The Certainty-Flexibility Equilibrium

This post is a departure from my short blog bytes. With some time on my hands I wrote a short note on the basic principle of drafting an outsourcing agreement, the balance between certainty and flexibility. I felt with the recent rise in the Rupee vis-à-vis the US Dollar, more flexibility will be required in drafting outsourcing agreements. Concomitantly more care should be taken by lawyers drafting outsourcing deals. The following is a short note for lawyers in drafting outsourcing agreements.

To create an environment in which outsourcing is encouraged, it is essential for a body of successful offshoring deals. Offshoring deals are likely to fail due to a plethora of reasons which include geopolitical risks, cultural and language differences, foreign currency exchange fluctuations, etc. It is here that lawyers play a crucial role. In preparation, negotiation, implementation, and ongoing management of the outsourcing operation. However, the most important part is the drafting of effective contracts and master service agreements because it is the prerequisite of all legal relations.

The difficulty arises here because of the competing interests of providing an iron clad arrangement to protect clients and providing adequate flexibility necessitated due to the changing business needs and new economic standards. It is almost impossible to predict the various different challenges or issues that might arise during the course of a long-term relationship involving hundreds or thousands of transactions or events. This uncertainty makes drafting outsourcing contracts a challenge for attorneys, who are trained to create watertight contracts with clear and predictable outcomes. A study by Dataquest reported that “more than half (53 percent) of all outsourcing customers surveyed said that they had renegotiated an outsourcing contract, and in nearly one-quarter of these renegotiations the provider lost the account.”

To address these deficiencies, the offshoring attorney should seek to develop a structure for governing the relationship that is clear and well-defined, but flexible enough to accommodate changes in the relationship. To demonstrate drafting with a viable balance in mind, intellectual property as an area is analysed.

It is very common (and entirely rational) for an outsourcers to want to limit their exposure to unlimited liability and control ownership of their basic intellectual property. The customer, on the other hand, does not want to accept such risk or share IP ownership when the outsourcer is providing services critical to the customer’s business. A lot of negotiating time can be spent trying to achieve a fair balance between these competing interests.

In the end… hope the parties get what they need if not what they want.