Contract Corner
Planning for a change in service providers can sometimes feel like a logistical nightmare, but with proper planning and a long-term outlook, you can ward off operational issues that may arise during the process of transitioning back in-house or to a replacement provider. In this post, we’ll discuss at a high level some of the items to consider when planning a change in service providers, or ideally to consider and build into any new service provider agreement at the outset.
Termination Assistance
- Does your current service provider agreement provide you with transition assistance upon termination or expiration thereof, and to what extent? Such provisions may include the following:
- The right for you to continue to use relevant services for a certain amount of time at specific rates following termination or expiration.
- The development of a plan by the service provider to support an effective and efficient transition of service with minimal disruptions to you.
- The service provider must coordinate and work with its successor to ensure a successful transition to the new service, including knowledge transfer and the sharing of information.
Costs
- What will the cost of the transition be? Such costs may include the following:
- The right to continue to use the “steady state” services for a certain period of time.
- The cost of wind-down assistance, if applicable.
- Payment to two different service providers if there is an overlap in services.
- The return of tangible or intangible assets from the current service provider.
- Implementation costs to set up the replacement provider, including any internal change management costs.
Period
- If your current service agreement does provide for transition assistance, consider the following:
- Is the transition time period within the contract long enough to effectuate the change to your new service provider?
- If not, do you have the ability to negotiate an extension to the transition time period?
People
- When considering access to personnel with particular knowledge of the services or the customer’s environments, ask the following questions:
- Will key resources be available during the transition assistance period?
- Does the customer or its replacement provider have the right to hire any of the personnel providing the impacted services?
- If in an automatic transfer jurisdiction, would any of the incumbent provider’s personnel automatically transfer, and has the customer or replacement provider accounted for this?
Software
- If you’re sunsetting one software service for another, consider the following:
- Are there any going rights to use the incumbent’s software or systems? How are these priced?
- How will the new software service interact with other applications in your environment? Have the integration and implementation costs been considered?
- Has your IT confirmed the new software service will not cause any security vulnerabilities to your system as a whole?
Other Assets
- If you’re sunsetting a manufacturing or supply service provider for another, consider the following:
- How will the packing and preparing for shipment of any final inventory or equipment by the current service provider be managed?
- Where will these assets be sent?
- Does your current service agreement require the service provider to transfer, with the approval of the applicable third parties, all contracts and arrangements, if any, entered into by the service provider pursuant to an order under the agreement?
Data and Documentation
- Does your current service provider agreement provide for the return of your data and relevant documentation, and to what extent?
- Will the return of data and documentation be in a format and manner determined by you or the service provider?
Change can be difficult. Thoughtful consideration, at the time of negotiating a service relationship or in advance of an anticipated shift in providers, as to how to unwind critical service relationships can help mitigate risk, cost, and unanticipated disruption.