This article first appeared in Supply Management on 1 March
AstraZeneca v IBM: Breaking up is never easy (but a clearly defined exit strategy agreed at the outset will help)
The Technology and Construction Court has recently given judgement in a dispute between AstraZeneca and IBM as to the meaning and scope of certain termination assistance and exit obligations. These were triggered by AstraZeneca’s termination of a Master Services Agreement ("MSA") governing the provision by IBM of IT infrastructure services to AstraZeneca.
Issues in dispute
At the heart of the dispute was the requirement for IBM to continue to provide "Shared Services" for a limited time after the end of the Exit Period. These were defined as services provided using a "shared infrastructure" – a term that had not been defined by the parties and which had been used inconsistently throughout the MSA. The Court interpreted the term "shared infrastructure" broadly to include infrastructure in IBM’s shared data centres (rather than just infrastructure used for operational services as IBM had contended). This meant that IBM was required to provide a wider range of services for an extended period than it had originally anticipated.
Due to conflicting provisions and unclear definitions, the parties also disagreed on the duration of IBM's termination assistance obligations. AstraZeneca contended that IBM's obligations continued until the completion of all transfer activities, even if this extended beyond the end of the defined Exit Period. However, the Court found in IBM's favour, holding that termination assistance was to be provided for a fixed period ending on expiry of the defined Exit Period.
The Court also determined that IBM's obligation to provide termination assistance had still arisen despite the fact that the "Fixed Fee" for such assistance had not been specified, nor had AstraZeneca provided an "IT Transfer Plan".
Whilst much of the judgement considered the meaning of the parties' exit obligations with reference to specific language used in the MSA, and is therefore heavily fact-dependent, the case still reiterates the importance of ensuring that the scope and duration of post-termination services and exit obligations are clearly defined during the negotiation stages of a contract, and specifying on what basis these will be charged for.
It is in the interests of both customers and suppliers that a clearly defined exit strategy is agreed during the pre-contract stage when the parties have a strong relationship and are on an equal footing. Such an exit strategy should be supplemented by contractual terms and conditions and an exit plan which set out each party's exit obligations, and can be updated or enhanced throughout the course of the agreement to address any unforeseen issues which may arise.
When negotiating the terms of complex outsourcing agreements, parties frequently fail to give due consideration to the exit management provisions which will apply should their commercial relationship end. However, uncertainties over the scope, cost and duration of termination assistance will need to be addressed sooner or later, and will be more difficult to resolve following termination when the relationship between the parties may have turned sour.
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