This document summarizes key points from a seminar on outsourcing deals. It discusses structuring the deal terms, conducting due diligence during the bidding process, pricing models, addressing intellectual property rights, termination rights and provisions, and the importance of preparing for a potential breakdown in the client-provider relationship.

1. PBI Outsourcing Seminar
Philadelphia, PA
July 15, 2010
James R. Wells, Vice President / Associate General Counsel
ARAMARK Corporation

2.  Structuring the terms of the deal
 Need to prepare upfront for a
breakdown in the relationship
 Provider’s lessons learned

3.  Pre-bid -- limited, as to scope
and time
 Client personnel may not be
SME’s in the function being
outsourced
 Client may believe better pricing
results from limited diligence

4.  Document facts / assumptions
 Select bid pricing / build pro forma
 Select term (duration)
 Verify scope (services, sites, growth
potential (“build out”))
 Verify conditions, e.g. equipment,
systems

5.  Can fill the gaps, but creates
tension in contract negotiations
 Disclosure of assumptions in bid
process becomes key, here
 Joint transition planning –
collaborative / helpful

6. • Tension between specific
(Provider) and general (Client)
• RFP, SOW and your bid
• Adjustments from transition
planning
• Adjustments during/after
transition

7.  Objective, quantifiable standard
always preferable
 Best to propose SLA’s in bid
 Select / measure during transition
 Every standard / SLA is based in
some way, on matter within
Client’s control

8.  Cost reimbursable with fee
 Straight P&L
 Gainsharing, e.g. profit split,
commission, share of savings to
budget
 Defer/accelerate contract
investment

9.  Scope creep and “Change Control”
 Annual Pricing escalators, e.g. CPI,
ECI, ECEC
 Pricing adjustments:
 change of law (taxes, health care, labeling)
 change of baseline condition (Client EE population)
 change of Client condition (Client EE healthcare co-pay)
 change in Client’s industry, or other external change
 Payment risk / Initial Payment

10.  Provider’s pre-existing IP – hers,
and she keeps
 Provider’s IP developed during
term – hers, she keeps, and
Client has at most a license…
 Why stifle innovation?
 Or, put it in the pricing….

11.  Client’s EE’s – Fair trial basis, indemnity on
pre-hire claims / liabilities
 Provider’s EE’s – especially Key EE’s – cross
hire prohibition, ability to transfer out
 Provider managing Client EE’s – “co-
employer” concerns
 TUPE / Statutory severance – Replacement
Provider
 Put it in the pricing…

12.  Insurance requirements
 Waiver of subrogration
 Indemnification:
Infringement
EE claims
PI / Property Damage
Breach of confidentiality / privacy / security

13.  Standard of fault, e.g. gross
negligence, Client’s own negligence
 Causation / comparative fault
 Impact of worker’s compensation
 “Knock for knock” indemnification
 Notice / Control of claim and
survival

14.  Limit liability via caps
 Limit liability via types of damages
 Or both
 If consequentials not
excluded….impact of mandatory
ADR?
 Waiver of jury trial, venue

15.  Critical to prepare upfront for
break-up of relationship
 Trend: Client may terminate,
but provider (“vendor”) may not
 Address with internal team
when developing bid pricing

16.  Provider termination for
convenience
 Essential where:
 “Diligence” was limited
 Ability to adjust price or scope, due to “changes”, is
limited
 Financial or Legal risk profile becomes unacceptable
 Discussion period, notice period
 In whole, or in part, as to service or
site

17.  Triggers, e.g. operate at loss for X
period
 Trigger fallback – external cause…
 change of law (taxes, health care, labeling)
 change of baseline condition (Client EE population)
 change of Client condition (Client EE healthcare co-pay)
 change in Client’s industry, or other external change
 External cause, results in the loss

18.  Another approach – build in termination right
within “change control” provision
 Build in termination right within “force
majeure” provision
 Move contract term to 12 month term (or other
period) with renewal on agreement of the
parties
 Ability to subcontract services or sites /
otherwise control operations

19.  Termination for non-payment….the “proper
invoice” wording
 Mandatory ADR – apply to termination or not?
 Provider contract investment – subject to
payback or not?
 Termination assistance – who pays? SLA’s /
penalties / remedies suspended?

20.  Strong relationship with your internal team
 Share understandings / assumptions with the
Client organization -- ongoing
 Gather information from client organization –
ongoing
 Exceptional service, coupled with the ability to
exit, is the best mechanism
 Reputation