NEW ZEALAND Law and Practice Contributed by: Liz Blythe, Troy Pilkington, Emma Peterson and Craig Shrive, Russell McVeagh
3.2 Alternative Contract Models Indirect Outsourcing
cumstances of the parties. These include joint ven - tures, captive centres and build-to-operate transfers. Joint Ventures Parties may wish to set up a joint venture or partner - ship, where both entities have voting rights in connec - tion with the provision of the services. This affords the customer a greater degree of control over the opera - tions of the service provider than simply agreeing to a contract on an arm’s length basis. However, this model is typically perceived to be an expensive option and can result in the customer taking on additional obligations that may not be within its expertise. 3.3 Digital Transformation The contract models for cloud computing, SaaS and IaaS services are similar to that of an outsourcing arrangement. They are typically governed by a mas - ter or framework agreement, with each service falling under a separate service schedule or statement of work. As such, the comments in 3.1 Standard Con- tract Model also apply to contract models for such services. AI clauses are becoming more common in contracts related to AI-enabled services. In New Zealand, there is currently minimal guidance regard - ing standard model AI clauses, and it is not expected that further government-issued guidance (or sug - gested clauses) will be provided in the near future. The Australian AI Model Clauses, developed by the Australian Digital Transformation Agency, serve as a useful reference for guidance. Customer protections in outsourcing contracts differ depending on the nature of the services being pro - vided. However, a few commonly used customer pro - tections are discussed here. Warranties The customer will typically require warranties from the service provider in order to protect the customer in key risk areas. Such warranties usually relate to the quality of service, the expertise and personnel of the service provider, obtaining (and maintaining) required consents and licences, and IP. A breach of the war - 4. Contract Terms 4.1 Customer Protections
When it comes to the procurement of services to per - form discrete business functions or processes (eg, ERP, finance, accounting, HR processing or complex lease management), indirect outsourcing is fairly com - mon. This is typically because the underlying provid - er of the service or technology is not based in New Zealand, so the New Zealand customer entity instead contracts with a local supplier entity, who then sub - contracts out to the foreign third-party service pro - vider. In these cases, it is typical for the local entity to provide second-level support services and on-site implementation, transition and configuration services to augment the overseas service provider’s remote service offering. Liability arrangements in these circumstances can become complex and – apart from where very large customers are involved – the underlying services are often contracted on the underlying foreign service pro - vider’s standard terms without significant negotiation. Multi-Sourcing Multi-sourcing involves the outsourcing of different services and/or different components of services to multiple service providers. Some organisations may have developed a multi-source outsourcing model, contracting for different IT services on an ad hoc basis over time, without any particular planning. The key benefit of multi-sourcing is that it allows organisations to contract with the best service provider for each particular service or component of a service. However, multi-sourcing can result in complex chains of responsibility and accountability. As a result, it can be difficult to administer from the customer’s perspec - tive. As such, conscious multi-sourcing can often be a preferred approach, whereby the customer’s eco - system of suppliers is subject to common terms that mandate common governance rules, inter-supplier collaboration and a well-designed and managed ser - vice integration and management layer. Other Models of Outsourcing Alternative models of outsourcing arrangements are less common in the New Zealand market but may be selected in response to the unique commercial cir -
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