LEGAL AND COMMERCIAL UPDATE 2012Thursday 5 July 2012 Side Bar Title
Best Practice Contracting ToolkitLegal and Commercial UpdateDr Sam De Silva FCIPSPartner - Head of IT & OutsourcingCIPS Global Board of Trustees
Agenda • Limitations and Exclusions of Liability • IPR Indemnity • Step-In Rights • Audit Rights • Due Diligence • Benchmarking • Change Control Process • Technical and Operational Schedules
Limitations and Exclusions of Liability (1) • Framework for a "best practice" liability clause • Losses which can't be excluded by law • General financial cap • Different financial caps for different categories of loss e.g. damage to property • Categories of loss where no limit applies e.g. breaches of confidentiality, data protection breaches, IPR indemnity, PCI DSS compliance • Customer's liability to service provider • Liability cap • Indirect / consequential losses – GB Gas Holdings (Centrica) v Accenture  • Deeming certain categories of loss as direct losses
Limitations and Exclusions of Liability (2) • Exclusion of liability for data loss • Ensuring exclusion for consequential / indirect losses is appropriate – devil is in the detail Example 1 "The Supplier excludes indirect losses, consequential losses, loss of profit, loss of revenue, loss of business …" Example 2 "The Supplier excludes indirect losses, consequential losses including loss of profit, loss of revenue, loss of business …"
IPR Indemnity • Purpose • Issue with “proviso” wording • Scope of indemnity • Exclusions to indemnity
Step-In Rights • Originally seen in public sector contracts • Principle = avoid the “nuclear option” of contract termination • Key issues • What is the “trigger”? • How long does step-in last for? • Charges during the step-in period? • What if something goes wrong during the step-in period? • Third party support for step-in?
How can the effect of step-in rights be minimised for Service Provider • Services affected by trigger event • Not managing service provider’s personnel • Competitor of service provider • Service levels of affected services • Step-out triggers • Customer acting reasonably / mitigating losses • Customer indemnifying service provider for losses
Balanced Audit Rights • Compliance with supplier’s security, H&S policies • Minimise disruption • Frequency • Scope of audit • Notice of audit (NB. regulated industries) • Competitors of supplier
Due Diligence • Not only relevant for corporate transactions • Supplier given opportunity to carry out due diligence • No warranties • Objectives • transfer of risk of operating service to supplier • give supplier access to information required to tender • Approach if not practicable • Clearly defined pricing assumptions • Process to vary pricing if assumptions are incorrect and have material impact on original pricing
Benchmarking • Principle = compare “like with like” to ensure deal continues to match what the market can offer • Key issues • How often? • By whom? • What is being compared? • Normalisation • What happens if there is an adverse result? • Degrees of permitted variance? • Cost?
Change Control Process • Change impact reports • feasibility • cost implications • consequential changes to agreement • Pricing principles • Supplier’s obligation to undertake change • Unreasonable grounds for refusing change • demanding unreasonable changes • imposing unreasonable conditions • refusing to accept change although within scope of contract
Technical and Operational Schedules • Just as important as "front-end" legal provisions • Precedence / priority clause • To serve purpose • sufficiently wide in scope but avoid uncertainty • enforceable obligations • What makes enforcement difficult? • ambiguous • agreements to agree
How to Avoid: Ambiguous Drafting with Technical and Operational Schedules • Use active language "The System will be tested before it is used in the production environment to ensure that it is working in accordance with the Specifications." "The Service Provider must test the System before it is used in the production environment to ensure that it is working in accordance with the Specifications." • Only use capitalised terms for proper nouns or defined terms "[Party X] must ensure that all Software supplied by it is free of any viruses." • Review by asking questions • Who performs obligation? • When must they perform? • How often must they perform? • To what standard? • And so on …
How to Avoid:Problems caused by Agreements to Agree • 2 stage process • identify • remedial drafting • Steps for identification • look for the use of the word "agree" • look for any reference to obligation in a document which is not yet agreed • look for an obligation for the parties to engage in "good faith negotiations" (or similar wording) • Remedial drafting: agreements to agree usually a problem unless • some objective way of resolving failure to agree • both parties have sufficient incentive to agree • obligation which requires agreement to agree is of relatively low importance
Any questions? Dr Sam De Silva Email: email@example.com DDI: +44 (0) 1865 813 735
The Bribery Act 2010 and the Procurement Environment Chris Shelley Partner Head of IP, IT & Commercial Practice
Agenda • The new bribery offences • Procurement of services: preventing bribery by service providers • Corporate hospitality • Penalties: debarment from public contracts • The compliance challenge – are you doing enough?
The Four New Bribery Offences • Section 1 – offering, promising or giving a bribe • Section 2 – requesting, agreeing to receive or accepting a bribe • Section 6 – bribing a foreign public official • Section 7 – failing to prevent bribery by an associated person
The Key Elements of a Bribe • The key elements of a bribe for the purpose of Sections 1 and 2 are: • a “financial or other advantage”... • in relation to a “relevant function or activity”... • which is “performed improperly” • Functions and activities span the public and private sectors and include: • any function of a public nature • any activity connected with a business • Sections 1 and 2 set out 6 different ‘cases’ each of which has a subtly different requirement of intention or knowledge • Note that the Section 6 offence does not require “improper performance” - merely an intention to influence a foreign public official plus an intention to gain business or a business advantage
The Section 1 and 2 offences: the 6 cases to induce a person in 1 1 and intends the advantage the improper performance of Section 1 (active bribery) 1 1 to reward a person for 1 1, 2 Case 1. Case 2. P offers, promises or gives to another person and knows or believes the acceptance of the advantage 2 2 2 would constitute 1, 2 will be performed by R or another person Section 2 (passive bribery) a financial or other advantage 3 3 3 intending that in consequence a relevant function or activity 3 6 Case 3. Case 4. Case 5. R requests, agrees to receive or accepts 6 4 which itself constitutes 4 the improper performance by R (of) 4 at R’s request or with R’s assent or acquies-cence 5 5 as a reward for 6 5 5 In anticipation or in consequence of R requesting, agreeing to receive or accepting or another of Case 6. 6 In cases 1 and 2 P is guilty of an offence. In cases 3 to 6 R is guilty of an offence. In cases 4, 5 and 6 it does not matter whether R knows or believes that the performance of the function or activity is improper. In case 6 where a person other than R is performing the function or activity it does not matter whether that person knows or believes that the performance of the function or activity is improper.
Sections 1, 2 and 6: Jurisdictional Reach • An individual or company can be liable under sections 1, 2 or 6 if the act or omission: • takes place in the UK; or • takes place outside the UK if the individual or company concerned has a “close connection” to the UK (as defined in section 12(4)) • A company will only be liable under sections 1, 2 or 6 if the offence is committed by a person who is the “directing mind and will” of the company • If the offence is committed by a company with the “consent or connivance” of a senior officer, he/she can also be personally liable for the offence (section 14)
The Section 7 Offence • Offence: • A relevant commercial organisation (C) is guilty of an offence if a person associated with C bribes (within the meaning of Sections 1 and 6) another person, intending to obtain or retain business or a business advantage for C • Defence: • C has a defence if it can show that it had in place adequate procedures designed to prevent bribery
Relevant Commercial Organisations • A body or partnership incorporated or formed in the UK irrespective of where it carries on a business; • An incorporated body or partnership which carries on a business or part of a business in the UK irrespective of the place of incorporation The key concept is one of “carrying on a business”
Associated Persons • A person (A) is “associated” with C if A is a person who performs services for or on behalf of C • The capacity in which A performs services for or on behalf of C does not matter – so it could be: • an employee; • a contractor or supplier; • an agent or distributor; or • a subsidiary • If A is an employee, it will be presumed (unless the contrary is shown) that A is a person who performs services for or on behalf of C • Whether someone is an associated person will be determined by reference to “all the relevant circumstances”, not simply the nature of the relationship
The Ministry of Justice Guidance • MoJ has provided statutory guidance on ‘adequate procedures’ • The Guidance advises that the adequate procedures put in place by commercial organisations should be informed by six principles • Case studies are provided to illustrate the application of the principles for small, medium and large organisations
The Six Principles • Proportionate procedures – but it is not all about size of the organisation • Top level commitment – this might be the Board or owner-managers • Risk assessment – general or stand alone? • Due diligence – in respect of associated persons • Communication (including training) • Monitoring and review – involvement of top-level management • These principles should be applied to scenarios where there is a risk of bribery
Procurement of services: preventing bribery by service providers • A supplier of services to a company is a person associated with that company for the purposes of Section 7. • Key tools for preventing bribery: • risk-based due diligence • anti-bribery contractual terms and conditions – contractual control • asking (or requiring) counterparties to adopt similar terms and conditions Can you draw the line at direct contractors?
Corporate Hospitality • Corporate hospitality and promotional gifts can constitute bribes, but: • “The Government does not intend that genuine hospitality or similar business expenditure that is reasonable and proportionate be caught by the Act, so you can continue to provide bona fide hospitality, promotional or other business expenditure… • “You can continue to provide tickets to sporting events, take clients to dinner, offer gifts to clients as a reflection of your good relations, or pay for reasonable travel expenses in order to demonstrate your goods or services to clients if that is reasonable and proportionate for your business.” • - Ministry of Justice “Quick Start Guide”, March 2011
Corporate Hospitality • “Transparency International’s view is that good practice permits such expenditures where they are transparent, proportionate, reasonable and bona fide.” • Crucial are the key provisions of the Act’s offences – particularly the intention to bring about “improper performance” (section 1) or to “influence” (section 6) • “It is for individual organisations… to establish and disseminate appropriate standards for hospitality and promotional or other similar expenditure.” (Ministry of Justice guidance, March 2011) • Prosecution guidance says that the more lavish the hospitality, the greater the inference of intention to bring about improper performance or influence • What is “lavish”?
Corporate Hospitality • SFO Guidance • Key factors are whether: • the company has issued a clear policy on gifts and hospitality; • the scale of the expenditure in question is within the limits set out in the policy and, if not, whether the person making it asked a senior colleague for special permission to make it; • the expenditure was proportionate (based on who received it); • there is evidence that that company recorded the expenditure; • the recipient was entitled to receive the hospitality under the law of the recipient’s country. • Any inference that gift or hospitality expenditure was intended as a bribe would be strengthened if: • there was any unjustifiable ‘add-ons’, for example to travel or accommodation; • the expenditure is related in time to some actual or anticipated business with the recipient, particularly where some form of competitive process is involved.
Penalties: Debarment from public contracts • Sections 1 and 6 offences: mandatory exclusion under Reg. 23 of Public Contracts Regulations • Applies to company and its directors “and any other person who has powers of representation, decision or control” • Applies where contracting authority has actual knowledge of conviction • Very limited discretion to disregard: “overriding requirements in the general interest” • Can lead to permanent exclusion
Penalties: Debarment from public contracts • Sections 2 and 7 offences: exclusion is discretionary under Regulation 23(4) (Ministerial Statement, 30 March 2011) • Applies only to conviction of the bidding company
The compliance challenge– are you doing enough? • Mixed response reflects risk-based approach • Awareness of new laws still patchy • Inconsistent approaches to corporate hospitality • Are compliance programmes effectively embedded?
TUPE: recent casesDaff RichardsonPartnerEmployment Law Team TUPE: recent cases
Overview • Service Provision Changes • Change of location • Changing terms and conditions of employment • Companies in administration TUPE: recent cases
Service Provision Change • Activities cease to be carried out by a person (a client) on his own behalf and are carried out instead by another person on the client’s behalf (a contractor) • Activities cease to be carried out by a contractor on a client’s behalf … and are carried out instead by another person (a subsequent contractor”) • Activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf… and are carried out instead by the client on his own behalf TUPE: recent cases
Service Provision Change • “Contractor” includes sub-contractors • There must be an organised grouping of employees situated in Great Britain before the change that has as its principal purpose the carrying out of the relevant activities on behalf of the client • A single employee can be an organised grouping TUPE: recent cases
Service Provision Change • Does not apply where the contract is for the supply of goods for the client’s use • Does not apply where the activities are in connection with a single specific event or task of short-term duration TUPE: recent cases
Recent Cases Organised grouping of employees needs more than “happenstance”: • Eddie Stobart Ltd -v- Moreman & Others • Seawell Ltd -v- Ceva Freight (UK) Ltd and another TUPE: recent cases
Recent Cases Factors to consider in determining when there is a service provision change: • Argyll Coastal Services Ltd -v- Stirling and Others TUPE: recent cases
Recent Cases Define the “activity” – does it transfer? • Johnson -v- Campbell and another TUPE: recent cases
Change of Location and ETO Reasons Change of location does not entail a change in the workforce and may give rise to automatic unfair dismissal claims: • Abellio London Limited -v- Musse and Others • Tapere -v- South London and Maudsley NHS Trust TUPE: recent cases
Changing Terms and Conditions of Employment Are the changes related to the transfer? • Enterprise Managed Services -v- Dance and Others • Smith and Others -v- Trustees of Brooklands College TUPE: recent cases
Changing Terms and Conditions of Employment Practical issues: • Reason for change: is it “connected with the transfer” (sole or principal reason) • Ring fencing • Promotion/restructure = new jobs? • Dismiss and re-engage? • Public sector: no two-tier workforce TUPE: recent cases
TUPE and Insolvency • Regulation 8(6) “non-terminal proceedings”: TUPE applies (apart from certain debts) • Regulation 8(7) “terminal proceedings”: TUPE does not apply TUPE: recent cases