The BUSKLAW August Newsletter: All About Disentanglement (As In Service Contracts, Not Quantum Mechanics!)

In my experience, business professionals devote most of their energy in forming a new service agreement to the up-front stuff: the who, what, where, when, and why of deal. And the lawyers on both sides are prone to do the same, except for including typical term and termination for cause provisions. No one is particularly concerned with unwinding the business relationship after the contract terminates. This can result in frenzied activity and extra cost when either party finds loose business ends that the contract doesn't address, resulting in a poor transition to either a new service provider or to the customer if the customer decides to perform the services with its own personnel.

So almost any service contract - technology or otherwise - can benefit from a carefully-worded transition - or disentanglement - provision. The content of a disentanglement provision depends on the facts of each deal, including the nature of the services, but here are the points usually covered:

• WHO can trigger the clause? Typically, only the customer can trigger the clause, not the service provider.
• WHEN can the clause be triggered? The customer will want the right to trigger the clause on notice to the service provider; this notice window may be before the contract terminates or within X days after the contract ends. 
• HOW long will the disentanglement services last? The duration of the disentanglement services will depend on the nature of the deal; in some cases, especially where migration of third-party customer data is involved, a six-month disentanglement period may be appropriate. 
• WHAT will the disentanglement services consist of? 
• Sometimes a general description will suffice, i.e., "reasonable cooperation, assistance, and services to facilitate the orderly transition and migration of the services to the customer or its designee."
• But it's best to be specific, especially if the customer is counting on the service provider to convert customer data files and complete all statements of work (or at least furnish appropriate documentation of work-in-progress on the last day of the term).
• Consider describing the disentanglement services to be rendered in a separate statement of work. It may make sense to include a stand-by statement of work for the disentanglement services as an attachment to the contract from the day it's signed. 

• HOW much will the disentanglement services cost? This point is negotiable, but typically the service provider will demand a premium over the regular fees that were charged during the contract term. 
• WHAT other contractual provisions will apply to the disentanglement services? The disentanglement provision should be clear that the risk-shifting provisions in the service agreement (e.g., indemnity, warranty, insurance, disclaimer, limitation of liability, etc.) will apply during the period that the disentanglement services will be provided. Alternatively, this point may be addressed in the agreement's "survival" provision. Note that the service provider probably won't agree to keep any service level agreements in effect.  

Final point: consider the need for a disentanglement provision to mitigate the impact of termination on downstream persons, such as the customer's customers. 

Here's a personal account of what happens when a transition is poorly managed. I have a credit card account with a local credit union ("CU"), who contracted with a large financial services provider ("FSP") to operate a website for cardholders. They could access the website at anytime to review recent transactions, look at bonus point numbers, redeem bonus points for goods and services, and make electronic payments. Recently, after logging in, I received the cryptic message that "sorry, this service is not available for your account." Even more distressing, when I called the customer service number on my credit card statement, I was advised that "your records are not available at this time, please call back." It was only after I called the CU to find out what was going on did I learn that they terminated the contract with the FSP because it was cheaper to administer cardholder accounts in-house. 

What a poor transition of cardholder accounts! With no advance notice from either the FSP or the CU, CU customers were left wondering what the heck was going on with their credit card accounts. The CU should have directed the FSP to give more appropriate automated messages to customers trying to access the website or in calling customer service. A disentanglement provision in the CU-FSP contract could have avoided this needless confusion and provided transparency in the transition of cardholder services from the FSP to the CU. But now the CU has confused its cardholder/customers and sustained reputational damage as a result. And CU customers may decide to switch to a new credit card account with a different (and hopefully more reliable) financial institution. 

So review your service agreements to see if they contain appropriate disentanglement provisions. If not, consider amending them to help preserve you and your customers' sanity when - as will someday happen - the relationship ends. 

_________________________________________

If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is www.busklaw.blogspot.com and my website is www.busklaw.com. Thanks!