Holding Technology Service Providers Accountable

• Posted by Geoffrey G. Gussis on September 15th, 2005


• Filed in IT/Software/Internet

Do you have trouble getting adequate remedies in your technology outsourcing contracts?  You’re not alone, as many banks will tell you:

"Federal banking regulators expect that financial institutions that outsource technology services to third party vendors will have contractual remedies that are adequate to protect the bank in the event that the vendor is negligent or fails to adequately perform its services for the institution. A typical expectation is articulated in the Office of the Comptroller of the Currency’s Bulletin 2001-47 on "Third Party Relationships." In the Bulletin, the OCC states that it favors indemnification provisions that require each party to indemnify the other for damages and third party claims that result from the negligence of the "indemnifying" party, so that the bank is not liable to third parties for the failures of the service provider. We agree that, in an ideal world, technology service providers would agree to be fully accountable for the results of their own negligence and their failure to perform their services in accordance with the terms of the agreement with the institution.

Unfortunately, we have yet to encounter a major provider of technology products or services that is willing to provide such broad protection. With respect to failures to meet "service level agreements" (which assumes that the service provider will agree to meet a meaningful level of performance of the services), most service providers severely limit the recourse of the bank in the event of a failure."

Link: Bank Lawyer’s Blog.