In Part 1 of this series, we discussed the key legal issues applicable to outsourced IT services. In this post, we will discuss the key service contract provisions applicable to these situations.

Written service agreements which clearly describe the rights and obligations of all parties are essential and must address a broad range of factors. 

Of particular significance are provisions addressing responsibility for legal compliance associated with possession and use of the digital assets and allocation of risk in the event of service failures, security breaches, and bankruptcy (and other forms of business failure). 

The physical location of the cloud servers (perhaps in more than one country or state in order to provide geographic diversity) also is a critical factor and must be taken into account in the service contract. 

Particularly when the servers are located outside the U.S., issues such as intellectual property protection (including copyright, trademark, patents, and trade secrets), data privacy and protection, and the ability of national government agencies to demand access to the data, are among the factors that must be taken into account.   

Notwithstanding these issues, in far too many instances, service contracts for IT outsourcing are inadequate for the complexity and significance of the services involved.

Governments must recognize that development of IT outsourcing requires more than policy programs and incentives specifically designed to promote those services. 

Development of a vibrant IT outsourcing sector requires creation of an overall legal environment which facilitates commercially viable outsourced IT offerings. 

Although many governments are competing to attract IT service providers, in hopes of making their jurisdictions IT sector hubs, few will realize that ambition as most will fail to create an overall legal environment conducive to IT services.  While many governments are willing to offer tax incentives and other enticements designed to lure IT service providers, far fewer are prepared to create a “trusted IT environment,” by  addressing the difficult intellectual property, information and communications privacy, and e-commerce security issues which are vital to IT services. 

The technology and business models associated with IT outsourcing are sound and viable.  They have made outsourced services widely popular and attractive. 

Often however, the contractual and statutory legal framework in which those services are offered is inadequate. Those legal flaws must be effectively addressed if IT outsourcing is to achieve its full potential value.

For more information on Alliance Law Group, LLC, Jeff Matsuura, or Crag Blakeley, please visit the ALG website.  For more information on information technology law, see their book Global Information Technology Law, 2011 ed.