NEW ZEALAND Law and Practice Contributed by: Liz Blythe, Troy Pilkington, Emma Peterson and Craig Shrive, Russell McVeagh
step into the shoes of the service provider in the event that the service provider materially failed to perform. However, “soft” step-in rights (eg, the right to make recommendations to the service provider and work with the service provider to improve service delivery in the event of significant failures) are agreed as a solution far more frequently. 4.2 Termination Customary termination rights in outsourcing contracts vary depending on the nature of the services being provided. Where the services involve a significant por - tion of the customer’s business (eg, an infrastructure outsourcing contract), the service provider will gener - ally have very limited rights to terminate the contract – often only in the event that the customer has failed to pay an overdue invoice after receiving notice and a chance to settle that overdue invoice. However, a con - tract for discrete services or services that are readily replaceable by the customer may provide the service provider with additional termination rights, such as the right to terminate for material breach by the customer. Right to Terminate Customers typically seek to include a right to termi - nate for the service provider’s material breach if this remains unremedied for a certain period of time (or cannot be remedied) and in circumstances where the service provider suffers an insolvency event or a per - sistent “force majeure” event. Following the advent of COVID-19, customer organisations have been increasingly careful to ensure that known pandem - ics, epidemics and associated government rules and restrictions do not constitute events of force majeure that would provide the service provider with relief from its responsibilities. In addition, the agreement may include a right for the customer to terminate in the event of specific contractual failures that do not meet the standard of a “material” breach – for exam - ple, serious or repeated service-level failures or failure of the service provider to meet specific milestones in respect of the services or deliverables. The customer may also wish to include a right to ter - minate the agreement for convenience. However, this may be subject to a minimum term and it is com - mon for the service provider to require the payment of termination compensation in these circumstances
(particularly if the service provider plans to invest sig - nificant resources at the beginning of the arrangement on the basis that those costs will be recouped over the full term of the contract). Additional termination restrictions may also apply in respect of the outsourcing of services by New Zea - land banks. These restrictions largely operate to limit a service provider’s ability to terminate contracts in the event that the bank goes into statutory management. If no specific termination rights have been agreed in the contract, each party generally has a right to termi - nate the agreement for a “material breach” of the other party under common law. However, it is commonplace for contracts to include a detailed contractual termina - tion regime. Disengagement Assistance Customers will usually seek disengagement assis - tance from suppliers post-termination, especially if the outsourcing or technology transaction relates to core business-critical technology and services. This is to ensure that the customer can successfully and smoothly transition the services to a replacement service provider. The particulars of the disengage - ment assistance are usually recorded in a disengage - ment plan approved by the customer, whereas the mechanism for producing the disengagement plan and the period for which the assistance must last are usually recorded in the agreement. Disengagement assistance is typically at the customer’s cost, unless the contract provides that the supplier must bear the costs for such services in certain circumstances – for example, where the customer has terminated the con - tract because of the supplier’s material breach. Data Transfer/Disposal Where the supplier holds customer data, custom - ers typically seek the right to have their data either destroyed or returned to the customer on expiry or ter - mination of the agreement. If the supplier is destroying the data, customers usually require certification from the supplier that they have done so. Under the Privacy Act, an agency may not hold personal information for longer than is required for the purpose it may lawfully be used for. Customers
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