overview of legal structures for outsourcing

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OVERVIEW OF LEGAL STRUCTURES FOR

OUTSOURCING

January 20, 2004

Fred GregurasFenwick & West LLP

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MAJOR LEGAL STRUCTURES

Contract for services with an independent entityBuild, operate and transferContract for services with a controlled subsidiary

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DELIVERY MODELSMAY IMPACT LEGAL STRUCTURE

On-site

Off-site

Off-shore

Domestic

Global

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY

ServiceProvider Customer

Agreement

Services

Payment

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY

U.S. corporation/foreign parent

Master agreement/single engagement

Independent contractor relationship

Performance requirementsProject with fixed price (“spec”)Time and materialsSLA

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY (CONT’D)

Use of employees or contractors

ConfidentialitySubsidiary issue

Assignment of Intellectual PropertyMoral rights

Governing Law

Dispute Resolution

Tax Considerations

Registration requirements

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY (CONT’D)

Time to Implement

Cost

Risk

Intellectual PropertyBusinessCrimePrivacy

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY

DEDICATED OPERATION STRUCTURE

ServiceProvider Customer

Agreement

Services

PaymentDedicatedOperation

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY

DEDICATED OPERATION STRUCTURE (CONT’D)

Independent contractor

Separate/virtual facility

T&M pricing/cost plus pricing

Performance requirements

Use of employees or contractors

Confidentiality

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY

DEDICATED OPERATION STRUCTURE (CONT’D)

Assignment of Intellectual PropertyMoral rights

Governing law

Dispute resolution

Tax considerations

Registration requirements

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CONTRACT FOR SERVICES WITH AN INDEPENDENT ENTITY

DEDICATED OPERATION STRUCTURE (CONT’D)

Time to implement

Cost

RiskIntellectual PropertyBusinessCrimePrivacy

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BUILD/OPERATE/TRANSFER STRUCTURE

ServiceProvider Customer

Services

PaymentDedicatedOperation

Option

Agreement

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BUILD/OPERATE/TRANSFER STRUCTURE (CONT’D)

Independent contractor

Virtual team with option to transfer team and possibly facility at a specified cost

T&M pricing/cost plus pricing

Option pricing

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BUILD/OPERATE/TRANSFER STRUCTURE(CONT’D)

Performance requirements

Use of employees or contractors

Confidentiality

Assignment of Intellectual PropertyMoral rights

Governing law

Dispute resolution

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BUILD/OPERATE/TRANSFER STRUCTURE (CONT’D)

Tax Considerations

Registration requirements

Time to implement

Cost

RiskIntellectual PropertyBusinessCrimePrivacy

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CONTRACT FOR SERVICES WITH A CONTROLLED SUBSIDIARY

ServiceProvider

(Subsidiary)

Customer(Parent)

Agreement

Services

PaymentControllingShareholder

(Parent)

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CONTRACT FOR SERVICES WITH A CONTROLLED SUBSIDIARY (CONT’D)

Control

Usually a general services agreement rather than project oriented

Arms length contractual terms

Cost plus pricing (transfer pricing)

Performance requirements

Use of employees or contractors

Confidentiality

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CONTRACT FOR SERVICES WITH A CONTROLLED SUBSIDIARY (CONT’D)

Assignment of Intellectual PropertyMoral Rights

Governing law

Dispute resolution

Other tax considerations

Registration requirements

Time to implement

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CONTRACT FOR SERVICES WITH A CONTROLLED SUBSIDIARY (CONT’D)

Cost

RiskIntellectual PropertyBusinessCrimePrivacy

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SUMMARY

Blocking and tackling usually with an international twist

Vendor’s track record

Intellectual property comes in many forms