UK: Sourcing Update: Q3 2008

Last Updated: 24 October 2008
Article by Yuban Moodley

Industry Developments

Clearly the current economic climate has had, and will continue to have, a significant effect on the outsourcing sector as with all industry sectors. Whether that effect will be entirely negative or somewhat positive depends on your point of view.

Some argue that the economic pressure to maintain service efficiency, cut costs and drop headcount will drive greater outsourcing and offshoring (unsurprisingly many of whom are in the business of providing those services) particularly given the market maturity of outsourcing and its acceptance by business, with Accenture being a notable example of a consulting and outsourcing services provider which has performed strongly; Dell being a notable example of a firm which may decide to outsource its machine production and British Airways signing up to NIIT Tech for a three-year multi-million pound outsourcing contract to support and test critical business applications.

Others have predicted a decline in revenue in the IT outsourcing sector because of its dependence on discretionary spending; pointing to the pressure on Indian firms heavily reliant on the ailing US financial services industry (with Infosys slashing its growth forecast in light of its failed bid for specialist SAP software supplier Axon); and arguing that offshoring is going to be much less likely given that it is no longer invulnerable to market changes, and there have been several reports on the urgings of the Lloyds TSA Group Union to return offshored jobs back in-house after the Lloyds TSB and HBOS merger.

The likely position appears to be somewhere in the middle ground, business will clearly be cautious in the current economic environment and are unlikely to make any large scale investments in moves off-shore or significant outsourcing deals, but will look to cut costs and extract further efficiencies from ongoing outsourcing relationships (as evidenced by research from Pierre Audoin Consultants that the majority of UK companies are choosing to remain with incumbent suppliers). Likewise, outsource and offshore service providers face the same economic pressures and unless they perform efficiently and in accordance with customer expectations, risk having contracts terminated or suffering the same fate as many banks.

Financial Services

The Financial Services Authority (FSA) published its policy statement, "Organisational systems and controls - extending the common platform" (PS 08/9) on 26 September 2008, which sets out the final rules for the extension of the common platform systems and controls requirements in chapters 4 to 10 of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) to "non-scope firms" (excluding insurers) being those firms which are not subject to the Markets in Financial Instruments Directive (MiFID) or the Capital Requirements Directive (CRD). This includes the SYSC[8.1] rules on the outsourcing of critical operational functions.

Given that responses to the FSA's consultation on proposals to extend the common platform were broadly supportive, the FSA has decided to extend the requirements of chapters 4 to 10 of SYSC to non-scope firms, although predominantly as guidance and not rules. The FSA had proposed to implement the relevant Handbook changes on 1 October 2008 but several trade associations asked it to postpone the implementation date for a year, in light of, amongst other matters, the current economic climate. The FSA has therefore put the implementation date back six months to 1 April 2009 which it considers will give firms sufficient time to prepare for the new requirements. The FSA also plans to propose extending the common platform to insurers in 2010, subject to the outcome of the current Solvency II directive negotiations.

Public Sector

The increasing importance and scrutiny of outsource service provider's environmental performance in winning public sector contracts has been emphasised by the recent announcement by the Government of its new initiative, the Public Sector Supply Chain Project (PSSCP). The PSSCP, run with assistance from the Carbon Disclosure Project, is aimed at using the significant purchasing power of the public sector to assist in reducing climate change by encouraging its supply chain to reduce their carbon dioxide emissions.

TUPE and Data Protection

As mentioned in previous outsourcing updates, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is particularly relevant in an outsourcing arrangement, either when the services are first outsourced, transferred to a second service provider or brought back in house, principally because, under each of these scenarios (the latter two of which a customer is unlikely to be able to predict): the contracts (and hence rights and liabilities) of employees automatically transfer from the transferor to the transferee; if the employee is dismissed before or after the transfer it will be automatically unfair unless the reason for the dismissal was an economic, technical or organisational reason, and employees may only agree to a change in their terms and conditions if the sole or principal reason for the variation is unconnected with the transfer.

One of the further difficulties in an outsourcing arrangement arises out of the fact that, under TUPE, the transferor is obliged to provide the transferee a range of information about transferring employees (e.g. their identity, details of disciplinary action or claims brought against the employer and information about collective agreements). Whilst the Data Protection Act 1998 (DPA) allows this disclosure, as it is required by law, both parties must comply with the Data Protection principles under the DPA in relation to that information (e.g. that the information is up to date, accurate and secure and only used to assess potential liabilities or integrating employees into the business). The Information Commissioner Office (ICO) has now issued a Good Practice Note offering guidance on compliance with the DPA in this context (e.g. not transferring excessive or irrelevant information, informing employees of the disclosure, anonymising any information which is not required by TUPE).

In other recent activity, the ICO has launched a 'Personal Information Healthcheck' service on its website to assist individuals in protecting their personal information as well as to increase their awareness of their rights under the DPA. Organisations will therefore need to ensure and procure that any outsourced service providers also ensure their relevant subject access and data protection policies and training are current and complied with because they can expect to receive many more subject access requests (under which an organisation needs to disclose what information it holds about an individual) from individuals under the DPA, which must be responded to within a statutory timeframe of 40 days.

Interim Agreements

In an outsourcing transaction it is not uncommon for the parties to use pre-contractual agreements, whether they be interim services agreements, letters of intent, term sheets or memoranda of understanding (we use the term 'interim agreement' for ease of reference), whilst the parties are negotiating the outsourcing contract but have not finalised the terms of the contract. The principle of interim agreements are generally the same: a supplier has been selected and the parties wish the supplier to carry out preliminary work before the terms of the outsourcing agreement are finalised in order to progress an outsourcing project governed by strict timeframes.

The main risk with this practice is that the parties do not execute a formal contract dealing with all relevant issues yet continue to act on a short form interim agreement.

In short, if interim agreements are to be used as a stop-gap measure in an outsourcing project, some of the issues which should be borne in mind are as follows:

  • set out which terms of the initial agreement are legally binding (bearing in mind that putting the words "subject to contract" may not prevent a contract being formed if the parties subsequently carry out the terms for the benefit of the other);
  • be clear about the term of the initial agreement and formalise any extensions;
  • an obligation to negotiate in good faith can be binding;
  • clearly set out the services to be supplied and any costs to be reimbursed by the customer;
  • carefully consider the drafting, and inclusion of, limitation of liability (particularly if standard terms and conditions are used), confidentiality, jurisdiction and governing law provisions;
  • intellectual property and ownership of any work product generated by the interim services;
  • rights to terminate the interim services; and
  • bear in mind that there is a risk of a TUPE transfer if services are being supplied so conduct appropriate due diligence before services are provided.

If the above issues are not considered or addressed, or a formal contract is not executed, there is a very real risk of the parties to an outsourcing transaction being left in the unenviable position of falling into dispute leaving it the Courts to decide what they had agreed.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/10/2008.

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.

In association with
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.