to pay for such changes, or will split the costs between all customers affected by the change.

3. Termination

Each party should consider whether to build in specific termination rights to deal with a Brexit option that adversely impacts the business case for the deal, or otherwise makes the deal uneconomic or unnecessary. The parties could decide to rely on a general termination of convenience right to deal with such a scenario, or insert a specific termination right.

In either case, early termination fees will need to be considered. For example, if the customer exercises a break option due to Brexit, should the full early termination fees be payable, or should this be considered a force majeure-type scenario, in which case it may be considered to be more equitable for the fees to be split 50:50?

Or the parties may wish to build in a trigger for the parties to carry out an impact analysis and reassess the deal via governance mechanisms if and when the Brexit option is adopted.

4. Location of services

Evaluate whether you need to build into the contract a right to move the location of the services during the term. It's not uncommon for outsourcing suppliers to seek rights to move the provision of the services from a UK location to a nearshore or offshore location during the term, in order to make cost and efficiency savings. Building in such a right may be particularly helpful if Brexit adversely impacts the supplier's cost model for the deal.

Equally, if a customer believes that it is likely to need to move all or any of its operations to a location outside the UK during the term, it should consider upfront whether it needs to reflect this in the contract. Possible options may include building in a specific termination right, relying on a right to terminate for convenience (in whole or in part), or having an explicit right to move the services.

5. Data privacy

The new EU data privacy law, the GDPR, may come into force before the UK formally exits the EU. However, when the UK is no longer part of the EU, the GDPR will no longer apply - because it's an EU regulation.

In those circumstances, depending on what the UK does, personal data could only be exported by an EU business to the UK if the UK is considered to provide an "adequate level of protection". This may require businesses to put in place alternative data transfer arrangements (such as standard contractual clauses) until the UK's adequacy status is confirmed.


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