Contract Corner: The Drive to Automation and Your IT Outsourcing Contract

Morgan Lewis & Bockius LLP - 

Barbara Murphy Melby and Glen W. Rectenwald

Robotics and automation are hot. But what do they really mean in the context of your IT outsourcing contract? At least for now, they are not about robots rolling around the data center floor or application development center. 

Robotics and automation are about software and tools that allow for automated processing, monitoring, and reporting, which provides real-time data and data analysis and a reduced need for manual (read—“human”) intervention. Many vendors are touting proprietary tools and solutions that enable more automation, resulting in more accurate and timely information and services and lower costs.

The following are five key contract considerations for outsourcing customers considering automation:

Costs of Automation. Automation projects—at least at the outset—may not be without incremental expense. When considering an automation project, consider the one-time and ongoing incremental costs, and balance those against the anticipated efficiencies and benefits. Costs of automation may include:

Software licensing and maintenance. For proprietary products, many vendors are licensing their automation software as a standalone offering with standalone pricing. Third-party license and maintenance costs may also apply if the proprietary products require specific operating systems, middleware, or application software to operate.

Software configuration, interfaces, and implementation.

Incremental infrastructure and capacity.

Documented Benefits (Upfront and Ongoing). Automation sounds great, but what are the real benefits? As with any implementation, it is important to document a project’s intended benefits and the effect on the existing scope. Will there be a change in services? Will there be additional or improved service levels or reporting as a result of the automation?

Sharing of Reduced Costs. One effect of automation may (or may not) be the reduction of required headcount. If headcounts are reduced because less people are needed to provide a service that is not “automated,” will the fees be adjusted? What are the adjustments? Does the contract provide for an adjustment regardless of whether a vendor can actually reduce the headcount? Customers should consider including a requirement that headcount cannot be reduced until a vendor can demonstrate that the documented benefits have been realized.

Ownership of the Output. Automation tools, particularly ones with data-analytics capabilities, generate data and reports regarding a customer’s environment. Who owns this output, and what can it be used for? Customers should be sure to include in an outsourcing contract clear rights on ownership and use of data.

Back-End Considerations. The tools have been implemented, are running, and are integrated into a customer’s environment. What happens if the contract terminates? Will the customer have ongoing rights to use the automation tools (and the related configurations and interfaces)? On what terms?

This post is part of our recurring “Contract Corner” series, which provides analysis of specific contract terms and clauses that may raise particular issues or problems. 

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