Australia: ICT Outsourcing Contracts: Key Items For Suppliers And Customers To Consider When Drafting Terms And Conditions

Last Updated: 5 October 2009
Article by Mitch Kelly

1. Background

Information and communication technology (ICT) outsourcing contracts enable a client to transfer responsibility for internal business functions to a third party service provider. Predominantly, the focus is on transferring non core, non revenue producing activities to a service provider that will enable the client to either save costs, transfer risk and/or leverage the skill set of the supplier. Within this scenario, it is not uncommon for the service provider to purchase assets of the client, manage third party contracts and/or hire additional subcontractors in order to perform the agreed services.

Within the ICT industry, such areas that may be outsourced include, infrastructure development, network management, business continuity, application development, software support or maintenance, and end user support.

A key intention of each party to an outsourcing engagement is that the relationship will be one that is maintained over a medium to long term, with a focus on the provision of continuous deliverables rather than a single deliverable arrangement.

As a result, the parties will need to negotiate at the outset, provisions that will anticipate the likely effect of an evolving medium to long term relationship. Such issues to consider may include, but are not limited to:

  • defining the scope of the services provided and the subsequent association to the rights and obligations of the client, service provider and associated third parties (including related bodies corporate and subcontractors);
  • ensuring the protection of corporate assets (including staff wellbeing, intellectual property and revenue);
  • allowing for effective process control to manage the performance, compliance and dispute resolution of the rights and obligations of either party;
  • ensuring the negotiation of an acceptable risk liability profile to each party;
  • allowing for the possibility and management of scope and requirement change during the evolution of the relationship over the term; and
  • accurately defining the measurement, monitoring and reporting obligations of either party to ensure performance.

The aim of each party should be to ensure that their requirements are achieved, and associated risk managed appropriately, during the evolution of the contractual relationship over a medium to long term.

2. Contract Process

The following article identifies topics of concern that should be addressed legally (and commercially) within the anticipated scoping of an ICT outsourcing contract.

During contractual negotiations, both parties will attempt to obtain the full advantage of the relationship and minimise the subsequent risk profile. As a result of the evolution of the relationship over time, there is a need that both parties ensure that:

  • work is performed in accordance with pre-set milestones and timelines;
  • the outsourcing process and relationship is capable of innovation and re-alignment to achieve productivity and/or cost gains; " there is sufficient transparency and accountability of both parties;
  • the life cycle of the outsourcing contract can be sufficiently managed; and
  • changes in scope can be agreed and actioned.

The importance of legal advice during this process is to maintain and ensure that the parties will have an acceptable governing structure to operate appropriately over a period of time and that appropriate levels of risk and reward are apportioned correctly.

In order to manage this, a number of areas should be considered by the parties that might have differing levels of impact, these include (but are not limited to):

  • warranties;
  • scope of support and maintenance;
  • relationships with subcontractors;
  • service level agreements;
  • scope and change control; and
  • suspension and termination events.

3. Items to Consider During the Negotiation Phase

(a) Warranties

When negotiating the effect of warranties, the parties should consider:

  • The extent of express warranties (including warranties applicable to hardware, software and associated professional services).
  • The extent, implication and exclusion of warranties implied by law (as well as a supplier's obligations regarding warranties that might be implied by law for example under the Trade Practices Act 1974 (Cth)).
  • The limitations, exclusions and caveats pertaining to the warranties;
  • Whether or not the warranties will be time bound:
  • The standards that will be warranted, for example
  • re. software – whether the software will be free from viruses and/or material defects; whether it will conform to specifications; and whether it will be error free;
  • re. hardware – whether manufacturer warranties are provided; and how warranties will be implemented (ie. return to base); and
  • re. services – whether the service provider will perform the work in a professional and workmanlike manner; and whether the service provider warrants a number of resources or qualifications.
  • The parties may also seek to make warranties regarding compliance with all relevant laws or professional codes, as well as indicating any possible conflicts of interest. In such a case, it may be relevant that the parties have prior notice of any documentation, codes or practices before warranting compliance.

(b) Scope of Support and Maintenance

In identifying the scope of support (including professional services to the provision help desk support) or maintenance (including software updates and/or upgrades), the parties will need to consider their positions on some of the following items:

  • What is excluded from the scope of support (eg. non-licensed software, modifications made without the service provider's consent);
  • Will support be provided where software and/or hardware is used in conjunction with non-supplier provided components?
  • Will support only be provided if an issue is reported within a certain time period;
  • Can only select individuals make a support call?
  • Are only a certain number of support calls allowed to be made within a particular time?
  • Will support be provided for any accidents, negligence or unusual use or stress?
  • Will support be provided for defects that may have been easily preventable by the client?
  • Are updates included? Are upgrades included? What are the specific definitions of each?
  • Will training or installation services for updates and/or upgrades be provided? Will they be free of charge or chargeable?

(c) Relationships with sub-contractors

The management of third party subcontractors or recipients of services will need to be defined at the onset, this could be vital so that the service provider is ensuring adequate cost structures for proposed recipients, and the client is aware of any third parties who may also perform aspects of the services. Such items of consideration may include:

  • What services are being provided by third party subcontactors?
  • Which entities will be the intended recipients of the services/licenses/hardware? (are they related bodies corporate or listed third parties?)
  • Does either party have a right to vet the other's party's subcontractors or other recipients?
  • How do these third parties interact with the parties to the contract?
  • Will the warranties and liabilities of either party extend to the acts/obligations of the third parties?
  • Will the third parties be liable for any breach of their obligations? Or will the client/service provider?
  • Will the service provider be managing any third party contracts under which the client is a party? If so:
  • has this been factored into the pricing?
  • does the supplier accept the liabilities originally agreed by the client?
  • can these contracts be assigned to the supplier?
  • do licensing or intellectual property rights provisions need to be amended?
  • do the contracts present an unacceptable risk profile to the supplier?
  • has this been factored into the pricing arrangements of the service provider?

(d) Service Level Agreements

A common component of outsourcing contracts are the associated service level agreements that stipulate the service timeframes, responsibilities and associated penalties that entail where a service provider is unable or unwilling to perform to agreed requirements. Items for consideration during this phase include:

  • What are the response times required by the client?
  • Are there locations for delivery of certain services?
  • Are there notification requirements that the client must adhere to?
  • Must the service provider aim to constantly improve the timeframes over time?
  • Must the service provider increase the response levels over time?
  • Do the response levels pertain to logging the call, responding to the call or resolving the issue?
  • Are support services to be provided remotely?
  • Will the client be required to fill in satisfaction surveys?
  • Must a service provider give notice of an adverse impact if it can't, or perceives it won't, be able to comply with service levels?
  • Which party will determine priority levels?
  • Will performance rewards be payable to the service provider?

(e) Scope and Change Control

It is expected, that over the term of the contract, the scope and/or requirements of the parties will change due to surrounding factors. With this in mind, items to consider include:

  • Which party may initial change control procedures?
  • Does the supplier need to prepare forecasts or anticipate requirements and report this to the client?
  • Are timelines imposed on change control process? (ie. notice, response and final version)
  • Who has financial responsibility for planning proposed change or scope controls?
  • Can the cost of the services be increased as a result of change? Or is there a minimum threshold that must be reached before the price can be increased?
  • Which party is responsible for implementing changes? And for documenting change control?
  • What occurs when a change control request has an adverse impact on the current arrangements of the parties?

(f) Suspension and Termination Events

In every contract there will be appropriate provisions that deal with either party's right to suspend and/or terminate the contract for breaches by the other party, or due to the influence of uncontrollable outside events. In this scenario, there are a number of significant factors for either party to consider:

  • What are the triggers to suspension and/or termination? Including:
  • Material and/or minor persistent breach?
  • Persistent breach of one issue or of various issues?
  • Breach of policies and/or codes of conduct?
  • Force majeure events?
  • Breach of warranties?
  • Bankruptcy, insolvency, administration?
  • Time of the essence provisions?
  • Change of Control
  • Is notice required to suspend? How long?
  • Is notice required for breaches enabling termination? Can termination be immediate or after a period of time?
  • Where the services have been suspended – what will allow re-provision? Who determines this? Who bares the cost of re-institution?
  • Are performance rewards still payable during suspension?
  • Are service charges still payable during suspension?
  • How long must suspension last until a party is entitled to terminate?
  • If the service provider terminates – what happens to managed third party contracts?
  • Can the service provider simply exit or must it re-transition the services to another service provider? How would this be achieved? Who bares the cost?
  • How is the return of confidential information treated?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.