work_it_out_autumn_2010

WORK IT OUT
Quarterly outsourcing journal
Tri party line
Michael Bell sets out the ground rules
for maximising the tri-party relationship
with outside vendors.
Lion city logistics
South East Asia offers unparalleled
opportunities. But, says Azmul Haque,
organisations need to be aware of
the intricacies of multi-country,
multi-service outsourcing contracts.
Some thoughts
after the dust
has settled
Usman Wahid offers some thoughts on
the now-famous BSkyB v EDS case and
the impact of the case for the IT and
outsourcing market
Market freedoms
Adam Rose describes how to make
the Freedom of Information Act work
for you and tries to discern the future
direction of legislative travel.
Group dynamics
Changes to VAT grouping could
provide prime outsourcing
opportunities, says Linda Adelson.
Autumn 2010

Contents
Welcome 01
Tri Party Line 04
Lion City Logistics 10
Some thoughts after the dust has settled 16
Market freedoms 22
Group dynamics 28
Diary Dates 33

01
www.blplaw.com | Work it out
Work it out will continue
to be a mix of themed
issues, in which we explore
one area in depth, and a
collection of views, opinions
and legal analysis broadly
or narrowly affecting
outsourcing in a range of
areas. This issue falls into
the latter category.
Mark Lewis,
Head of Outsourcing
Dear Readers
Thank you for your feedback on work it out. We appreciate your
taking the time and trouble to tell us what you think we do well,
what we can do better and what subjects you would like us to cover.
Please continue to communicate your views to us.
Legal process outsourcing continues to interest our readership,
as it does the sourcing market and private equity more generally.
There are signs that, in the UK, LPO is finally arriving. But a more
interesting – and logical – development is the combination of middle
and back office law firm process outsourcing with a legal process
outsourcing. In effect, the middle and back office operations provide
the platform for LPO. Michael Bell, a principal consultant with leading
US LPO consultancy, Fronterion, looks at how to maximise tri-party
relationships in LPO.
For some years now, Singapore has served as a regional hub for
corporate IT project implementation and outsourced services
projects in that region. Our colleague in BLP Singapore, Azmul
Haque, writes about the issues arising in regional outsourcing deals.
He brings an interesting, supply-side, perspective to this subject, as
he has spent time on secondment with BT in Singapore during which
he worked on the kinds of outsourcing transactions he writes about.
Earlier this year, BLP covered the BSkyB v EDS case in a well received
seminar in conjunction with Burnt Oak Partner s (Robert Morgan and
Jean Louis Bravard) and Brian Glick, the editor of the UK’s leading
IT industry journal, Computer Weekly. In this issue we record our
views on the case for those of you who were unable to attend that
event. New perspectives on BSkyB v EDS will continue to surface,
but we thought we should cover it as we currently see the case and
its implications for IT contracting in the UK and elsewhere.
At first sight, the UK’s Freedom of Information Act does not have
much to do with outsourcing. Actually, it does, and the Act is
becoming a useful tool for outsourcing providers to find out more
about the procurement of outsourced services by the UK public
sector - and their competitors. As outsourcing in this sector is set to
grow – and very dramatically at that – it seemed like an opportune
moment to ask one of my outsourcing partners, Adam Rose, to
provide an insight into how the FOIA may be used tactically by
outsourcing providers.
And finally, to VAT in outsourcing in the UK financial services sector.
This subject is important and topical and is going to occupy us for a
while. For details of our upcoming VAT Outsourcing seminar please
see out Diary Dates section. In this issue, my partner, Linda Adelson
(who will also be delivering the seminar on 15 September), examines
how VAT grouping can be used to minimise exposure to VAT.
I hope that you have had a good summer and that you enjoy this
issue of work it out.
Mark Lewis, Partner, Head of Outsourcing
mark.lewis@blplaw.com
Welcome to Work it Out

Work it out | www.blplaw.com
02

03
The integration of outside vendors
into the delivery of legal and
support services is one of the
most significant developments
affecting the legal profession...
Tri-party line

04
Tri-Party Line
Michael Bell
Michael Bell sets out
the ground rules for
maximising the tri-party
relationship with
outside vendors.
One of the most significant
developments impacting legal
professionals today is the integration
of outside vendors into the delivery
of legal and legal support services.
The integration of third-party vendors
has huge implications for how law
firms deliver and perform legal services,
as well as how general counsel interface
with their outside counsel. To ensure
a successful relationship between the
in-house team, law firm and vendor
team, it’s important to understand the
sources of value and pitfalls of this new
dynamic relationship.
While a number of general counsel have
engaged legal outsourcing vendors
directly, it’s increasingly common for
general counsel to work in concert
with their outside counsel and outside
vendors. Therefore it is critical for in-
house legal professionals to recognise
factors that constitute a successful
legal outsourcing engagement and the
sources of value when working with
legal outsourcing vendors and their
respective outside counsel.
Win-win
When working with a legal outsourcing
vendor and outside counsel, general
counsel should ensure that the
arrangement is a “win-win” for all
parties involved. The high levels of value
created by legal outsourcing vendors
in properly structured engagements
ensure that both the law firm and in-
house team reap benefits, such as cost
savings, more efficient work flows and
access to specialised talent. A one-sided
engagement hinders the collaboration
process and is typically not sustainable
in the long run.
It is critical for in-house
legal professionals to
recognise factors that
constitute a successful legal
outsourcing engagement
and the sources of value
when working with legal
outsourcing vendors
and their respective
outside counsel.
Outside counsel involvement in the
corporate-vendor relationship is
important for many reasons. Law firms
help effectively manage the service
delivery, ensure high quality standards
and maintain professional obligations.
By recognising that law firms play
an integral role and create value in
the relationship, general counsel are
in a better position to maximise the
value of the engagement. Law firms
also benefit from the relationship by
deepening existing client relationships,
increasing client pocket share and
enhancing client pitching capabilities.
Innovative offerings
General counsel should also evaluate
the level of innovation of the service
capabilities provided by their outside
counsel when working with a legal
outsourcing vendor. Realising that
most of the value derived from legal
outsourcing is not cost-centric, but
the result of new, innovative service
offerings, is a key success driver.
Through outside vendor capabilities,
general counsel are able to address risks
in a new manner, while lowering cost
thresholds, increasing the efficiency of
workflows and improving the flexibility
of resources through outside counsel-
vendor collaboration allows in-house
legal teams to address risk exposures
and accomplish tasks that were
previously uneconomical to perform.
To maximise the success of this tri-party
collaboration, in-house legal teams
must assess their outside counsel’s
ability to direct new vendor capabilities,

05
increase the use of fixed or alternative
fee arrangements and accomplish more
through the outsourcing initiative rather
than merely doing the same functions at
a lower cost.
Professional rigour
In-house legal professionals should
also evaluate the professionalism and
ethical rigour of the legal outsourcing
initiative offered by their outside
counsel. Professional standards
require a pre-emptive and well-
structured investment on behalf of the
law firm. It is difficult, if not impossible,
to effectively manage the firm’s ethical
obligations and professional standards
on an ad hoc basis.
To maximise the
success of this tri-party
collaboration, in-house
legal teams must assess
their outside counsel’s
ability to direct new vendor
capabilities, increase the
use of fixed or alternative
fee arrangements and
accomplish more through
the outsourcing initiative
rather than merely doing
the same functions at a
lower cost.
Ethical obligations
While the Law Society and the SRA
have released limited guidance on
the issue of outsourcing, general
counsel must still ensure the
fulfillment of ethical obligations
when working with their outside
counsel and respective outsourcing
vendor(s). Law firms can
demonstrate proper investment in
their legal outsourcing arrangement
through exercising oversight and
competence, maintaining confidence,
disclosing the engagement to clients
when necessary, avoiding conflicts
of interest and unauthorised practice
We take the burden from you in running
difficult outsourcing relationships
of law and observing all other ethical
obligations that legal professionals are
compelled to uphold.
In-house legal teams should also
ensure that outside counsel upholds
their respective ethical obligations to
avoid unnecessary glitches and risk
exposures. One way to minimise risk
is to ensure that the work performed is
covered by the law firm’s Professional
Indemnity coverage, and general
counsel should also make sure that
the law firm’s end deliverable is
consistent with firm standards and all
professional obligations.
Primary challenges
Despite the value and advantages
of collaborating with legal vendors
through outside counsel, this tri-party
engagement also presents challenges.
While critical to success, managing
quality, verifying security and
maintaining confidence when working
with a legal outsourcing vendor are
often quite tactical in nature. The
two primary challenges are managing
the tri-party relationship – between in-
house team, the law firm and the legal
outsourcing vendor – and ensuring
ethical compliance and adherence to
professional standards by all parties.
The challenge of the tri-party
relationship is multifaceted and
unique to legal outsourcing, but
also a key point of success. Challenges
include defining roles, determining
ownership deliverables, allocating
risk exposures and a host of additional
considerations that arise. Problems,
exhibiting a variety of symptoms,
often arise when these issues are not
addressed thoroughly.

06
The two primary challenges
are managing the tri-party
relationship – between in-
house team, the law firm
and the legal outsourcing
vendor – and ensuring
ethical compliance and
adherence to professional
standards by all parties.
The second primary challenge when
working with legal outsourcing vendors
through outside counsel is ensuring
ethical compliance and adherence
to professional standards. Pending
the structure of the relationship with
the outsourcing vendor, the end
deliverable is typically predicated on
the assumption that the outsourcing
law firm is overseeing and managing
the outsourcing process. Challenges
arise when the work product of an
outside vendor is not held to the same
standards of professionalism when
such assumptions are in place.
However challenges also arise when
legal professionals seek to manage the
outsourcing engagement in the same
manner as work performed internally,
either by the law firm or in-house
legal team. Often a unique or more
comprehensive approach is required
to ensure appropriate oversight and
confidentiality.
Global volatility
Ever dynamic, the legal outsourcing
industry continues to grow and
evolve based on client needs and
requirements. Currently the three most
prominent trends in legal outsourcing
impacting legal professionals are:
• continuing cost pressure
on outside counsel for
increased value
• the growth of onshore and
hybrid-shore delivery models
• increasing reliance on
outside vendors.
In terms of continuing cost pressure
on outside counsel for increased
value, clients’ continuing cost pressure
and quest for value is likely not to
be a temporary trend or attribute
of recent global volatility – many
major law firms have realised that
the demand for increased value
represents a fundamental change
in the legal landscape. The trend to
minimise legal fees manifests itself in
a variety of ways such as alternative
fee arrangements, shuffling law firm
panels or the direct outsourcing by
in-house counsel, and such trends
have prompted legal professionals to
seek capabilities and cost effective
resources that may not be available
within their organisation.
Many major law firms
have realised that the
demand for increased
value represents a
fundamental change
in the legal landscape.
Outside vendors
Looking at the growth of onshore
and hybrid-shore delivery models,
Fronterion’s Global Sourcing Survey
2010 – which polled executives from
17 of the largest global outsourcing
providers, as well as ten of the largest
UK law firms – found that onshore
and multi-shore legal outsourcing
arrangements are increasingly
attractive. The study also found that
approximately 300 full-time lawyers
and legal professionals are employed
in delivery centres in the UK. Further,
the findings revealed that 8% of the
top 17 global vendors’ legal delivery
staff is based in the UK. Onshore
and hybrid-shore delivery is likely to
increase as 75% of outsourcing vendor
executives surveyed by Fronterion
said that at least some of their clients
had expressed an interest in onshore
delivery and 82% said their clients
were interested in hybrid solutions.
In terms of increasing reliance on
outside vendors, as a growing number
of legal professionals discover new,
value-creating ways of integrating
outside vendors into their respective
practice areas, reliance on outside
vendors will assuredly increase. This
reliance will occur in the scope and
scale of outside vendor integration as
well as go-to-market strategies, which
include outside vendors as prominent
components.
Landmark announcements
The increasing reliance on outside
vendors is also apparent in a number
of landmark deal announcements.
CMS Cameron McKenna recently
announced the largest and
(ostensibly) longest-term law firm
outsourcing engagement to date,
reported to be worth £500m over the
course of ten years. The Australian
law firm Advent Lawyers announced
a formalised co-pitching approach
for legal services alongside their
legal outsourcing vendor. Moreover,
US-based Pillsbury Winthrop Shaw
Pittman recently announced a
completely integrated product line
for large-scale litigation review, which
involved five legal support vendors,
including a legal outsourcing vendor
for the performance of document
review services.
The integration of outside vendors into
the traditional legal delivery model
represents a significant opportunity
to both in-house legal teams and law
firms. Understanding what makes
these deals successful, as well as
the inherent pitfalls of a tri-party
collaboration, enables in-house
legal professionals to make well-
informed decisions about when and
how to engage in legal outsourcing
opportunities.
Michael Bell
Managing Principal, Fronterion LLC
michael.bell@fronterion.com

07
The two primary challenges
are managing the tri-party
relationship – between in-
house team, the law firm
and the legal outsourcing
vendor – and ensuring
ethical compliance and
adherence to professional
standards by all parties.

08

09
There are a wealth of opportunities
in South East Asia, however
organisations should be aware of
the many potential complications...
Lion City Logistics

10
Lion City Logistics
Azmul Haque
South East Asia offers
unparalleled opportunities.
But, says Azmul Haque,
organisations need to be
aware of the intricacies of
multi-country, multi-service
outsourcing contracts.
Once a tiny fishing village at the tip
of the Malay Peninsula, Singapore has
taken rapid strides since the late 20th
century to become a developed nation
with modern facilities and world-class
infrastructure. While Singapore’s
strategic location as a natural meeting
point of sea routes makes it attractive
as an entrepot, the Lion City’s open,
vibrant and competitive economy has
made it the pre-eminent choice for
regional headquarters for international
investors and multi-national
corporations.
Today, Singapore is ranked fourth in
the world’s leading financial centres,
and its status as a cosmopolitan world
city was firmly cemented when A T
Kearney named the city-state the
“most globalised country in the world”
in its Globalization Index.
Tremendous opportunities
In recent years, the Singapore
economy has developed a
highly competitive ICT market
(including companies specialising
in hardware, software, IT services,
telecommunications and content
services) and has succeeded in
attracting substantial foreign
investment. As multinational and
regional companies begin to
modernise their business processes
and technology systems in Asia, there
are tremendous opportunities for ICT
players – including those providing IT
and telecom outsourcing services –
in the wider Asian region.
Promises to keep
Most customers based in Asia usually
issue requests for proposals (RFPs)
to various suppliers requesting
bids for a raft of services across
various countries. However, more
often than not, the exact value
and service requirements are not
clearly determined owing to the
complexities of operating across a
range of dissimilar jurisdictions. As
a result, suppliers make unrealistic
bidding promises to ensure that they
win the contact, either knowing or
subsequently discovering that they
are unable to recover their costs for
the near future.
As multinational and
regional companies begin
to modernise their business
processes and technology
systems in Asia, there are
tremendous opportunities
for ICT players
While it may be rare for an IT
supplier to be accused of fraudulent
misrepresentation, and even rarer for
a supplier to be found guilty of it, the
BSkyB v. EDS ruling in the UK (see
article, page 16 ) may have driven home
the importance of careful assessment
of risk by the supplier, including the
review of sales techniques, contractual
arrangements and representations in
connection with capabilities, services
and products.
Imperfect information
Nevertheless, for multi-country
contracts in the Asian context,
the bigger problem may be that
bidding decisions are often made on
incomplete or imperfect information.
For example, the geographical
spread of locations may mean
that the information in relation to
number, type and condition of legacy
hardware may be out-of-date and/
or incorrect. Furthermore, while
technology may be inherently the

11
same or similar and systems should
work seamlessly across jurisdictions,
in reality they work very differently
even in different offices of the same
company, particularly those spread
over disparate jurisdictions.
Suppliers make unrealistic
bidding promises to
ensure that they win the
contact, either knowing
or subsequently finding
out that they are unable to
recover their costs for the
near future.
Suppliers would be well advised to
make any pricing proposals subject to
a set of assumptions that would need
to be validated subsequently through
a post-contract verification, including
due diligence (if required). If suppliers
try to reduce their costs through other
means, this may affect their service
quality and /or raise additional costs
for the customer. Customers would do
well to recognise that an outsourcing
contract is not delivered successfully
where the supplier does not make
money or makes a loss.
For large multi-country contracts in
Asia, it is impossible to cater for all
potential requests or possible services
at the bidding stage. Often, therefore,
parties agree to very wide wording on
the scope of the supplier’s services (in
addition to the service descriptions
in the appendices), such as: “any
services, functions, processes and
responsibilities that are of a nature
and type that would reasonably be
considered part of the Services, even
if not specifically described in this
Agreement” or “any other services,
functions and responsibilities not
specified in the Service Descriptions,
but which are inherent tasks of
the Services set out in the Service
Descriptions required to the provision
of the Services at the applicable
Service Levels”.
Inflexible approach
A supplier who is disproportionately
concerned with containment of costs
will also try to narrowly read the scope
of services that has been agreed
upfront for a fixed price, and is therefore
likely to be inflexible in its approach to
the letter (and spirit) of the contract.
This can either lead to unnecessary
haggling over what is contained
within the agreed scope of work and
what is an additional service – to be
included through the “change control”
mechanism – or, in certain cases, to an
entire renegotiation of the contract, an
expensive proposition for all concerned.
For large multi-country
contracts in Asia, it is
impossible to cater for
all potential requests or
possible services at the
bidding stage. Often,
therefore, parties agree
to very wide wording on
the scope of the supplier’s
services.
Apart from providing for flexible
pricing options instead of a fixed fee
arrangement, suppliers and customers
may prefer to have sufficient flexibility
to consider a biannual assessment
of pricing adjustments, based on the
additional scope of work that arises. This
is certainly a preferred option for the
customer compared to the dislocation
resulting from either early termination
and/or a renegotiation of the contract.
Minimum revenue commitment
A supplier may be keen to bag a
certain outsourcing deal for a number
of reasons – prestige, the size of
the deal, geographical coverage or
long-term business opportunities. For
the supplier’s deal team, securing a
multi-million dollar contract may not
mean very much if the customer has
not also agreed to the inclusion of a
minimum revenue commitment clause.
For large multi-country deals where
a range of services could potentially
be purchased by a number of the
customer’s local entities, the supplier
would be well advised to get the
customer to sign up for a minimum
revenue commitment that the supplier
and its local entities would purchase a
minimum value of services every year.
A complete solution to
your outsourcing needs

12
This is particularly important for the
supplier where the multinational
customer is more federally organised,
and services are required to be locally
provided and/or purchased. If local
entities have some, or substantial,
independence in terms of their
procurement decisions, the supplier
may not see all of the contract
value being purchased, throwing
into disarray much of its overall
calculations on pricing and affecting
its economies of scale.
Last – though not the least for the
team – the size of the “deal bonus”
to the core deal team may depend
on the value of the minimum revenue
commitment as a concrete guaranteed
revenue figure, as compared to the
overall contract value which may be
based on a number of assumptions.
Benchmarking
While a like-for-like comparison
(of service costs and technical
requirements) of performing
outsourced functions in-house as
against outsourcing to suppliers is
difficult, usually the customer will
manage to negotiate a benchmarking
exercise at least once every
two/three years.
For regional Asian deals, the customer
would have done well to negotiate
a benchmarking right, particularly if
it is also linked to early termination
(of certain services, if not the
entire contract). Usually, if after the
benchmarking exercise the parties are
unable to agree revised charges and
the benchmark results show that the
supplier’s charges are, say, 5% higher
than the mean average price in the
range of prices determined as “best of
breed”, the customer may be entitled
to terminate.
Multiple sub-contracting
arrangements are very
common in the Asian
marketplace, partly because
very few global players
have end-to-end capability
to provide all services
themselves in the region.
Best of breed
In the Asian context for multi-service
contracts there are two aspects that
may make this a particularly difficult
negotiation. Firstly, a benchmarking
exercise by the customer would
need to normalise the data used
for the comparison in order to
account for the differences between
the volume of services, scope of
services, service levels, complexity,
degree of standardisation, service
delivery and recipient location(s) and
other relevant factors. In a recent
telecommunications outsourcing deal
across various countries in the Asia
Pacific region, the customer was hard
pressed to find at least three other
suppliers with a similar capability and
offering similar services in order to
calculate the “best of breed” prices in
the comparison group.
Secondly, if the customer does take
the extreme step of terminating
certain services or the entire
contract, and if such termination
is not considered termination for
convenience by the customer, then
the supplier is likely to become liable
for severance costs payable to third
party sub-contractors, as well as
the amortisation costs of hardware
dedicated exclusively for use by the
customer. Multiple sub-contracting
arrangements are very common in
the Asian marketplace, partly because
very few global players have end-to-
end capability to provide all services
themselves in the region, either
because of regulatory reasons or
because they cannot match the prices
provided by the sub-contractors.
Show me the savings
As mentioned earlier, the bid team
may have underbid to secure the
contract on account of not knowing
the real value and real costs of the
outsourced activities. If the bid team
is largely different from the
operational team charged with
delivering the contract, the latter
may find itself busy trying to secure
“wiggle room” and provide the
contracted services within the original
bid cost calculations instead of
concentrating on actual delivery.
For large, multi-country contracts for
a range of outsourced services the
additional danger for customers and
suppliers is that the quoted costs can
spiral without warning for specific
services or countries as a result of
regulatory changes or other local
market conditions. In a situation where
the supplier has promised overall cost
savings the operational team may find
itself spending a disproportionate
amount of time trying to “find”
the guaranteed savings, while the
customer’s retained function will have
to defend its contractual position.
When suppliers bid for
multi-country, multi-service
outsourcing, they usually
underestimate the time
and resources required
for transitioning.
Flexible pricing
The key here for the supplier is to
build in flexible pricing options in
the contract, including cost-plus,
market pricing, and/or fixed fee
adjusted by volume fluctuation.
Building in a generous buffer to take
care of increased costs is, if possible,
advisable, and most importantly, a
rigorous due diligence process on
costs should be undertaken before
finalising the contract.

13
When suppliers bid for multi-
country, multi-service outsourcing,
they usually underestimate the
time and resources required for
transitioning. The takeover of service
arrangements from existing suppliers
across multiple locations can never
be straightforward. What is more
troubling in the Asian context is that
the new supplier – or its local affiliates
– may be in a completely unfamiliar
environment. Where the customer had
already contracted out these services,
it may also not have the operational
capability to brief the new supplier.
And incumbent suppliers will not have
the inclination to brief a competitor.
Regulatory regime
Other problems with the transition
process and timeline include the
fact that the supplier may not have
the regulatory licences in place for
providing regulated activities in
certain countries. The regulatory
regime in many South East Asian
countries is generally fairly restrictive,
and may prohibit or regulate certain
kinds of activities, for example in the
case of finance leases for equipment.
Where the supplier cannot perform
certain services itself, a viable option
(subject to the terms of the underlying
contracts) may be the concept of
agency management as a transitional
solution, where the supplier will
manage, on behalf of the customer,
its contracts with third party
contractors. There is no change in
the contractual arrangements or
obligations, except that the customer
does not need to devote time and
resources to deal with third party
contractors itself.
Of course, sometimes suppliers in
Asia may prefer agency management
for commercial reasons – that is, where
they do not currently have sufficient
information to provide a quotation for
taking over an underlying contract, or
they cannot achieve savings – or even
legal reasons, where existing contracts
have not been terminated or may not
have expired, and terminating them
would result in early termination charges.
The regulatory regime in
many South East Asian
countries is generally fairly
restrictive, and may prohibit
or regulate certain kinds of
activities, for example in the
case of finance leases for
equipment.
A supplier holding itself out as a
regional service provider clearly does
not want to have too many contracts
where it is required to propose agency
management as it may result in little
or no financial gain for the supplier
or benefit for the customer.
Looking Eastwards
The trend of global multinationals
looking eastwards to ramp up IT
infrastructure and business processes,
and international ICT players seeking
to provide infrastructure and services
in Asia, is likely to continue to grow.
Asian markets are certainly growing
faster – more so than Europe and
the US – and it is forecast that Asia
will account for 26.3% of the global
consumption of ICT and business
process outsourcing services in the
next decade . As the battleground
shifts to the east, both customers
and suppliers, whether multinational
or regional players, will need to be
equipped with the mindset and
tools to deal with the intricacies
and complexities for doing business
in Asia.
Azmul Haque
Senior Associate,
Berwin Leighton Paisner LLP,
azmul.haque@blplaw.com

14

15
How significant an impact will the
BSkyB v EDS case have on the IT
and Outsourcing market?...
Some thoughts...

16
Some thoughts after
the dust has settled
Usman Wahid
Usman Wahid offers some
thoughts on the now-
famous BSkyB v EDS case
and the impact of the case
for the IT and outsourcing
market.
Selection of EDS by Sky
will provide a unique World
Class Customer Contact
Centre within time and on
budget.
So said part of EDS’s response,
presented on 1 June 2000, to
Sky’s tender for the upgrading of
its customer contact centre (“Sky
CRM Project”).
EDS were selected by Sky to be the
prime systems integrator for the Sky
CRM Project, but with the project
being completed more than four
years after EDS had committed,
Sky initiating legal action which took
six years to be concluded, legal costs
being estimated at £50m for each side
and the High Court awarding interim
damages and interest of £270m in
favour of Sky, the Sky CRM Project
was anything but “world class”.
The actual final settlement reached
by the parties out of court was £318m,
which means EDS has agreed to pay
Sky damages and interest of more
than six times the original contract
value. So what led to such
a disproportionate outcome?
Litany of wrongs
In August 2004 Sky commenced legal
proceedings against EDS, claiming
damages of £709m. Sky claimed
that the Sky CRM Project had been
completed much later and at a much
higher cost than expected, with Sky
actually terminating the relationship
with EDS in March 2002 and
completing the project itself. The High
Court found against EDS for a litany of
wrongs, including both fraudulent and
negligent misrepresentation as well as
breach of contract. It was the finding
that EDS had committed fraudulent
misrepresentation, however, that
was particularly significant as EDS’
limitation of liability in the Sky/EDS
contract was busted by this finding,
leaving them exposed to unlimited
liability for all of Sky’s losses arising
from the fraud.
The actual final settlement
reached by the parties out
of court was £318m, which
means EDS has agreed
to pay Sky damages and
interest of more than six
times the original contract
value. So what led to such
a disproportionate
outcome?
An open question?
The case is significant in terms
of the level of damages that EDS
eventually agreed to pay to Sky and
is a stark reminder to IT providers
of the dangers of over-selling. But
will the case lead to a shifting of the
balance of power between IT buyers
and IT providers and will it open the
floodgates to more “cap busting”
fraud claims against IT providers?
Our view is probably not. The High
Court’s judgement was based on the
narrow and somewhat unique facts of
the case, in particular the egregious
conduct of one of EDS’ employees, a
Mr Joe Galloway, Managing Director
of EDS’ CRM division. The judge
found him to have made fraudulent
misrepresentations that induced Sky
into awarding the contract to EDS.
How could the actions of one person
expose EDS in such a way? It may
seem harsh, but there is a well-

17
established principle in English Law
that a company will be liable for
the actions of a person who can be
regarded as its “controlling mind
and will”.
There is a well-established
principle in English Law
that a company will be
liable for the actions of
a person who can be
regarded as its ‘controlling
mind and will’.
Fraudulent misrepresentations
A key element of Sky’s claim was
various fraudulent misrepresentations
alleged to have been made by EDS.
Out of the four alleged categories of
fraudulent misrepresentations, Sky
only succeeded in one category – the
representations made by EDS that
it could deliver the Sky CRM Project
within the timescales set by Sky.
To prove that EDS had committed
fraudulent misrepresentation, Sky had
to show:
• EDS made a representation which
was false;
• EDS knew the representation to be
untrue; or had no belief in its truth;
or was reckless or careless as to
whether it was true;
• EDS intended that Sky should act in
reliance on the representation; and
• Sky relied on the representation to
its detriment.
The critical misrepresentation made
by EDS was that it had “carried out a
proper analysis of the time needed to
complete the project and will deliver
the project within the timescales
referred to”. This was deemed to be
dishonest on the basis that no proper
analysis had been undertaken by EDS
to establish what work was required
to be done in order to achieve go-live
for the project. EDS’ project plans, for
We clarify and simplify
complex outsourcing
example, which it used to demonstrate
to Sky that the project timescales
were achievable, had no resourcing in
them and no analysis of whether the
sequenced version of work in the plans
could actually be completed within the
illustrated timescales.
The critical misrepresentation
made by EDS was that it
had ‘carried out a proper
analysis of the time needed
to complete the project
and will deliver the project
within the timescales
referred to’.
EDS’ own internal due diligence
showed that the timescale
expectations EDS were setting with
Sky were “unrealistic” and could
not be verified. The pessimistic
advice of the internal EDS project
team was ignored by Joe Galloway,
who regarded his internal project
team as “naysayers”. This, coupled
with Joe Galloway’s performance in
court – where he was proven to be
a dishonest person when his MBA,
which he insisted was legitimate,
turned out to have been issued by a
fictitious university operating on the
internet – meant that the High Court
reached the view that fraud had been
committed by EDS.
As a party can not, under English Law,
exclude or limit its liability for fraud,
the fraudulent misrepresentations
made by EDS busted EDS’ cap under
the Sky/EDS contract (EDS’ liability
was capped at “no greater than
£30m”).
Entire agreement clause
When it became clear to Sky in
the course of the project that the
committed deadline would not be
achieved by EDS, the parties entered
into a Letter of Agreement that
amended the terms of the Prime
Contract. Sky alleged that it was
induced into entering into the Letter

Duty of care
Another interesting aspect of the case
was Sky’s claim that they should be
allowed to recover damages from EDS’
parent company, EDS Corporation.
This aspect of the claim focussed on
EDS Corporation’s involvement in
the tender process prior to the Prime
Contract being entered into and the
various representations made by them
to different members of the BSkyB
group of companies. Sky’s view was
that this created a duty of care owed
by EDS Corporation, which would
not be afforded the protection of the
limitations and exclusions of liability
under the Prime Contract – that is,
unlimited liability for EDS Corporation.
The High Court rejected this on the
basis that this would circumvent the
contractual arrangements in place
under the Prime Contract, which must
have been intended to set out which
one of the EDS group of companies
would be assuming responsibility to
Sky for the project (being EDS) and
what the limitations and exclusions of
EDS’ liability would be.
It is tempting to assume
that the case will lead to
structural changes in how
IT providers approach client
bids. The reality is that
these structural changes
are already in place.
As it is common in the IT and
outsourcing industries for parent
and other group companies to lead,
resource and generally become
involved in bids led by subsidiaries, this
finding will come as a relief to those
industries, but it will ultimately depend
on the facts of each case. In some
situations, too active involvement
by the parent on behalf of a group
company could expose the parent
to breach of duty of care claims in
negligence or negligent misstatement.
of Agreement through EDS
representing that it had developed
“an achievable plan” which had been
the product of proper analysis and
re-planning to rescue the project. The
High Court found that this statement
was false and was made negligently.
Although EDS was able to limit its
liability to Sky for these negligent
misrepresentations (the limitation
of liability clause in their contract
with Sky covered negligent
misrepresentations) it could have done
better and totally excluded its liability
to Sky for negligent misrepresentation
had the language of its contract been
drafted more precisely, the clause in
question being known generally as an
“entire agreement clause”.
The EDS entire agreement clause was
found by the court to be effective in
ensuring the full contractual terms
between the parties were limited to
those set out in the EDS/Sky contract,
but it did not preclude a claim in
misrepresentation, being a different
cause of action under English law.
In order for EDS’ entire agreement
clause to have excluded its liability
for negligent misrepresentation, the
wording of their clause needed to
be much more precise and actually
exclude EDS’ liability for negligent
misrepresentations (rather than being
“mealy-mouthed” about it as a judge
remarked in a different case).
The EDS entire agreement
clause was found by the
court to be effective in
ensuring the full contractual
terms between the
parties were limited to
those set out in the EDS/
Sky contract, but it did
not preclude a claim in
misrepresentation.
18
Client bids
It is tempting to assume that the
case will lead to structural changes
in how IT providers approach client
bids. The reality is that these structural
changes are already in place. EDS
tendered for the Sky CRM Project in
2000, and since then both IT buyers
and IT providers have become more
sophisticated in how they engage
with each other in the course of
tenders. The sales teams at IT
providers are encouraged by clients
and clients’ advisors to get their
delivery teams involved much earlier
in the process so they can verify
whether client requirements
are achievable. Had Sky had
the opportunity of meeting and
questioning EDS’s delivery team,
they would have quickly realised
that the committed timescales were
not achievable.
It must also be remembered that IT
buyers, rather than welcoming the
uncertainty of legal proceedings
against their IT providers for
misrepresentation, will be driven by
a desire to see through successful
projects. There will therefore be a
growing desire on their part to require
IT providers tendering for projects to
demonstrate to them at the outset
that the bid stage promises they
are making will be achievable. They
may want evidence that a proper
analysis has gone into IT providers’
bids, through seeing internal analysis
documents created by their IT
providers as part of their bids.
Some clients will go further than
just wanting transparency, and will
require their IT providers to give
them contractual protection, through
warranties, as to the accuracy and
completeness of the bid stage
promises they have made.

What has been questioned,
though, was why the judge
didn’t criticise Sky’s project
team for what would seem
to be a failure on their
part in having carried out
sufficient due diligence
over EDS’ ability to deliver
the project.
There will undoubtedly now be
more legal and senior management
oversight over project bids, including
early legal vetting of IT providers’
bid responses. The difficult reality
however is that sales functions will
always make statements, some of
which will be hard to quantify and
amount to mere sales patter while
others will go too far and amount to a
potential misrepresentation, including
fraud. Regulating this reality will not
be easy and lawyers will have to
steer a sensible course, recognising
that “believability” is the important
distinction between statements that
no reasonable person could have
relied upon to their detriment and
statements which will amount to
representations which can be relied
upon and lead to liability for their
organisations if made negligently
or fraudulently.
19
Talking point
The case has been one of the talking
points of 2010, with its courtroom
drama and successful cap busting
claim. Although the case does not
create any new law, its significance
lies in the quantum of damages that
EDS finally agreed to pay over to Sky.
What has been questioned, though,
was why the judge didn’t criticise Sky’s
project team for what would seem
to be a failure on their part in having
carried out sufficient due diligence
over EDS’ ability to deliver the project.
The judge’s view appears to have
been that, once Sky were induced
into awarding the contract to EDS in
reliance on their misrepresentations,
the question of whether they
themselves should have acted more
prudently falls away.
Will a similar set of circumstances
arise again? They probably have
already and may be repeated. But if it
wasn’t clear before, the risks inherent
in making false statements are now
clear for all to see.
Usman Wahid
Senior Associate,
Berwin Leighton Paisner LLP
usman.wahid@blplaw.com

20

21
How to make the Freedom of
Information Act work for you...
Market freedoms

22
Market freedoms
Adam Rose
Adam Rose describes how
to make the Freedom of
Information Act work for
you and tries to discern
the future direction of
legislative travel.
The new coalition government in the
UK has set out on an early agenda of
opening up information on central
and local government to greater
public scrutiny.
The Freedom of Information Act
(FOIA) came into force in the UK
in January 2005 and it – along
with its sister environmental law,
the Environmental Information
Regulations 2004 (EIR) – has had an
impact on they way public bodies
in the UK operate, as well as on the
workings of those who contract and
interact with them. In this article we
shall be looking at what FOIA and EIR
do and how that can be used in the
outsourcing process, and attempting
to discern what the new government is
proposing and what impact that might
have on outsourcing.
Obligation to disclose
In essence, anyone can ask any
public body in the UK to disclose
any information held by it at the
date of the request, with the onus
on the public body to make the
disclosure. There are a small number
of exemptions to the obligation to
disclose which – if the conditions
are met – permit the public body to
refuse disclosure. The FOIA and EIR
rules are very similar – the EIR relate
to the disclosure of “environmental
information” while both sets of rules
relate to information that is not
personal data (which is addressed by
the Data Protection Act).
In essence, anyone can ask
any public body in the UK
to disclose any information
held by it at the date of the
request, with the onus on
the public body to make
the disclosure.
One of the early steps taken by the
coalition government was to open
up – pour encourager les autres,
one suspects – senior civil servants’
salaries for public inspection,
followed by announcements that
local authorities would be required
to publish details of all money spent
in excess of £500. On 4 June 2010,
the UK’s Treasury released a tranche
of data from its COINS (Combined
Online Information System)
database containing details of public
spending across central government
departments and agencies. While the
database is not easily searchable, the
expectation is that private database
search tools will be developed to make
the data more readily available.
Limiting exceptions
The Coalition Agreement states, under
the “civil liberties” heading, that it “will
extend the scope of the Freedom of
Information Act to provide greater
transparency” and it is anticipated
that this will widen the list of bodies
subject to FOIA scrutiny and perhaps
limit the exceptions to the obligation
to disclose.
Knowing that your contract
will be made so freely
available might have a
chilling effect on bidders,
and have the unintended
consequence of raising
public costs as bidders
are put off.

23
In the meantime, the FOIA and EIR
remain in place but there have been
some early changes to practice,
with the Office of Government
Commerce (OGC) publishing a
Procurement Policy Note to explain
new arrangements introduced by
the coalition government for greater
transparency in central government
procurement. From July 2010, central
government departments are required
to publish online copies of all new
ICT contracts; from September 2010,
all new central government tender
documents for contracts of more
than £10,000 will be published on a
single website and made available
to the public free of charge, and
from January 2011, all new central
government contracts will be
published in full.
Chilling effect?
Knowing that your contract will be
made so freely available might have
a chilling effect on bidders, and have
the unintended consequence of raising
public costs as bidders are put off.
However, the FOIA does not appear
to have done that so far and this
might simply be accepted as part
of the cost of doing business with
the public sector.
Using the rules
So how can the current rules be
used by outsourcing providers? As
previously noted, anyone can ask any
public authority for any information
that it holds and the authority must
provide it unless it elects to rely on
one of the limited exceptions, most
of which require the authority to
undertake an assessment of whether
the public interest is better served
by withholding the information than
by disclosing it. Clearly, finding out
what previous bidders – successful
and unsuccessful – have bid on similar
projects, or finding out what the
local authority board or project team
members have been discussing, could
help a bidder target its sales and
marketing efforts more accurately.
We help you build long-lasting,
effective outsourcing partnerships
And stating that some
information is confidential
does not make it
confidential – simply
including a confidentiality
clause in a contract stating
that the content of the
contract is confidential is
not enough.
Relevant exceptions
Because the onus is on the authority
to disclose the information, it’s
more useful to look at the relevant
exceptions, and what guidance there
is as to what may be withheld. The
most relevant exemptions under the
Freedom of Information Act are likely
to be section 41 (information that
has been provided in confidence)
and section 43 (where the release
of information is likely to prejudice
someone’s commercial interests and
the public interest is better served
by withholding the information).
Quality of confidence
Only information that is in fact
confidential in nature, or which
could prejudice a commercial
interest if released, can be withheld
under these provisions. For it to be
withheld under the confidentiality
exception, the authority will need
to be satisfied that disclosure of the
information would entitle whoever
gave it the information to take the
authority to court for disclosure.
Internal working notes of the authority
are not caught under section 41
because they have not been provided
by a third party to whom the authority
owes a confidentiality obligation.
And stating that some information
is confidential does not make it
confidential – simply including a
confidentiality clause in a contract
stating that the content of the
contract is confidential is not
enough. To be withheld under
the confidentiality exception, the
information must have the necessary
quality of confidence about it.

24
Even where information
is currently sensitive, it
will in time cease to be
so – how long must elapse
before the information is
no longer sensitive will be
a judgement call, but it will
not be forever.
So would pricing information,
say, meet the test of section 41?
Information that is obtained from
suppliers and not generally available
– such as service development plans,
research plans and detailed financial
input information – will generally have
been specifically requested by the
authority as part of an earlier tender
exercise and will have been supplied
with a reasonable expectation that it
would not be made public. It follows
from this that detailed pricing – that is,
service component pricing – might not
be released on request as a result of
section 41.
Seeking disclosure
The Ministry of Justice issued some
very helpful guidance in 2008
(available at www.justice.gov.uk/
guidance/docs/foi-assumption-
procurement-annex-a.pdf) which
sets out a number of issues that the
authority should be thinking about
when determining whether to withhold
or disclose information sought in the
context of a tender.
In the spirit of knowing
how public money is spent,
you might find yourself
able to gain a bidding
advantage.
Broadly, project management
documentation generated during the
management of the selection process,
including project issue and risk logs
and evaluation information, may be
released once the preferred bidder
has been selected. In addition, general
tender information, including total
tender pricing of unsuccessful bidders,
should be disclosed. Even where
information is currently sensitive, it
will in time cease to be so – how long
must elapse before the information is
no longer sensitive will be a judgement
call, but it will not be forever. Where
non-specific financial information is
sought (such as details of the incentive
mechanism included in a contract
for the refurbishment of government
offices over a four year period), that
should be disclosed.
So, when bidding for new contracts
opposite the public sector, consider
whether you can get information on
previous contracts from that authority
or others. In the spirit of knowing
how public money is spent, you
might find yourself able to gain a
bidding advantage.
Although it’s too early to predict
the scale of future outsourcing in the
UK public sector, there are signs – for
example, the opening up of the NHS
to GP fundholder procurement of
goods and services – that it will be
very significant. That means that the
FOIA will be a useful, if not essential,
tool for outsource providers in the
years to come.
Adam Rose
Partner, Berwin Leighton Paisner LLP
adam.rose@blplaw.com

25
Even where information
is currently sensitive, it
will in time cease to be
so – how long must elapse
before the information is
no longer sensitive will be
a judgement call, but it will
not be forever.

26

27
Changes to VAT grouping could
bring many opportunities to the
outsourcing world...
Group dynamics

28
Group dynamics
Linda Adelson
Changes to VAT grouping
could provide prime
outsourcing opportunities,
says Linda Adelson.
VAT grouping is a subject that may
not sound particularly riveting to most
people but it is an area of increasing
controversy and one where changes
on the horizon have the potential to
cost businesses in the partly-exempt
sector – for example financial services,
insurance and healthcare – dear.
For those that provide these
businesses with services such as
business process outsourcing (BPO)
the changes have the potential to
add to cost bases but in many cases
they also represent an opportunity to
expand opportunities for outsourcing,
as the cost differential between
undertaking activities in-house or
outsourcing them to a third party may
be eliminated for many cross-border
arrangements.
What is VAT grouping?
For those not familiar with the
concept, VAT grouping allows
groups of affiliated companies
under common control to form
themselves into a single VAT
registration, so that supplies between
VAT group members are ignored for
VAT purposes and therefore made
VAT-free. In addition, VAT grouping’s
ability to simplify administration
for fully taxable and partly-exempt
businesses alike makes it of
tremendous practical benefit to all.
For those that provide
those businesses with
services such as BPO the
changes have the potential
to add to cost bases but
in many cases they also
represent an opportunity
to expand opportunities
for outsourcing.
For the partly-exempt sector the real
power and benefit of VAT grouping –
in the UK, at least – lies in something
slightly different: its ability to promote
fiscal neutrality by creating a level
playing field between a taxpayer
who conducts business in a single
entity and one that organises itself
(for commercial, regulatory or other
reasons) into more complex corporate
groups. If partly exempt corporate
groups were not able to form a VAT
group, then management and other
internal charges would generate extra
irrecoverable VAT which would not
have been a cost if the business had
been organised into one legal entity.
VAT grouping promotes
fiscal neutrality
See diagram
Unfortunately for the outsourcing
sector, the benefits of VAT grouping
also have a downside. If some of the
activities of, for example, the group’s
central administrative function were
to be outsourced to a third party, then
(unless those services were exempt)
that third party would have to charge
VAT on top of its fees compared to it
being VAT-free when the activity had
been performed in-house. A 17.5%
or (soon-to-be) 20% VAT uplift on
those fees would eat up a big chunk
of any cost savings that outsourcing
would otherwise potentially provide,
and may wipe them out altogether.
VAT grouping of partly-exempt
businesses therefore creates a barrier
to outsourcing of VATable services to
(non VAT grouped) third parties.

29
Because of the major impact
that VAT grouping can have
on the cost effectiveness of
outsourcing to the partly-
exempt sector, outsourcers
will be interested to know
of potential changes to the
rules being promoted by the
European Commission.
Outsourcing can add VAT cost
compared to performing the
activity in-house.
See diagram overleaf
Horizon changes
Because of the major impact that
VAT grouping can have on the cost
effectiveness of outsourcing to the
partly-exempt sector, outsourcers
will be interested to know of potential
changes to the rules being promoted
by the European Commission. The
Commission disagrees with the way
that the UK and various other member
states have implemented the rules
into their national legislation – VAT
grouping is a measure which member
states are permitted to adopt under
VAT grouping promotes fiscal neutrality
Example: UK banking sector
Personal Loans Co
Current Accounts CoMortgage Loans Co
Banking corporate
group & VAT group
Parent Co/central
Function
Personal Loans
Function
Current Accounts
Function
Mortgage Loans
Function
Banking single entity
Central Function
the EU rules governing the VAT
system, but the detail of how the
provisions should be implemented
is not specified, and two particular
issues have emerged.
The Commission considers that
entities, such as pure holding
companies and dormant companies
that make no supplies in their own
right cannot be included in VAT groups
(the “taxable person issue”) and
branches of a legal entity that is a VAT
group member which are situated in
other member states (or further afield)
would be excluded from membership
of the VAT group (the “branch issue”).
Many commentators, not to mention
the UK’s tax authority, disagree
strongly with these views. Indeed, the
UK and several other member states
are fighting the Commission before
the European Court of Justice (ECJ)
on the taxable person issue, and it
seems only a matter of time before
similar proceedings are launched on
the branch issue. However, a detailed
technical description of the analysis
and why it is wrong will be for another
day. What is more relevant for our
purposes is the practical implications
of these issues, if the Commission
succeeds in forcing member states to
change their rules.
Practical implications
For most interested observers, the
biggest concern by far is the branch
issue, and this is the area that could
also have the biggest implications for
the outsourcing industry. The reason
is the general rule, accepted by the
Commission and based on ECJ case
law, that cross-border transactions
between branches of the same legal
entity are ignored for VAT purposes.
However the Commission believes
that this rule does not apply to VAT
groups, and hence their views on
the branch issue.
For most interested
observers, the biggest
concern by far is the branch
issue, and this is the area
which could also have the
biggest implications for the
outsourcing industry.
What this means is that taxpayers with
a presence in more than one member
state and needing to make internal
cross charges would have to choose
between two mutually exclusive
Costs/charges
(no VAT)
Costs/charges
(no VAT)

30
The big picture
Taking a step back for a moment to
try and see the biggest possible
picture, when one thinks about the
purpose of the common enterprise
that is the European Union it is
primarily about promoting growth
in general and cross-border trade
in particular, with principles such as
freedom of establishment and equality
of treatment at its heart.
VAT grouping has the potential to play
an important part in supporting those
aims. Unless the Commission gets its
way, in which case its value will be
severely restricted, VAT grouping’s
characteristics of administrative
simplification and neutrality for the
partly-exempt sector certainly help.
Cross-border issues
However, regardless of the changes
being pursued by the Commission,
where grouping currently fails to
help is in relation to cross-border
VAT groups, since under the rules
one cannot form a VAT group across
borders. This causes significant
administrative burdens to corporates
with separate legal entities in different
member states (as opposed to branch
structures) and which have to invoice,
and charge, VAT on cross-border
cross-company charges. Worse,
for partly-exempt sectors such as
financial services, it has the potential
to increase costs, distort business
structures, or even impede the growth
of cross-border corporate groups.
Meanwhile, the
Commission’s current
agenda of creating a
harmonised system
with only a very narrow
interpretation of the VAT
grouping rules, is not in
the interests of the EU as
a whole, or of business
in general.
Outsourcing can add VAT cost compared to performing the activity in-house
Personal Loans Co
Banking corporate
group & VAT group
Service
charges +VAT
Outsourced central
admin functions
options of having either VAT-efficient
and administratively convenient
domestic transactions between the
local establishments of different
legal entities within a VAT group, or
VAT-efficient and administratively
convenient cross-border transactions
between different branches of the
same legal entity.
This is bad news for banks and
insurers, as the VAT on their cost base
will inevitably rise, but potentially
better news for at least some cross-
border outsourcing. This is because,
for partly exempt organisations that
choose to maintain their VAT grouping
arrangements in a member state
at the expense of incurring VAT on
branch to branch supplies, there will
then be no difference in price between
doing it overseas but in-house and
doing it via a third party outsourcer.
This could lead to further tranches of
business being outsourced.
If the Commission’s proposed
changes come in, outsourcing
will be cost neutral compared to
performing the activity in-house
via an overseas branch.
See diagram
This is bad news for
banks and insurers, as the
VAT on their cost base
will inevitably rise, but
potentially better news for
at least some cross-border
outsourcing.
Of course, there is a cloud for every
silver lining. As well as the bad news
for banks and insurers the adverse
aspects of these changes could affect
outsourcers as well, in situations where
they have a VAT group structure in
one member state and carry out
some components – taxable in their
own right – of an overall VAT-exempt
package of services using an overseas
branch. In this situation their own VAT
cost base will increase, and they will
need to protect themselves in their
pricing discussions with their ultimate
customer or else try to restructure the
delivery of the service.
Outsourcers of exempt services
using foreign branches for
fulfilment of taxable aspects may
also be caught with extra VAT costs.
See diagram
Internal
management
charges (no VAT)
Parent Co

31
If the Commission’s proposed changes come in, outsourcing will be cost neutral
compared to performing the activity in-house via an overseas branch
Personal Loans Co
Internal
management
charges (no VAT)
Banking corporate
group & VAT group
Parent Co
Outsourced
central admin
functions
Service
charges +VAT
Central admin
functions carried
out by overseas
branch of
Parent Co
Outsourcers of exempt services using foreign branches for fulfilment of taxable
aspects may also be caught with extra VAT costs
Sub three
Sub one
Outsourcer corporate
group & VAT group
Sub two
foreign branch -
outsourced admin
aspects of overall
exempt service
Service
charges +VAT
(irrecoverable)
Banking customer
Package of VAT
exempt services
Sub two
The Commission’s supposed answer
to the lack of a cross-border VAT
grouping measure is the prospect
that cross-border cost sharing groups
may be introduced as part of the EU
VAT on Financial Services Review that
has been underway for the last few
years. It may be that, if that proposal
can be made to work, it will provide
at least some of the benefits that
cross-border VAT grouping could
otherwise provide.
However, there is a long way to go
before the details of the measure
are ironed out sufficiently clearly for
full implementation. Meanwhile, the
Commission’s agenda of creating a
harmonised system with only a very
narrow interpretation of the VAT
grouping rules is not in the interests
of the EU as a whole, or of business
in general. Therefore, we suggest –
despite the potential benefits to
some outsourcing structures – that
in the interests of growth of the EU
economy it should be abandoned at
the earliest possible opportunity.
Linda Adelson
Partner, Berwin Leighton Paisner LLP
linda.adelson@blplaw.com
Internal
management
charges (no VAT)
Parent Co

32

33
Upcoming external events
3/4 February 2011
7th Annual Asian
ITechLaw Conference
Technology Law in an Era
of Changing Paradigms,
Bangalore, India.
www.itechlaw-india.com
Upcoming BLP outsourcing events
15 September 2010
Outsourcing Breakfast Seminar
On 15 September, BLP is holding
a seminar in our office to update
our clients, friends and contacts
on developments in the exemptions
from VAT for banking and insurance
outsourced services. If you have not
been invited and would like to attend,
please contact Marie Heath at
marie.heath@blplaw.com.
2 November 2010
Outsourcing Breakfast Seminar
The Lansley Reforms:
A new era of outsourcing?
Other outsourcing breakfast
dates for your diary
11 February 2011
6 April 2011
6 July 2011
12 October 2011
Next issue of work it out
Winter 2010
If you are interested in attending any
of the above events please contact:
Nichola Rainger
nichola.rainger@blplaw.com
Marie Heath
marie.heath@blplaw.com
DIARY DATES
2010/11
Upcoming events

www.blplaw.com
Getting in touch
When you need a practical legal solution for your
next business opportunity or challenge, please
get in touch.
Mark Lewis
Partner, Head of Outsourcing
Tel: +44 (0)20 3400 4214
mark.lewis@blplaw.com
Winner of four UK
Law Firm of the Year
awards in seven years.
The only firm to win
The Lawyer UK Law
Firm of the Year
award twice.
About BLP
Today’s world demands clear, pragmatic legal
advice that is grounded in commercial objectives.
Our clients benefit not just from our excellence
in technical quality, but also from our close
understanding of the business realities and
imperatives that they face.
Our people are prized for their legal talent and
renowned for being personally committed to
helping clients succeed. It’s a distinct BLP quality.
This award winning approach is redefining the
way legal services are delivered. With experience
stretching across more than 20 industry sectors
and over 100 countries worldwide, you will get
the expertise and business insight you need,
wherever you need it.
Expertise
• Commercial, Outsourcing,
Technology, Media and Telecoms
• Corporate Finance
• Dispute Resolution
• EU and Competition
• Employment, Pensions and Incentives
• Finance
• Intellectual Property
• Real Estate
• Regulatory and Compliance
• Restructuring and Insolvency
• Tax

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