Multi-country outsourcing means customer engages supplier to deliver outsourcing services to its affiliated entities in various jurisdictions. Structuring and negotiating a long-lasting outsourcing relationship require the parties to effectively manage many risks. Multi-country outsourcing deals multiple the challenges.
There are different ways to structure a multi-country outsourcing relationship. The most commonly used approach is to have a framework agreement between the two principal entities and local agreement between local entities of the two organizations. The terms and conditions in the framework agreement will flow to the local entities except to the extent they have been modified in the local agreement. The local agreement will take into account any specific local requiremens (which may include specific local law requirements or unique service requirements for the local entities). The benefits of this structure is that it can avoid the need of re-negotiating all the legal terms and conditions in various regions and ensure consistency. In addition, customer may also be able to take advantage of volume discount while supplier may be able to get the benefit of economies of scale. The downside of this approach is that it may be perceived by local entities as having been forced to accept pre-negotiated terms and conditions. Depending on the specific circumstances, there may also be concerns of anti-trust regarding principal’s ability to impose obligations on its affiliates.
Even though the parties may have the terms and conditions negotiated in the framework agreement, the work at the local level is far from being completed. Aside from the usual local requirements, such as any employment legislation, dispute resolution requirement or governing law (for example where the services will be delivered in both common law and civil law jurisdictions), there are other issues that must be reviewed in preparing local agreements. For example, there has been an increased focus on on any privacy and security issues in any outsourcing relationship. There has not been any unified approach in dealing with these issues. Depending on the type of the data and the jurisdictions involved, certain data may not be able to flow freely across various countries. The parties will need to review the local requirement and address the local differences in privacy, security, data protection and cross-border data flow issues.
Aside from the privacy and data protection requirement, the parties also need to decide the appropriate service levels for various regions taking into consideration the criticality of the service in the region, the currency of the infrastructure, the availability of the resources in the region. There are also many other issues that will need to be discussed, including the performance measurement approach, reporting approach, the credit approach, and termination (for example, whether the termination triggers termination of the framework agreement or whether the termination operates on a country-by-country basis).
Also, if customer operates in a highly-regulated environment, local regulatory requirement must be looked at. For example, if the customer is a financial institution, there are guidelines published by regulators in various countries (such as Canada, Singapore, Japan,….) on the regulator’s expecation of some of the key terms and conditions in a material outsourcing arrangment entered into by a financial institution.
It is important to remember even if we use the framework agreement in multi-country outsourcing deals, one size does not necesary fit all and there are too many local variations to be ignored.