Astrazeneca and IBM entered into an outsourcing agreement for IBM to provide various IT services. The agreement contained a number of exit provisions, including an “exit plan” that would allow Astrazeneca to transfer the services elsewhere, either to another provider or in-house. Astrazeneca terminated the agreement, and the dispute over the exit provisions ended up before the Technology and Construction Court (TCC) to decide what the provisions meant and whether the parties had met their respective obligations. The TCC ruled that IBM’s exit obligations had arisen, despite the fact that the fixed fee for those exit services had actually been left blank in the agreement and no specific “exit plan” had been agreed.
The ruling is an important reminder that exit provisions in agreements are not something to worry about later; rather, they are just as important as those provisions of an agreement which are intended to have immediate effect. If exit provisions have not been agreed, the party receiving the services is at serious risk of being without those services for a period of time until another provider is found, with potentially catastrophic impacts on its business. Similarly, the service provider may suddenly be without a revenue stream without any form of transition period to balance the impact.
The ruling also shows the importance of not just having exit provisions within an agreement, but to make sure that those provisions set out the requirement for an exit plan which clearly defines what happens to the services on termination – in an IT contract, for example, this should include the specific hardware and software that is needed, the level of support and maintenance that will be provided, how long the transition services will be provided for and how much those transition services will cost.