UK Trends and Developments Contributed by: Alison Beal, Joel Harrison and Michelle Kirschner, Gibson, Dunn & Crutcher LLP
Executive Summary The landscape for UK technology and outsourcing transactions continues to be influenced by both regu - latory and geopolitical developments, including in the areas of national security, industrial policy and digital regulation. In particular, the UK’s operational resilience and cybersecurity regimes have had a major impact on the contracting process, requiring customers to embed resilience and oversight obligations through - out the technology supply chain. Artificial intelligence (AI) is also transforming contractual negotiations, focusing parties’ attention on matters such as IP own - ership, explainability, risk management and liability. While these developments have already resulted in significant changes in both the negotiation and the terms of technology and outsourcing contracts, it will take time for market practice to settle. Geopolitics and Technology Transactions Geopolitical volatility has become a key factor in UK technology and outsourcing transactions, with national security, industrial policy and digital regula - tion affecting the structure and terms of cross-border technology deals. For many customers, cybersecurity, data governance and critical infrastructure resilience have become key areas of concern, while geopoliti - cal volatility has meant that sanctions, export con - trols and tariffs have created risks that parties must address in contracts. Regulation in the areas of cybersecurity, critical infrastructure protection and data governance has expanded compliance obligations for technology providers and influenced service delivery models. For instance, cloud and IT providers need to demonstrate operational resilience, often through the ability to pivot between jurisdictions and maintain service continuity, while maintaining compliance with an increasing num - ber of data protection and data localisation require - ments. Further, the implementation of sanctions continues to be a mechanism used by the UK government against targeted jurisdictions and regimes for for - eign policy and national security reasons. From a customer’s perspective, sanctions compliance is a critical component of outsourcing risk management – especially in technology, cloud and managed ser -
vices arrangements where suppliers operate across multiple jurisdictions – and this is having an impact at all stages of the transaction lifecycle. Due diligence now extends beyond financial and operational met - rics to cover ownership structures, ultimate beneficial owners, funding sources and jurisdictional exposure. Meanwhile, representations and warranties as well as termination rights tied to sanctions breaches on the supplier’s part (including its supply chain) are often included in technology and outsourcing agreements. Export controls imposed by the UK or other countries can also affect technology and outsourcing arrange - ments. Customers and suppliers need to consider existing export controls (and associated licence requirements), as well as the impact of any future controls that may be imposed, in their contracts. Export-control-related clauses may include licens - ing obligations, notification and co-operation duties, changes-in-law provisions and termination rights to ensure that no controlled technology is transferred or accessed in breach of UK or international export- control laws. As if this were not enough, tariffs have re-emerged as a significant factor in cross-border technology and outsourcing transactions. Governments in major mar - kets are deploying tariffs to protect domestic indus - tries and encourage onshoring of critical technologies. Technology supply arrangements that rely on global supply networks are exposed to fluctuating tariff regimes and origin rules, which can affect pricing and delivery timelines (and even the viability of the trans - action). As a result, due diligence in technology trans - actions increasingly extends to trade-compliance risk, while provisions such as origin warranties, documen - tation and indemnities as well as price adjustment and termination rights in the event of tariff changes should be considered to manage exposure. Organisations are having to rethink their sourcing strategies in response to this landscape, for example by diversifying vendors or service delivery locations, to manage geopolitical exposure and ensure regula - tory compliance.
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