TreatiseTreatise

Outsourcing: A Practical Guide to Law and Business

 by Stuart D Levi
 
 Copyright: 2011-2013
 Last Updated: January 2013

 Product Details >> 

Product Details

  • ISBN Number: 9781402413216
  • Page Count: 1024
  • Number of Volumes: 1
  •  

In today’s global economy, companies are engaging in enterprise-wide outsourcing efforts while increasing their outsourcing of various business processes such as payroll and benefits administration.

Outsourcing: A Practical Guide to Law and Business examines different types of outsourcing, special considerations for outsourcing to India and China, and the life cycle of a typical outsourcing transaction. This treatise guides you on how to organize your internal resources to prepare for outsourcing relationships; use outside consultants; maximize the benefits of benchmarking; handle the vendor selection process; develop pricing structures and fee arrangements; negotiate the agreement and schedules that drive the business deal; effect dispute resolution techniques; and manage the outsourcing relationship after signing.

Sample key contract provisions help you to define the scope of services, establish standards of care and governance, set liability caps, deal with intellectual property issues, and resolve disputes.

Outsourcing: A Practical Guide to Law and Business is a vital reference for new vendors and customers as well as for experienced outsourcing players.
  Table of Contents
Chapter 1: An Introduction to Outsourcing
  • § 1:1 : Defining “Outsourcing”1-2
    • § 1:1.1 : Overview1-2
    • § 1:1.2 : Non-Core Services1-3
    • § 1:1.3 : Offshoring and Near-Shoring1-4
  • § 1:2 : The Evolution of Outsourcing1-4
    • § 1:2.1 : Early Stages1-4
    • § 1:2.2 : Digital Transformation and the Role of Y2K1-6
  • § 1:3 : Outsourcing and Economic Transformation1-7
    • § 1:3.1 : Overview1-7
    • § 1:3.2 : Outsourcing As the Logical Extension of Free Trade1-7
    • § 1:3.3 : Outsourcing As Qualitative Change1-10
  • § 1:4 : Why Companies Outsource1-12
    • § 1:4.1 : Reducing Operating Costs1-13
    • § 1:4.2 : Reducing Headcount1-14
    • § 1:4.3 : Improving Productivity and Performance1-15
      • [A] : Generally1-15
      • [B] : Time Zone Shifting1-16
    • § 1:4.4 : Converting Fixed Costs into Variable Costs1-16
    • § 1:4.5 : Converting Variable Costs into Fixed Costs1-17
    • § 1:4.6 : Staff Augmentation1-17
    • § 1:4.7 : Focusing on “Core Competencies”1-18
    • § 1:4.8 : Gaining Access to Leading-Edge Services1-20
    • § 1:4.9 : Reducing the Customer’s Risk Profile1-20
    • § 1:4.10 : Accessing Local Markets1-21
  • § 1:5 : Risks of Outsourcing1-21
    • § 1:5.1 : Conducting a Risk Analysis1-21
    • § 1:5.2 : Operational Risk1-22
      • [A] : Service Failures1-22
      • [B] : Managing the Service Provider1-22
      • [C] : Lack of Flexibility1-23
      • [D] : Long-Term Commitment1-24
    • § 1:5.3 : Strategic Risk1-25
    • § 1:5.4 : Reputational Risk1-25
      • [A] : Performance1-25
      • [B] : Perception1-26
    • § 1:5.5 : Compliance Risk1-26
    • § 1:5.6 : Exit Strategy Risk1-26
    • § 1:5.7 : Geographic Risks1-27
    • § 1:5.8 : Security Risk1-28
    • § 1:5.9 : Loss of Institutional Know-How1-29
  • § 1:6 : Why Outsourcing Agreements Fail1-30
Chapter 2: Types of Outsourcing
  • § 2:1 : Overview2-2
  • § 2:2 : Information Technology Outsourcing2-3
    • § 2:2.1 : Overview2-3
    • § 2:2.2 : Benefits2-4
    • § 2:2.3 : Challenges2-5
  • § 2:3 : Business Process Outsourcing2-6
    • § 2:3.1 : HR Outsourcing2-6
      • [A] : Overview2-6
      • [B] : Benefits2-8
      • [C] : Challenges2-9
    • § 2:3.2 : Recruitment Process Outsourcing2-10
      • [A] : Overview2-10
      • [B] : Benefits2-11
    • § 2:3.3 : Finance and Accounting Outsourcing2-12
      • [A] : Overview2-12
      • [B] : Benefits2-13
      • [C] : Challenges2-13
    • § 2:3.4 : Procurement Outsourcing2-15
      • [A] : Procure-to-Pay and Source-to-Pay2-15
      • [B] : Benefits2-17
      • [C] : Challenges2-17
  • § 2:4 : Legal Process Outsourcing2-19
    • § 2:4.1 : Overview2-19
    • § 2:4.2 : Types of Services2-19
    • § 2:4.3 : Benefits2-20
    • § 2:4.4 : Challenges2-21
    • § 2:4.5 : Ethical Considerations2-22
      • [A] : ABA Formal Opinion 08-4512-22
      • [B] : Client Confidentiality2-23
      • [C] : Conflicts of Interest2-24
      • [D] : Client Consent2-24
      • [E] : Reasonable Fees2-25
    • § 2:4.6 : Long-Term Impact2-25
  • § 2:5 : Pharmaceutical Outsourcing2-26
    • § 2:5.1 : Overview2-26
    • § 2:5.2 : Types of Services2-27
    • § 2:5.3 : Benefits2-27
    • § 2:5.4 : Challenges2-28
      • [A] : Regulatory Concerns2-28
      • [B] : Intellectual Property Considerations2-29
      • [C] : Service Levels2-29
      • [D] : Quality of Personnel2-30
  • § 2:6 : Call Center Outsourcing2-30
    • § 2:6.1 : Benefits2-30
    • § 2:6.2 : Challenges2-31
  • § 2:7 : Multi-Sourcing2-32
  • § 2:8 : Build-Operate-Transfer Outsourcing2-32
    • § 2:8.1 : Overview2-32
    • § 2:8.2 : Special Considerations2-33
      • [A] : Facility Build-Out2-33
      • [B] : Operational Considerations2-34
      • [C] : Transfer2-35
  • § 2:9 : Captive Entities2-36
    • § 2:9.1 : Overview2-36
    • § 2:9.2 : Benefits2-36
    • § 2:9.3 : Use of Outsourcing Agreements2-37
    • § 2:9.4 : Sale of a Captive Entity2-38
  • § 2:10 : Hybrid Models2-40
Chapter 3: Stages of an Outsourcing Transaction
  • § 3:1 : Overview3-2
  • § 3:2 : The Outsourcing Timeline3-2
    • § 3:2.1 : Generally3-2
    • § 3:2.2 : Building the Timeline3-3
      • [A] : Considerations for Selecting a Transition Date3-3
      • [B] : Typical Timeline Stages3-4
  • § 3:3 : Early-Stage Planning3-6
    • § 3:3.1 : Overview3-6
    • § 3:3.2 : Defining the Scope of Services3-6
    • § 3:3.3 : Developing Service Levels3-7
    • § 3:3.4 : Building a Base Case3-8
      • [A] : Overview3-8
      • [B] : Application of the Base Case3-8
      • [C] : Constructing the Base Case3-9
    • § 3:3.5 : Reviewing Third-Party Vendor Agreements3-10
    • § 3:3.6 : Identifying Key Stakeholders3-11
    • § 3:3.7 : Senior Management Sponsorship3-11
  • § 3:4 : External Advisors3-12
    • § 3:4.1 : Overview3-12
    • § 3:4.2 : Selecting the Advisor3-12
    • § 3:4.3 : The Role of External Advisors3-13
  • § 3:5 : Consent from Existing Clients3-14
    • § 3:5.1 : Assessing Contractual Obligations to Clients3-14
    • § 3:5.2 : Timing of the Consent Communication3-15
    • § 3:5.3 : Drafting the Consent Communication3-15
    • § 3:5.4 : The Response3-17
    • § 3:5.5 : The Special Case of Government Clients3-18
  • § 3:6 : Employee Issues3-18
    • § 3:6.1 : Overview3-18
    • § 3:6.2 : Transfer of Employees to Service Provider3-19
    • § 3:6.3 : Transfer of Benefits3-21
    • § 3:6.4 : Employee Termination3-22
      • [A] : Severance Payments3-22
      • [B] : Unlawful Interference Cases3-22
      • [C] : WARN Act3-24
      • [D] : U.K. Transfer of Undertakings Regulations3-26
  • § 3:7 : Vendor Selection and Due Diligence3-28
  • § 3:8 : Negotiating the Agreement3-28
    • § 3:8.1 : Negotiation Process3-29
  • § 3:9 : SEC Filing Obligations3-31
    • § 3:9.1 : Public Company Filing3-31
    • § 3:9.2 : Filings and Forms3-31
      • [A] : Form 10-K3-31
      • [B] : Form 10-Q3-32
      • [C] : Form 8-K3-32
  • § 3:10 : Cut-Over3-33
    • § 3:10.1 : Overview3-33
    • § 3:10.2 : Cut-Over Plan3-34
    • § 3:10.3 : Cut-Over Management3-35
    • § 3:10.4 : Cut-Over Fees3-35
  • § 3:11 : Steady-State Monitoring3-36
  • § 3:12 : Renegotiation3-37
    • § 3:12.1 : Renegotiation on Expiration of the Contract3-37
      • [A] : Timing3-37
      • [B] : Leverage3-37
      • [C] : Objectives3-38
      • [D] : Preparation for Renegotiation3-38
    • § 3:12.2 : Renegotiation During the Term3-39
  • Appendix 3A : Sample Consent Letter For ClientsApp. 3A-1
Chapter 4: The Vendor Selection Process
  • § 4:1 : Overview4-3
  • § 4:2 : Selecting the Right Provider4-5
    • § 4:2.1 : Initial Assessments4-5
    • § 4:2.2 : Establishing Expectations4-6
    • § 4:2.3 : External Advisers4-7
  • § 4:3 : The RFP Process4-7
    • § 4:3.1 : Overview4-7
    • § 4:3.2 : Outsourcing Distinguished from Procurement Contracts4-9
    • § 4:3.3 : Benefits of Using the RFP Process4-10
      • [A] : Reducing Requirements to Writing4-10
      • [B] : Gaining Insight into Other Potential Service Providers4-11
      • [C] : Obtaining Detailed and Consistent Information from Bidders4-11
      • [D] : Increasing Opportunities for Leverage4-12
      • [E] : Obtaining Information for Future Negotiations4-12
      • [F] : Creating an Audit Trail4-13
      • [G] : Building Consensus4-13
      • [H] : Uncovering the Value Proposition4-13
      • [I] : Deciding Not to Outsource4-13
    • § 4:3.4 : Downsides of Using an RFP4-14
      • [A] : Time4-14
      • [B] : Resources4-14
      • [C] : Speculation and Rumor4-15
      • [D] : Imperiling Existing Business Relationships4-15
  • § 4:4 : Selecting the Pool of Potential Bidders4-16
    • § 4:4.1 : Compiling the Initial List4-16
      • [A] : Size of Pool4-16
      • [B] : Pool Composition4-17
      • [C] : Resources for Locating Potential Pool Members4-18
        • [C][1] : Existing Service Providers4-18
        • [C][2] : Previous Bidders4-18
        • [C][3] : Leads from External Advisors4-18
        • [C][4] : Independent Research4-19
        • [C][5] : Unsolicited Approaches4-19
    • § 4:4.2 : Vetting the Initial List4-19
      • [A] : Potential Bidder Questionnaire4-20
      • [B] : Service Provider’s Intent-to-Bid Letter4-21
  • § 4:5 : Drafting the RFP4-21
    • § 4:5.1 : Benefits of a Well-Drafted RFP4-21
      • [A] : Attracting Quality Candidates4-22
      • [B] : Yielding Meaningful Bids4-22
      • [C] : The Value of First Impressions4-23
      • [D] : Establishing a Stronger Negotiating Position4-23
    • § 4:5.2 : Keys to Good Drafting4-23
      • [A] : Avoid Boilerplate RFPs4-23
      • [B] : Post-Drafting Review4-23
    • § 4:5.3 : Pushing Information Out to Bidders4-24
      • [A] : Overview4-24
      • [B] : Introductory Information About the Customer4-25
      • [C] : Customer Objectives4-26
      • [D] : Statement of Services4-27
        • [D][1] : Importance of a Carefully Crafted Statement4-27
        • [D][2] : Level of Detail4-28
        • [D][3] : Current State of Affairs4-28
        • [D][4] : Checklist4-29
    • § 4:5.4 : Obtaining Information from Bidders4-29
      • [A] : Overview4-29
      • [B] : General Information4-30
      • [C] : Bidder Experience4-32
      • [D] : Business Proposal4-33
        • [D][1] : Overview4-33
        • [D][2] : Format4-34
        • [D][3] : Pricing Proposals4-35
        • [D][4] : Service Levels4-37
        • [D][5] : Hiring of Customer Employees4-37
        • [D][6] : Governance and Relationship Management4-38
        • [D][7] : Risk Mitigation4-38
        • [D][8] : Cultural Fit4-39
      • [E] : Required Legal Terms and Conditions4-41
      • [F] : References4-45
    • § 4:5.5 : Process and Guidelines4-45
      • [A] : Timetable4-45
      • [B] : Forms of Submission4-47
      • [C] : Process Guidelines4-48
        • [C][1] : General Requirements4-48
        • [C][2] : Ownership of the RFP Response4-49
        • [C][3] : Questions from Bidders4-50
      • [D] : Internal Processes at the Customer4-50
      • [E] : Diligence by Bidders4-51
  • § 4:6 : Vendor Evaluations4-52
    • § 4:6.1 : Oral Presentations4-52
    • § 4:6.2 : Due Diligence4-53
      • [A] : Overview4-53
      • [B] : Vendor Visits4-54
      • [C] : Interviewing Bidder References4-55
      • [D] : Visiting References4-56
      • [E] : Independent Research4-57
      • [F] : Financial Due Diligence4-57
  • § 4:7 : Final Selection Process4-58
    • § 4:7.1 : The Evaluation and Selection Team4-58
      • [A] : Assembling the Team4-58
      • [B] : Input from Specialists4-59
      • [C] : Lawyers and Outside Consultants4-59
    • § 4:7.2 : Selection Criteria4-59
    • § 4:7.3 : Potential Pitfalls4-61
    • § 4:7.4 : SWOT Analysis4-63
    • § 4:7.5 : Scoring4-64
      • [A] : Weighted Scoring Tables4-64
      • [B] : Value Equations4-67
      • [C] : Harvey Balls4-67
      • [D] : Shortcomings and Benefits of Scoring4-69
  • § 4:8 : Negotiating with Two Bidders4-69
  • § 4:9 : Pilot Projects4-71
  • Appendix 4A : Sample Intent to Bid FormApp. 4A-1
  • Appendix 4B : RFP QuestionnaireApp. 4B-1
  • Appendix 4C : Business RequirementsApp. 4C-1
  • Appendix 4D : Cut-Over Services RequirementsApp. 4D-1
  • Appendix 4E : Legal RequirementsApp. 4E-1
  • Appendix 4F : RFP GuidelinesApp. 4F-1
  • Appendix 4G : Reference RequestApp. 4G-1
  • Appendix 4H : Evaluation CriteriaApp. 4H-1
Chapter 5: The Master Services Agreement
  • § 5:1 : General Structure of the Agreement5-7
    • § 5:1.1 : Overview5-7
    • § 5:1.2 : Statements of Work5-9
    • § 5:1.3 : Local Agreements5-10
    • § 5:1.4 : Instruments of Accession5-11
    • § 5:1.5 : Determining Which Document Takes Precedence5-12
  • § 5:2 : Transaction Assumptions5-13
  • § 5:3 : Term5-14
    • § 5:3.1 : Advantages of a Long-Term Agreement5-15
    • § 5:3.2 : Disadvantages of a Long-Term Agreement5-16
    • § 5:3.3 : Different Terms for Statements of Work5-17
    • § 5:3.4 : Renewal Terms5-17
      • [A] : Length of the Renewal Term5-18
      • [B] : Customer’s Unilateral Right to Renew5-18
      • [C] : Terms and Conditions for the Renewal Term5-19
      • [D] : Notice of Renewal5-20
    • § 5:3.5 : “Effective Date” Versus “Service Commencement Date”5-21
    • § 5:3.6 : The Transition Services Period5-23
  • § 5:4 : Defining the Services to Be Provided5-23
    • § 5:4.1 : Overview5-23
    • § 5:4.2 : The Drafting Approach5-24
      • [A] : The Drafting Team5-24
      • [B] : Pre-Drafting Considerations5-24
      • [C] : Best Practices5-25
      • [D] : Level of Specificity5-26
      • [E] : Catch-All Provisions5-28
  • § 5:5 : Minimum Revenue Commitments5-30
    • § 5:5.1 : Overview5-30
    • § 5:5.2 : Total Fees5-31
    • § 5:5.3 : MRC Reductions5-32
    • § 5:5.4 : Overages and Shortfalls5-33
  • § 5:6 : Productivity Improvements5-36
    • § 5:6.1 : Contractually Imposed Productivity Requirements5-36
    • § 5:6.2 : Methodology5-37
    • § 5:6.3 : Penalties5-40
    • § 5:6.4 : Risks5-41
  • § 5:7 : Subcontracting by the Service Provider5-41
    • § 5:7.1 : Overview5-41
    • § 5:7.2 : Requiring Customer Consent5-42
    • § 5:7.3 : Permitting Limited Subcontracting5-43
      • [A] : Subcontracting to an Affiliate5-43
      • [B] : Subcontracting Non-Core Services5-44
    • § 5:7.4 : Offshore Subcontracting5-44
    • § 5:7.5 : Responsibility for the Subcontractor5-45
    • § 5:7.6 : Revoking Approval of a Subcontractor5-46
  • § 5:8 : Responsibility for Third-Party Contracts5-47
    • § 5:8.1 : Due Diligence5-47
    • § 5:8.2 : Terminating the Contract5-47
    • § 5:8.3 : Maintaining the Contract5-48
      • [A] : Assigned Contracts5-48
      • [B] : Managed Contracts5-49
  • § 5:9 : Obligations of the Customer5-51
    • § 5:9.1 : Directions Documents5-52
    • § 5:9.2 : Authorized Individuals5-53
  • § 5:10 : Control over Personnel and Staffing5-54
    • § 5:10.1 : Overview5-54
    • § 5:10.2 : Key Staff5-54
      • [A] : Designating Key Staff5-54
      • [B] : Defining Key Staff Responsibilities5-56
      • [C] : Determining Duration of Key Staff Status5-58
      • [D] : The Service Provider’s Right to Replace Key Staff5-59
      • [E] : Other Restrictions on Key Staff5-61
    • § 5:10.3 : Removal of Personnel5-62
    • § 5:10.4 : Resource Planning and Depth Charts5-64
    • § 5:10.5 : Employee Allocation5-65
    • § 5:10.6 : Employee Retention5-68
      • [A] : Background5-68
      • [B] : Retention Provisions5-69
    • § 5:10.7 : Non-Solicitation and No-Hire Provisions5-69
  • § 5:11 : Invoicing and Payment Terms5-70
    • § 5:11.1 : Invoice Format5-70
    • § 5:11.2 : Payment Terms and Late Payments5-71
    • § 5:11.3 : Late Invoicing5-72
    • § 5:11.4 : Disputed Amounts5-73
    • § 5:11.5 : Credits and Offsets5-74
  • § 5:12 : Change Control5-74
    • § 5:12.1 : Overview5-74
    • § 5:12.2 : A Formal Process for Changes5-75
      • [A] : Written Request and Assessment5-75
      • [B] : Negotiating Requested Changes5-76
      • [C] : Rejecting a Change Request5-76
      • [D] : Fees for Changes5-77
    • § 5:12.3 : Rights to Procure Changes via a Third Party5-78
  • § 5:13 : Compliance with Law5-81
    • § 5:13.1 : Overview5-81
    • § 5:13.2 : Defining “Law”5-82
    • § 5:13.3 : Issues of Non-Compliance5-82
      • [A] : Pre-Existing Non-Compliance5-82
      • [B] : Changes in the Services5-83
      • [C] : Changes in the Law5-83
    • § 5:13.4 : Allocation of Cost5-84
    • § 5:13.5 : Disputes over Identifying a Change in Law5-85
  • § 5:14 : Export/Import Issues5-86
  • § 5:15 : Technology Refresh5-87
    • § 5:15.1 : Internal Modifications5-88
    • § 5:15.2 : Third-Party-Imposed Changes5-89
    • § 5:15.3 : Staying Current with Technology5-89
  • § 5:16 : Intellectual Property5-91
    • § 5:16.1 : Overview5-91
    • § 5:16.2 : Types of IP Outsourcing Deals5-91
      • [A] : Copyrights5-92
        • [A][1] : Subject Matter and Rights5-92
        • [A][2] : Ownership5-93
        • [A][3] : Infringement5-95
      • [B] : Patents5-95
        • [B][1] : Subject Matter and Rights5-95
        • [B][2] : Ownership5-97
        • [B][3] : Infringement5-97
      • [C] : Trade Secrets5-97
        • [C][1] : Subject Matter and Rights5-97
        • [C][2] : Ownership5-98
        • [C][3] : Misappropriation5-98
    • § 5:16.3 : Addressing IP Issues in the Outsourcing Agreement5-98
      • [A] : Ownership5-99
        • [A][1] : Customized Work Product5-100
        • [A][2] : Work Product with General Applicability5-101
        • [A][3] : Modifications of Existing Work Product5-102
      • [B] : Pre-Signing Development Work5-104
      • [C] : Ownership or License?5-105
      • [D] : Joint Ownership Option5-106
        • [D][1] : Prosecution5-106
        • [D][2] : Exploitation5-106
        • [D][3] : Revenue Sharing5-107
        • [D][4] : Enforcement5-108
    • § 5:16.4 : Documentation of IP Rights and Licenses5-109
      • [A] : Assignment Rights5-109
      • [B] : License from the Customer5-110
    • § 5:16.5 : Disclosure of Infringement5-110
    • § 5:16.6 : Escrow Deposits5-111
  • § 5:17 : Confidentiality5-112
    • § 5:17.1 : Overview5-112
    • § 5:17.2 : Defining Confidential Information5-113
    • § 5:17.3 : Usage Restrictions5-114
    • § 5:17.4 : Employee Obligations5-115
    • § 5:17.5 : Post-Term Treatment5-116
    • § 5:17.6 : Residual Knowledge Clauses5-116
  • § 5:18 : Scope of Liability5-118
    • § 5:18.1 : Inadvertent Errors5-118
    • § 5:18.2 : Negligence and Gross Negligence5-119
    • § 5:18.3 : Best Efforts and Reasonable Efforts5-123
  • § 5:19 : Representations and Warranties5-128
    • § 5:19.1 : Overview5-128
    • § 5:19.2 : Enforceability Representations5-129
    • § 5:19.3 : Service-Specific Representations5-129
    • § 5:19.4 : Party-Specific Representations5-130
  • § 5:20 : Liability Caps5-130
    • § 5:20.1 : Overview5-130
    • § 5:20.2 : The Amount of the Liability Cap5-131
    • § 5:20.3 : Liability Cap Carve-Outs5-133
    • § 5:20.4 : The “Rogue Employee” Exception5-134
  • § 5:21 : Indemnification5-135
    • § 5:21.1 : Overview5-135
    • § 5:21.2 : Scope of Coverage5-136
    • § 5:21.3 : IP Indemnification5-136
      • [A] : Scope5-137
      • [B] : Carve-Outs5-138
    • § 5:21.4 : Indemnity Claim or Separate Lawsuit?5-139
    • § 5:21.5 : Indemnification Procedures5-140
  • § 5:22 : Insurance5-142
    • § 5:22.1 : Overview5-142
    • § 5:22.2 : Key Terms5-142
  • § 5:23 : Audits5-143
    • § 5:23.1 : Types of Customer Audits5-143
    • § 5:23.2 : Number of Audits5-144
    • § 5:23.3 : Conduct of the Audit5-144
    • § 5:23.4 : Audit Results5-146
    • § 5:23.5 : Regulatory Audits5-146
    • § 5:23.6 : SSAE 70 Audits5-147
      • [A] : Background5-147
      • [B] : Types of SSAE 70 Audit Reports5-148
      • [C] : Implications of Sarbanes-Oxley5-149
      • [D] : Shortcomings5-152
      • [E] : Reliance on SSAE 70 Audits5-153
      • [F] : SSAE 70 and ISO 9000 Audits5-153
      • [G] : SysTrust and WebTrust5-154
  • § 5:24 : Governance and Relationship Management5-155
    • § 5:24.1 : Overview5-155
    • § 5:24.2 : Relationship Managers5-156
    • § 5:24.3 : Steering Committee5-158
      • [A] : Composition5-159
      • [B] : Meetings5-159
      • [C] : Notification of Material Issues5-160
    • § 5:24.4 : Subject Matter Subcommittees5-161
  • § 5:25 : Reporting5-161
  • § 5:26 : Disaster Recovery Plans5-163
  • § 5:27 : Force Majeure Clauses5-165
    • § 5:27.1 : The Default Standard5-165
    • § 5:27.2 : Mechanics of a Force Majeure Clause5-165
      • [A] : Listing Specific Force Majeure Events5-166
      • [B] : Catch-All Phrases5-167
    • § 5:27.3 : Impracticability Versus Impossibility5-168
    • § 5:27.4 : Application of Force Majeure Clauses5-168
      • [A] : Notice5-168
      • [B] : Procuring Emergency Support5-169
      • [C] : Right to Terminate5-170
      • [D] : Excusing the Obligation to Pay Service Fees5-171
      • [E] : Prioritization upon Resumption of Services5-171
  • § 5:28 : Termination Rights5-172
    • § 5:28.1 : Overview5-172
    • § 5:28.2 : Partial Termination5-174
    • § 5:28.3 : Termination for Material Breach5-176
      • [A] : Constructing a Material Breach Provision5-178
      • [B] : Process and Cure Periods5-178
      • [C] : Reconciling Cure Periods and Escalation Requirements5-179
      • [D] : Material Breach by the Customer5-180
      • [E] : Step-In Rights5-180
    • § 5:28.4 : Termination for Change of Control5-181
      • [A] : Overview5-181
      • [B] : Triggers5-182
      • [C] : Exercising the Right to Terminate5-183
    • § 5:28.5 : Termination for Convenience5-186
      • [A] : Fees5-187
      • [B] : Breakage Costs5-188
      • [C] : Enforceability of Early Termination Fees5-189
    • § 5:28.6 : Termination for Legal or Regulatory Reasons5-194
    • § 5:28.7 : Termination for Bankruptcy5-194
  • § 5:29 : Transition Assistance5-195
    • § 5:29.1 : Overview5-195
    • § 5:29.2 : Scope of Services5-195
    • § 5:29.3 : The Transition Plan5-197
    • § 5:29.4 : Length of Transition Services5-198
    • § 5:29.5 : Fees for Transition Services5-198
  • § 5:30 : Effects of Termination5-199
  • § 5:31 : Escalation5-200
    • § 5:31.1 : Overview5-200
    • § 5:31.2 : Disputes Subject to Escalation5-201
    • § 5:31.3 : Escalation Levels5-201
    • § 5:31.4 : Escalation Periods and Process5-203
    • § 5:31.5 : If Escalation Fails5-205
  • § 5:32 : Arbitration5-208
    • § 5:32.1 : Overview5-208
    • § 5:32.2 : Advantages of Arbitration5-208
      • [A] : Speed and Cost5-208
      • [B] : Neutral Forum5-209
      • [C] : Flexibility5-210
      • [D] : Confidentiality5-211
      • [E] : Enforcement and Review of Arbitration Awards5-211
    • § 5:32.3 : Drafting the Arbitration Provision5-212
      • [A] : Agreement to Arbitrate5-213
      • [B] : Selection of Arbitration Process5-213
        • [B][1] : The Ad Hoc Approach5-213
        • [B][2] : Arbitration Organizations5-214
      • [C] : Selecting Arbitrators5-215
      • [D] : Location and Language of Arbitration5-216
    • § 5:32.4 : Preliminary Relief5-216
    • § 5:32.5 : Limiting the Role of the Arbitrator5-217
    • § 5:32.6 : Arbitrating with an Indian Party5-217
  • § 5:33 : Jurisdiction5-220
    • § 5:33.1 : Governing Law5-220
    • § 5:33.2 : Venue5-221
    • § 5:33.3 : Convention for the International Sale of Goods5-223
  • § 5:34 : Bankruptcy Considerations5-224
    • § 5:34.1 : Overview5-224
    • § 5:34.2 : The Objectives of the U.S. Bankruptcy Code5-225
    • § 5:34.3 : Treatment of Executory Contracts5-225
    • § 5:34.4 : Classifying Outsourcing Agreements5-226
    • § 5:34.5 : The Automatic Stay5-227
    • § 5:34.6 : Assuming or Rejecting the Outsourcing Contract5-227
    • § 5:34.7 : Assignment of the Outsourcing Agreement5-228
      • [A] : Limitations on Assignment Rights5-229
        • [A][1] : Intellectual Property/Trade Secret Considerations5-229
        • [A][2] : Personal Services Contracts5-229
      • [B] : Debtor’s Right to Assume the Agreement5-230
    • § 5:34.8 : Special Considerations for IP Licenses5-231
    • § 5:34.9 : Drafting Considerations: Ipso Facto Clauses5-232
  • Appendix 5A : Form of Change RequestApp. 5A-1
Chapter 6: Pricing, Fees and Tax Issues
  • § 6:1 : Overview6-4
    • § 6:1.1 : Pricing and Cost Savings6-4
    • § 6:1.2 : Pricing and Allocation of Risk6-4
    • § 6:1.3 : Determining the “Right Price” for Services6-6
    • § 6:1.4 : Use of a Separate Fee Schedule6-8
  • § 6:2 : Pricing an Outsourcing Deal6-9
    • § 6:2.1 : Overview6-9
    • § 6:2.2 : Understanding the Service Provider’s Costs6-10
    • § 6:2.3 : Determining the Customer’s Total Cost of Ownership6-11
      • [A] : The Importance of Accurate TCO Assessment6-12
      • [B] : Calculating TCO6-12
      • [C] : Challenges in Determining TCO6-13
        • [C][1] : Identifying Inaccurate/Insufficient Data6-13
        • [C][2] : Calculating Future Costs6-14
      • [D] : Determining TCO for IT Outsourcing6-15
    • § 6:2.4 : Determining the Customer’s Actual Cost Savings6-16
      • [A] : “Hidden” Savings6-16
        • [A][1] : Ripple Effects6-16
        • [A][2] : Reduction of Indirect Costs6-17
        • [A][3] : Reorganization Benefits6-17
        • [A][4] : New Revenue Opportunities6-17
      • [B] : “Hidden” Costs6-18
        • [B][1] : Relationship Management6-18
        • [B][2] : Transition Costs6-19
        • [B][3] : Customization Costs6-20
        • [B][4] : Idle Excess Capacity6-20
        • [B][5] : Fees for Additional Services6-21
        • [B][6] : Lost Business6-23
      • [C] : The Impact of Implementation and Conversion Fees6-23
      • [D] : Sale and Lease of Assets6-25
      • [E] : Pass-Through Costs6-26
    • § 6:2.5 : Net Saving Formulas6-27
  • § 6:3 : Labor Arbitrage6-28
    • § 6:3.1 : Background6-28
    • § 6:3.2 : Evaluating Labor Arbitrage As an Option6-29
    • § 6:3.3 : Sustainability of Labor Arbitrage6-30
  • § 6:4 : Pricing Methodologies6-33
    • § 6:4.1 : Overview6-33
    • § 6:4.2 : Selecting the Appropriate Methodology6-35
    • § 6:4.3 : Fixed-Fee Pricing6-36
      • [A] : Benefits6-36
      • [B] : Challenges6-36
      • [C] : When to Apply a Fixed-Fee Model6-38
    • § 6:4.4 : Cost-Plus Pricing6-39
      • [A] : Benefits6-39
      • [B] : Challenges6-39
      • [C] : Bundling Costs6-41
      • [D] : Variable Profit Margin6-41
      • [E] : When to Apply a Cost-Plus Model6-43
    • § 6:4.5 : Per-FTE/Per-Transaction Pricing6-44
      • [A] : Benefits6-44
      • [B] : Challenges6-45
      • [C] : When to Apply Per-Unit Pricing6-49
    • § 6:4.6 : ARC/RRC Pricing6-49
      • [A] : Benefits6-51
      • [B] : Challenges6-52
      • [C] : Resource Units6-52
      • [D] : Baseline Volume6-53
      • [E] : Deadbands6-56
      • [F] : ARCs/RRCs6-57
      • [G] : Applying ARC/RRC Pricing6-59
    • § 6:4.7 : Utility Pricing6-61
      • [A] : Benefits6-61
      • [B] : Challenges6-61
      • [C] : When to Apply Utility Pricing6-62
    • § 6:4.8 : Gain-Sharing6-62
      • [A] : Challenges6-62
      • [B] : When to Use Gain-Sharing6-64
  • § 6:5 : Economic Cost Adjustments6-65
    • § 6:5.1 : Overview6-65
    • § 6:5.2 : Selecting an ECA6-65
    • § 6:5.3 : Applying an ECA6-67
    • § 6:5.4 : Impact Ratios and Sensitivity Measures6-67
    • § 6:5.5 : Currency Fluctuations6-68
    • § 6:5.6 : ECA Drafting Considerations6-69
    • § 6:5.7 : Sample ECA Clauses6-70
  • § 6:6 : Price and Terms Protection6-71
    • § 6:6.1 : Benchmarking6-71
      • [A] : Overview6-71
      • [B] : Objections from Service Providers6-72
      • [C] : Selecting a Benchmarker6-73
      • [D] : Agreeing on the Benchmarking Process6-75
        • [D][1] : What Is Being Benchmarked6-75
        • [D][2] : Frequency of Benchmarking6-77
      • [E] : Consequences of Benchmarking Results6-78
      • [F] : Sample Benchmarking Clauses6-80
    • § 6:6.2 : Most-Favored-Nation Clauses6-82
      • [A] : Overview6-82
      • [B] : MFN Clause Mechanics6-82
  • § 6:7 : Tax Considerations6-83
    • § 6:7.1 : Overview6-83
    • § 6:7.2 : Structuring the MSA6-85
    • § 6:7.3 : Tax Accounting6-86
      • [A] : Generally6-86
      • [B] : Accounting Methods6-86
    • § 6:7.4 : Transfer of Intellectual Property6-88
    • § 6:7.5 : Sale of Assets Versus Lease/License6-89
    • § 6:7.6 : Foreign Tax Credit6-92
      • [A] : Effect of Offshoring on Overall FTC Posture6-92
      • [B] : Impact of FTC on a U.S. Multi-National6-93
      • [C] : Effect of FTC on Offshoring Transactions6-94
    • § 6:7.7 : Permanent Establishment6-94
    • § 6:7.8 : State and Local Income Tax6-95
      • [A] : Establishing Nexus6-96
      • [B] : Transfer Pricing6-97
      • [C] : State Corporate Income Tax6-97
      • [D] : Credits and Incentives6-98
    • § 6:7.9 : Compensation and Benefits6-99
      • [A] : Common Law Employee6-99
      • [B] : Leased Employee6-100
      • [C] : Same-Desk Rule6-102
    • § 6:7.10 : Sales and Use Tax6-103
      • [A] : Jurisdiction6-103
      • [B] : Taxability of Outsourced Services6-104
      • [C] : Administrative Considerations6-104
      • [D] : Other Considerations6-105
    • § 6:7.11 : Real and Property Tax6-105
      • [A] : Transfers of Real and Personal Property6-105
      • [B] : Offshoring Property Tax6-106
    • § 6:7.12 : Research Credit6-106
    • § 6:7.13 : IRS Examinations6-107
  • Appendix 6A : Example of Risk Allocation Statement for PricingApp. 6A-1
  • Appendix 6B : Example ARC/RRC CalculationApp. 6B-1
  • Appendix 6C : Sample ECA DescriptionApp. 6C-1
Chapter 7: Service Level Agreements
  • § 7:1 : Overview7-2
    • § 7:1.1 : Terminology7-3
    • § 7:1.2 : Placement in the MSA7-4
    • § 7:1.3 : Benefits and Challenges7-4
  • § 7:2 : Building an SLA7-6
    • § 7:2.1 : Overview7-6
  • § 7:3 : Determining the Tasks to Be Measured7-6
    • § 7:3.1 : Satisfaction Surveys7-7
  • § 7:4 : Establishing Service Levels7-10
    • § 7:4.1 : Overview7-10
    • § 7:4.2 : Setting Appropriate Levels7-11
      • [A] : Sources of Information7-11
      • [B] : Selecting the “Correct” Level7-11
      • [C] : Relying on Internal Service Levels7-12
      • [D] : Using Unambiguous Terms7-13
      • [E] : Service Level Categories7-13
      • [F] : Service Levels with Multiple Service Providers7-14
    • § 7:4.3 : When to Set Service Levels7-15
      • [A] : Establishing Service Levels Post-Signing7-15
      • [B] : Establishing Service Levels During the RFP Process7-16
  • § 7:5 : Setting Evaluation Periods and Locations7-17
  • § 7:6 : Developing and Applying SLA Credits7-18
    • § 7:6.1 : Credit Amounts7-18
    • § 7:6.2 : “At-Risk” Amounts7-19
    • § 7:6.3 : Allocation Pools7-19
    • § 7:6.4 : Credit Multipliers7-21
    • § 7:6.5 : When Do Credits Apply?7-23
    • § 7:6.6 : Key Performance Indicators7-23
    • § 7:6.7 : Single-Event/Multiple Defaults7-24
    • § 7:6.8 : Grace Periods7-25
    • § 7:6.9 : Rights of Termination7-26
  • § 7:7 : Monitoring SLAs7-28
    • § 7:7.1 : Effective SLA Monitoring Tools7-28
    • § 7:7.2 : SLA Reports7-29
  • § 7:8 : Scope of Service Provider Liability7-31
  • § 7:9 : Earn-Backs and Incentive Payments7-32
    • § 7:9.1 : Earn-Backs7-32
    • § 7:9.2 : Incentive Payments7-34
      • [A] : Pros and Cons7-35
      • [B] : Calculating Payment Amounts7-36
      • [C] : Renegotiating Payment Structure7-37
  • § 7:10 : SLA Modifications7-37
    • § 7:10.1 : Determining What Is Renegotiable7-38
    • § 7:10.2 : Automatic Increases7-39
  • § 7:11 : Root Cause Analysis7-41
  • § 7:12 : SLA Practice Points7-42
  • Appendix 7A : Sample SLAsApp. 7A-1
Chapter 8: Data Privacy and Information Security
  • § 8:1 : Introduction8-3
    • § 8:1.1 : Personally Identifiable Information8-3
    • § 8:1.2 : Potential Impact of Data Privacy Failures8-5
  • § 8:2 : Addressing Data Privacy Concerns8-5
  • § 8:3 : Personal Financial Information8-7
    • § 8:3.1 : Overview of GLB8-7
    • § 8:3.2 : Institutions Subject to GLB8-10
    • § 8:3.3 : Nonpublic Personal Information8-11
    • § 8:3.4 : Disclosure to an Outsourcing Service Provider8-11
      • [A] : Opt Out8-12
      • [B] : Exceptions to Opt Out8-13
    • § 8:3.5 : Restrictions on Third Parties8-14
    • § 8:3.6 : Safeguards Rule8-14
  • § 8:4 : Personal Medical/Health Information8-15
    • § 8:4.1 : Overview of HIPAA8-16
    • § 8:4.2 : Scope of HIPAA Coverage8-20
      • [A] : Health Plans8-20
      • [B] : Healthcare Providers8-21
      • [C] : Healthcare Clearinghouses8-21
      • [D] : Hybrid Entities8-22
      • [E] : Business Associates8-22
      • [F] : Vendors of Personal Health Records and PHR-Related Entities8-24
      • [G] : Covered Information8-25
    • § 8:4.3 : HIPAA Requirements8-25
      • [A] : The Privacy Rule8-25
      • [B] : The Security Rule8-28
      • [C] : The Breach Rule8-30
      • [D] : The FTC Breach Rule8-31
    • § 8:4.4 : Outsourcing Ramifications8-31
      • [A] : HIPAA Compliance Required8-32
      • [B] : HIPAA Compliance Not Required8-32
      • [C] : The Business Associate Agreement8-33
    • § 8:4.5 : State and Foreign Medical/Health Information Laws8-35
  • § 8:5 : Notification of Data Security Breaches8-36
    • § 8:5.1 : Scope of State Notification Statutes8-36
    • § 8:5.2 : Variances in State Breach Notification Laws8-38
    • § 8:5.3 : Considerations for Outsourcing Parties8-40
  • § 8:6 : State Information Security Requirements8-41
    • § 8:6.1 : California8-41
    • § 8:6.2 : Massachusetts8-44
    • § 8:6.3 : Nevada8-45
  • § 8:7 : Data Protection in the European Union8-46
    • § 8:7.1 : European Data Protection Directive8-46
      • [A] : Overview8-46
      • [B] : Key Concepts8-47
      • [C] : Data Protection Principles8-48
      • [D] : Specific Obligations8-49
        • [D][1] : Fair and Lawful Processing of Data8-49
        • [D][2] : Notification8-50
        • [D][3] : Fair Processing Notice8-51
      • [E] : Handling Sensitive Personal Data8-51
      • [F] : Rights of the Data Subject8-52
    • § 8:7.2 : Outsourcing Considerations8-53
      • [A] : Selecting a Service Provider8-53
      • [B] : Transfers of Personal Data Outside the EEA8-54
        • [B][1] : Establishing an Adequate Level of Protection8-54
        • [B][2] : Adequate Level of Protection Not Required8-57
        • [B][3] : Other Considerations8-57
      • [C] : Key Contractual Provisions8-58
      • [D] : Asset Acquisition Issues8-61
      • [E] : Compliance Checklist8-61
    • § 8:7.3 : U.S.–EU Safe Harbor8-61
      • [A] : Background8-61
      • [B] : Safe Harbor Principles8-62
        • [B][1] : Notice8-62
        • [B][2] : Choice8-63
        • [B][3] : Onward Transfer (Transfer to Third Parties)8-63
        • [B][4] : Security8-63
        • [B][5] : Data Integrity8-63
        • [B][6] : Access8-63
        • [B][7] : Enforcement8-63
      • [C] : Inclusion in the Safe Harbor List8-64
  • § 8:8 : Other International Considerations8-65
  • Appendix 8A : EC Standard Contractual Clauses (Processors)App. 8A-1
Chapter 9: Offshoring Opportunities
  • § 9:1 : Introduction9-4
  • § 9:2 : India9-7
    • § 9:2.1 : Early History9-8
    • § 9:2.2 : Current State9-9
    • § 9:2.3 : Factors for Success9-10
      • [A] : Labor Pool9-11
      • [B] : Sustained Cost-Competitiveness9-12
      • [C] : Time Zone9-12
      • [D] : Quality of Service9-13
      • [E] : Rapidly Improving Infrastructure9-14
      • [F] : Favorable Economic Environment9-14
    • § 9:2.4 : Geographic Concentration9-16
      • [A] : Tier I Cities9-16
      • [B] : Tier I-1 Cities9-16
      • [C] : Tier II Cities9-17
      • [D] : Tier III Cities9-17
    • § 9:2.5 : Challenges9-18
      • [A] : Infrastructure9-18
      • [B] : Rising Labor Costs, Employee Turn-Over9-19
      • [C] : Accent, Cultural Barriers9-20
      • [D] : Increased Global Competition9-21
    • § 9:2.6 : Legal Considerations9-22
      • [A] : Overview9-22
      • [B] : Establishing a Wholly Owned Subsidiary9-23
        • [B][1] : Transfer Pricing9-23
        • [B][2] : Employee Stock Option Schemes9-25
        • [B][3] : Employment Law9-26
      • [C] : Third-Party Outsourcing9-26
        • [C][1] : IP Rights Protection9-26
        • [C][2] : Confidential Information and Data Protection9-27
        • [C][3] : Litigation Issues9-28
      • [D] : BOT Model9-29
        • [D][1] : Loss of Tax Benefits on Transfer9-29
        • [D][2] : Stamp Duty Considerations9-30
        • [D][3] : Transfer of Employees9-30
    • § 9:2.7 : Regulatory Schemes9-30
      • [A] : Telecom Regulations9-30
      • [B] : Government Schemes9-32
        • [B][1] : Income Tax Benefits9-33
        • [B][2] : Taxation of BPO Units9-36
        • [B][3] : Indirect Tax Benefits9-38
      • [C] : Other Incentives9-39
  • § 9:3 : China9-40
    • § 9:3.1 : Background9-40
    • § 9:3.2 : The Service Provider Market9-43
    • § 9:3.3 : Opportunities and Challenges9-45
      • [A] : Labor Arbitrage9-45
      • [B] : Employee Base9-46
      • [C] : Language, Culture, Political Stability9-48
      • [D] : Due Diligence9-50
      • [E] : Access to China’s Domestic Market9-50
    • § 9:3.4 : IP Considerations9-50
      • [A] : Overview of China’s IP Laws9-52
      • [B] : Patent Law9-52
      • [C] : Copyright Law9-54
      • [D] : Trade Secrets9-58
      • [E] : Technology Transfers9-60
      • [F] : Enforcement9-62
      • [G] : Due Diligence and Drafting Considerations9-65
    • § 9:3.5 : Data Privacy Considerations9-67
    • § 9:3.6 : Tax Considerations9-68
      • [A] : Business and Corporate Tax9-68
      • [B] : Permanent Establishment Risk9-69
  • § 9:4 : Malaysia9-69
    • § 9:4.1 : The Multimedia Super-Corridor9-70
    • § 9:4.2 : Labor Pool9-71
    • § 9:4.3 : Tax Considerations9-72
  • § 9:5 : The Philippines9-73
    • § 9:5.1 : Education System9-74
    • § 9:5.2 : U.S.-Centric Approach9-75
    • § 9:5.3 : Geographic Clusters9-75
  • § 9:6 : Eastern Europe9-76
    • § 9:6.1 : Background9-76
    • § 9:6.2 : Advantages9-78
      • [A] : Cost Savings9-78
      • [B] : Language Capabilities9-79
      • [C] : Geographic Proximity9-80
      • [D] : Other Considerations9-80
  • § 9:7 : Russia9-80
    • § 9:7.1 : Labor Pool9-81
      • [A] : Boutique Vendors9-82
      • [B] : Cost Savings9-82
    • § 9:7.2 : Challenges9-83
    • § 9:7.3 : Russia’s Trade Secret Law9-83
  • § 9:8 : Latin America9-86
    • § 9:8.1 : Advantages9-87
      • [A] : Geographical and Cultural Proximity9-87
      • [B] : Labor Pools9-88
      • [C] : Cost Savings9-88
      • [D] : Language Skills9-88
    • § 9:8.2 : Challenges9-89
    • § 9:8.3 : Latin American Outsourcing Destinations9-89
      • [A] : Argentina9-90
      • [B] : Brazil9-91
      • [C] : Chile9-92
  • § 9:9 : Africa9-94
    • § 9:9.1 : South Africa9-94
      • [A] : Language Skills9-94
      • [B] : Telecommunications Infrastructure9-95
      • [C] : Government Initiatives9-96
      • [D] : Challenges9-97
    • § 9:9.2 : Ghana9-97
      • [A] : Advantages9-97
      • [B] : Challenges9-98
  • § 9:10 : Israel9-99
    • § 9:10.1 : Advantages9-99
      • [A] : Language and Cultural Links9-99
      • [B] : Range of Services9-100
      • [C] : IT Industry9-100
    • § 9:10.2 : Challenges9-100
  • § 9:11 : Canada9-101
    • § 9:11.1 : Advantages9-102
    • § 9:11.2 : Challenges9-103
  • Appendix 9A : Regulations on Technology Import and Export Administration of the People’s Republic of ChinaApp. 9A-1
Chapter 10: The Legislative Landscape
  • § 10:1 : Overview10-2
  • § 10:2 : Proposed Federal Legislation10-3
  • § 10:3 : State Legislation10-4
    • § 10:3.1 : Applicability to Private-Sector Customers10-5
    • § 10:3.2 : Enacted State Legislation10-6
      • [A] : Alabama10-6
      • [B] : Alaska10-6
      • [C] : California10-6
      • [D] : Colorado10-7
      • [E] : Illinois10-7
      • [F] : Indiana10-9
      • [G] : Maine10-9
      • [H] : Maryland10-9
      • [I] : New Jersey10-10
      • [J] : North Carolina10-12
      • [K] : North Dakota10-12
      • [L] : Ohio10-13
      • [M] : South Carolina10-13
      • [N] : Tennessee10-14
      • [O] : Utah10-14
      • [P] : Washington10-15
    • § 10:3.3 : Proposed State Legislation10-16
      • [A] : Prohibitions Against Offshoring10-16
      • [B] : Preference for U.S. or In-State Vendors10-18
      • [C] : Disclosure Requirements10-18
      • [D] : Consumer Call Centers10-19
        • [D][1] : State Agency Restrictions10-20
      • [E] : Restrictions on Tax Benefits and Development Assistance10-20
      • [F] : Board Approval10-21
      • [G] : Attorney General Investigations10-21
  • Appendix 10A : California A.B. 1741App. 10A-1
  • Appendix 10B : New Jersey S.B. 494App. 10B-1
  • Appendix 10C : North Carolina S.B. 514App. 10C-1
  • Appendix 10D : Tennessee H.R. 2822App. 10D-1
Chapter 11: Outsourcing by Financial Services Firms
  • § 11:1 : Overview11-3
    • § 11:1.1 : Benefits of Outsourcing Financial Services11-3
    • § 11:1.2 : Risks of Outsourcing Financial Services11-4
  • § 11:2 : Drafting Considerations11-5
    • § 11:2.1 : Compliance with the Law11-5
    • § 11:2.2 : Compliance with Policies and Procedures11-6
    • § 11:2.3 : Subcontracting11-6
    • § 11:2.4 : Key Staff11-6
    • § 11:2.5 : Termination11-7
    • § 11:2.6 : Security11-7
    • § 11:2.7 : Indemnification11-7
    • § 11:2.8 : Audits11-8
    • § 11:2.9 : Data Protection11-8
  • § 11:3 : U.S. Regulatory Framework11-8
    • § 11:3.1 : Federal Reserve Board11-9
      • [A] : Overview11-9
      • [B] : Risk Mitigation in Financial Services Outsourcing11-10
        • [B][1] : Identifying Challenges and Risks11-11
        • [B][2] : Best Practices for Mitigating Risk11-12
      • [C] : FRB Supervisory Letter: Outsourcing of Information and Transaction Processing11-14
    • § 11:3.2 : Office of Comptroller of Currency11-16
      • [A] : Overview11-16
      • [B] : Foreign-Based Third-Party Service Providers11-17
      • [C] : Risk Management for Banks11-18
      • [D] : Standards for Safeguarding Customer Information11-19
      • [E] : Country Risk11-20
      • [F] : Third-Party Relationships11-21
        • [F][1] : Categories of Risk11-21
        • [F][2] : Risk Management11-22
        • [F][3] : Oversight11-23
    • § 11:3.3 : Federal Deposit Insurance Corporation11-24
      • [A] : Overview11-24
      • [B] : Foreign-Based Third-Party Service Providers11-24
        • [B][1] : Categories of Risk11-25
        • [B][2] : Risk Assessment11-25
      • [C] : Offshoring of Data Services11-27
        • [C][1] : Identifying Risks11-27
        • [C][2] : Recommendations and Best Practices11-29
      • [D] : Country Risk Management11-32
      • [E] : Outsourcing Technology Products and Services11-32
        • [E][1] : Effective Practices for Selecting a Service Provider11-33
        • [E][2] : Tools to Manage Technology Providers’ Performance Risk: Service Level Agreements11-34
        • [E][3] : Techniques for Managing Multiple Service Providers11-35
      • [F] : Compliance with Bank Service Company Act11-37
    • § 11:3.4 : Office of Thrift Supervision11-38
      • [A] : Overview11-38
      • [B] : Information Technology and Risk Controls11-38
      • [C] : Third-Party Arrangements11-40
        • [C][1] : Regulation and Examination Requirements11-40
        • [C][2] : Management Responsibilities11-41
        • [C][3] : OTS Supervision11-43
      • [D] : Internal Controls and Outsourcing11-43
    • § 11:3.5 : National Credit Union Administration11-44
      • [A] : Overview11-44
      • [B] : Due Diligence Over Third-Party Service Providers11-45
    • § 11:3.6 : Federal Financial Institutions Examination Council11-45
      • [A] : Overview11-45
      • [B] : Evaluating a Financial Institution’s Risk Management Processes11-46
        • [B][1] : Risk Management11-46
        • [B][2] : Board and Management Responsibilities11-46
        • [B][3] : Risk Assessment and Requirements11-47
        • [B][4] : Service Provider Selection11-47
        • [B][5] : Contract Issues11-48
        • [B][6] : Ongoing Monitoring11-51
        • [B][7] : Business Continuity Plans11-51
        • [B][8] : Information Security/Safeguarding11-52
        • [B][9] : Multiple Service Provider Relationships11-52
        • [B][10] : Outsourcing to Foreign Service Providers11-52
    • § 11:3.7 : Financial Industry Regulatory Authority11-55
      • [A] : Overview11-55
      • [B] : A Member’s Responsibilities Regarding Outsourcing11-55
        • [B][1] : Accountability and Supervisory Responsibility11-56
        • [B][2] : Prohibited Outsourcing Activity11-57
    • § 11:3.8 : New York Stock Exchange11-57
      • [A] : Overview11-57
      • [B] : Proposed Rules Regarding Outsourcing11-58
        • [B][1] : Prohibited Activities11-58
        • [B][2] : Prior Written Notice11-59
        • [B][3] : Due Diligence11-59
        • [B][4] : Oversight11-60
        • [B][5] : Disclosure11-61
        • [B][6] : Renewals11-61
  • § 11:4 : Foreign and International Regulation11-61
    • § 11:4.1 : EU’s Markets in Financial Instruments Directive11-61
      • [A] : Overview11-61
      • [B] : Applicability11-62
      • [C] : Requirements11-62
        • [C][1] : Level 1 Directive11-62
        • [C][2] : Level 2 Directive11-63
        • [C][3] : Obligations on Investment Firms11-63
        • [C][4] : Obligations of Member States11-65
        • [C][5] : Exceptions11-65
        • [C][6] : Application to Existing Outsourcing Arrangements11-65
    • § 11:4.2 : Joint Forum Outsourcing Principles11-66
    • § 11:4.3 : IOSCO Outsourcing Principles11-68
Chapter 12: Special Considerations for HR Outsourcing
  • § 12:1 : Introduction12-1
  • § 12:2 : ERISA Concerns12-2
    • § 12:2.1 : Background12-2
    • § 12:2.2 : Fiduciary Responsibilities12-3
    • § 12:2.3 : Determining Whether an Outsourcing Activity Is Subject to ERISA12-4
      • [A] : Fiduciary Status Under ERISA—A Functional Test12-4
      • [B] : Allocation of Fiduciary Responsibility Under ERISA12-5
      • [C] : Co-Fiduciary Liability Under ERISA12-6
  • § 12:3 : Payroll Funding12-6
    • § 12:3.1 : Overview12-6
    • § 12:3.2 : Funding: Nominee Accounts12-7
    • § 12:3.3 : Accounting for Customer Funds12-7
    • § 12:3.4 : Failure to Fund12-9
    • § 12:3.5 : Interest on Customer Funds12-10
  Key Outsourcing Terms
  Index

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