Outsourcing customers can mitigate the risk of costly disputes by insisting on clarity at the time the contract is executed and at the first sign of trouble, say Peterson and Kriss. Anticipating all the issues that may arise during an outsourcing relationship is difficult, but drafters of outsourcing agreements should try to address as many specific problems as possible upfront to save money and heartache later.
1. Provide Specific Examples of Damages
Outsourcing contracts may state that the parties can recover only “direct damages,” not “consequential” ones. But case law is unclear about what constitutes direct versus consequential harm, says Peterson. […]
2. Avoid Open-Ended Terms
Many outsourcing contracts state that the parties will attempt to reach agreement on an important provision after signing. That’s a mistake, according to Kriss, who advises clients to avoid leaving contract provisions unresolved for two reasons. […]
3. Provide Specific Examples of Material Breach of Contract
An outsourcing contract often states that the relationship can be terminated for “material breach.” But as with damages, case law is unclear about the definition of material breach, especially in a particular case, says Peterson. […]
4. Define Performance Standards
Many outsourcing contracts require conformity to “industry standards” or performance that is “appropriate,” “sufficient” or “best practice.” The problem with these adjectives, says Kriss, is that they have no clear meaning. […]
5. Require Written Notice of Customer Failure
When outsourcing disagreements arise, the supplier may blame the customer. Therefore, the contract should require the supplier to provide contemporaneous written notice to a specified officer of the customer when the supplier contends that the customer is failing to meet its obligations. […]
6. Provide Written Notice of Any Breach of Contract
Outsourcing customers can limit the cost of disputes and litigation even after the ink is dry. “The biggest mistake we see in dispute resolution is failing to send firm correspondence about breaches,” Kriss says. […]
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