Germany: Outsourcing With No Exit? How To Avoid A Lock-In

Last Updated: 22 March 2012
Article by Dr. Marc Hilber, LL.M.

Just like in our own personal life: when you enter into a relationship you naturally don't spare a thought about how it's going to turn out in the end. However, not giving the necessary due attention where outsourcing contracts are concerned can have dire consequences. Once the contract has expired there are various reasons why it can be difficult to change a provider or re-convert the services back into your own company operations again, i.e. the so-called lock-in effect can have very negative consequences. For this reason, exit scenarios should be taken into consideration from the outset when selecting a service provider and structuring the contract.

Flexible in long-term contracts

Service providers frequently insist on lengthy contractual terms so that they can amortise their initial investments, e.g. the costs for assuming the expensive structures already being deployed by the customer. Although the statutory right to terminate for cause ("wichtiger Grund") cannot be contracted out, the customer will have no right to terminate the contract as long as the service provider is rendering the contractual services in a fit and proper manner. Outsourcing contracts generally also contain exclusivity clauses or provide for minimum volumes which prevent the customer from hiring another service provider in parallel thereto. Although such clauses can be invalid under antitrust law as they restrict free competition, as a rule it is only in respect of contracts with a term of five years or more and where the service provider has got a strong position in the market that such a threat could become a reality.

As the commitment will be a long-term one, it is crucial that price adjustment clauses and change-of-management provisions allowing for the implementation of desired changes in the services are put in place in advance. Price adjustment rights and a pertinent modification procedure are thus key elements and frequently a bone of contention. The challenge facing the customer is to anticipate expected future developments and to account for these in a manner that is acceptable to both sides. In addition, the parties have to comply with the German Price Clause Act [Preisklauselgesetz, PreisKlG], which permits automatic price adjustments only under certain circumstances.

Separation after expiry is difficult

Even when an outsourcing contract runs its normal course through termination or expiry of the agreed contractual term, it can be difficult to detach oneself from the service provider. It is in any case only if the particular services are no longer required that a contract may freely be allowed to elapse. As a rule, however, the services will still be required, but they will either have to be transferred to another service provider or be re-absorbed into the customer's own business. Difficulties can nevertheless still arise for various reasons irrespective of which of the two routes one finally decides to go down.

Minimum volumes or exclusivity, for example, are commonly agreed upon in order to secure the service provider's business. In cases of this kind, however, where a contract is terminated or expires, the customer may not simply transfer the services to a third party or even assume such services itself successively (staged phase out); the customer is rather required to undertake this in a single action. It is for this reason in particular that a successive reduction of the services should be expressly permitted during the exit phase leading up to the end of the contractual term. This could even be of advantage to the service provider as well because it would enable the provider to restructure and/or re-allocate its resources gradually by degrees. Thus, precise planning and cooperation are required if an exit is planned. On the customer's side, any new service provider should also be involved in the exercise.

The length of the exit phase can vary greatly depending on the complexity of the services. Where complex services that are not standardized and not customarily found on the market are concerned, this transition phase can take up to one year or even longer in practice. An extraordinary termination for cause (which likewise cannot be contracted out) will also give rise to difficulties: Even if the service provider should give notice of termination with immediate effect, one could not seriously expect the customer to accept being left virtually overnight without services of vital importance to its business operations. For this reason, outsourcing contracts generally provide for a mandatory transitional exit period which likewise also has to be observed if the service provider gives immediate notice of termination. If the service provider terminates a contract without notice because of payment arrears, the outsourcing agreement may stipulate that services will only be rendered during the transitional phase once payment of the disputed amounts has been credited to a trust account.

Individuality makes separation more difficult

The transfer of services to another provider could also fail because the services have been tailored especially to the needs of a particular customer. A third party might therefore not have the specific know-how required to render the services in question. A re-integration of the services at the customer itself could also fail because the customer would then no longer be in possession of the required know-how in the outsourced area. Therefore, in a first step, customers should ensure that key personnel remain with the enterprise – also for the purpose of supervising the service provider. As a second step, documenting the know-how is particularly important, e.g. in the form of describing the processes. From the customer's point of view, the service provider should be obliged to provide reasonable documentation at the beginning of the transitional exit phase. However, since it is rarely possible to prepare documentation shortly before the impending expiration of a contract, it is advisable where complex services are concerned to have documentation provided from the beginning of the contract and for this documentation to be kept up to date on a constant basis (unless the service specification is already process-based (and not result-based).

It is also advisable to tackle the question of the migration of data held by the service provider to the new system in good time and to have the pertinent procedure fixed in the contract. IT-supported data processing also plays an important role where the outsourcing of business processes like stock keeping or purchasing are concerned. Here, too, the service provider is in possession of important data that will need to be re-transferred to the customer by the end of the contract at the latest. Above all, any rules on data formats and precise processes that are unclear or which may have been omitted can create problems in this connection.

In an ideal case the service provider will provide the data in the agreed quality and appropriate format at the agreed times (as early as possible). This would enable the customer to conduct the data migration during the transitional exit phase (and, where applicable, also in conjunction with the new service provider) and thus prepare for and ensure the seamless transfer of responsibility for the services at the end of the contract. To take an example: If a CRM system has been moved into the cloud and the customer database is to be re-integrated or transferred to a new service provider, careful migration planning is required in order to ensure a continuous line of customer service and to avoid data being lost.

Beware of poison pills

The migration of data will be even more difficult if a new service provider cannot easily be found or if, for example, such provider needs to use the software customized by the previous service provider. In a case like this and in as far as the customer is concerned, the previous service provider should be obliged to legally transfer the software rights, even if they have been further developed by the latter within the scope of the outsourcing services.

So-called poison pills, like the obligation to buy back worthless or excessively over priced assets, are detrimental to a successful exit from outsourcing services or a change of outsourcer. Above all, such re-transfer of assets could constitute a transfer of business which would result in employees transferring to the new service provider or, in the case of a re-integration, to the customer itself. In contrast, where outsourcing into the cloud is concerned, as a rule, no dedicated assets exist. In this case, operation, hardware and software would have to be obtained from other sources.

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.