UNDERSTANDING LEGAL CONTRACTING

FOR IT/BPO

Atty Claude Requino

CGRLAW & Associates
Unit 408 Campos Rueda Bldg.,
101 Export Drive, Makati City
Tel. No. 02 290 5898 Mobile 0918 9486092
www.cgrlaw.tk
claude.requino@cgrlaw.tk

WHAT IS A CONTRACT?
The NEW CIVIL CODE defines contract as:
The meeting of minds between two persons
whereby one binds himself, with respect to the
other, to give something or render some
service.
INACCURATE DEFINITION

SUGGESTED DEFINITION
A meeting of the minds between two or more
parties, whereby one party binds himself with
respect to the other, or where both parties bind
themselves reciprocally, in favor of one
another, to fulfill a prestation to give, to do, or
not to do.

PRINCIPLE OF FREE STIPULATION

The parties have the right to negotiate and

agree on any stipulations, clauses, terms and
conditions as they deem convenient.
THIS IS NOT AN ABSOLUTE RIGHT

LIMITATIONS ON CONTRACTING
Not contrary to LAW
Not contrary to MORALS
Not contrary to GOOD CUSTOMS
Not contrary to PUBLIC ORDER
Not contrary to PUBLIC POLICY

JURISPRUDENCE IN CONTRACTS
There was no perfected contract between the
parties since there was no meeting of the minds
upon the price.
Price is an essential element in the formation of a
binding and enforceable contract. The fixing of the
price can never be left to the decision of one of
the contracting parties. BUT a price accepted by
the other gives rise to a perfected sale.

(Hyatt Elevators v. Cathedral Heights Building

Complex)

JURISPRUDENCE IN CONTRACTS

The contract was clear that Upon PCIs failure to pay within 28 days,
it shall be liable to pay the stipulated interest of 6 percent.

When the terms of the contract are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning of its
stipulations governs. In these cases, courts have no authority to alter
a contract by construction or to make a new contract for the parties.
The courts duty is confined to the interpretation of the contract which
the parties have made for themselves without regards to its wisdom
or folly as the court cannot supply material stipulations or read into
the contract words which it does not contain. It is only when the
contract is vague or ambiguous that courts are permitted to resort to
construction of its terms and determine the intention of the parties.

Pan Pacific Service Contractors v. Equitable PCIbank.

JURISPRUDENCE IN CONTRACTS

Credit Card Membership agreement is a contract of

adhesion as its terms are prepared solely by the credit
card issuer, with the cardholder merely affixing his
signature signifying his adhesion to these terms. This
circumstance, however, does not render the agreement
void. It was held that contracts of adhesions are as
binding as ordinary contracts, the reason being that the
party who adheres to the contract is free to reject it
entirely. The only effect is that the terms of the contract
are construed strictly against the party who drafted it.

Pantaleon v. AMEX International, Inc.

JURISPRUDENCE IN CONTRACTS

a.
b.
c.

In contracts for a stipulated price like fixed lump-sum

contracts, the recovery of additional costs can only be
allowed upon the:
Written authority from the developer or project owner
allowing the changes in the work
Written agreement of parties with regard to the
increase in price or cost due to change in work
Specific provision governing additional works

Leighton Contractors Philippines v. CNP Industries

JURISPRUDENCE IN CONTRACTS

There is fraud when, through insidious words, or

machinations of one of the contracting parties, the
other is induced to enter into a contract, which,
without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the
casual, not merely incidental, inducement to the
making of the contract. Additionally, the fraud
must be serious.

Spouses Tongson v. Emergency Pawnshop Bula, Inc.

CONTRACTUAL FRAMEWORK FOR

BUSINESS PROCESS OUTSOURCING

STRUCTURE OF THE AGREEMENT

The agreement may be a single, holistic
agreement, or
A master agreement that includes a process
by which specific order forms, statement of
work, or other ancillary sub-agreements may
be included as needed.

SCOPE OF SERVICIES
The scope of service to be outsourced is a key issue
because of the great potential for conflict or
ambiguity stemming from imprecise or ambiguous
terms.
CLARITY
CONTENT
EXCLUSIVITY
CHANGE
INFORMATION TECHNOLOGY FUNCTION

1.
2.
3.
4.
5.

QUALITY OF SERVICES

Performance standards and service levels

specified are key issues in business process
outsourcing agreement. They are not only
metrics of performance by which to measure
the service providers performance but also as
a means of providing both parties with
meaningful information on which to base fees,
costs, remedies, and performance incentives
and disincentives.

STANDARDS

Subjective performance standards

Objective standards

REMEDIES
1.
2.
3.
4.
5.

service level credits

liquidated damages
correction of the failure
refund or credit
characterization of the failure as a material
breach giving rise to claim for damages or the
right to terminate the agreement

FEES AND PAYMENTS

Cost savings are usually the significant driver in
outsourcing arrangements (particularly in
offshore outsourcing)
PRICING OPTIONS
PRICE CONTROLS
RECORDS AND AUDITS
PAYMENT TERMS
TAXES

INTELLECTUAL PROPERTY

Use and ownership of intellectual property are key

issues in business process outsourcing agreement
because the outsourcing relationship, depending on the
nature of the services, often produces new or improved
products, services, technologies or other intellectual
property.
Also, the customer and the service provider share many
of the same resources. The outsourcing agreement
should state whether the customer or the service
provider will retain ownership of any intellectual property
that may be used or developed by the other party during
the course of their arrangement.

RISK ALLOCATION
It is important to have bounderies on various
risks associated with the contemplated
transaction.
Limitation of Liability
Exclusion of consequential damages
Indemnification
Disclaimer
Insurance

DISPUTE RESOLUTION

The agreement should set forth procedures for

the resolution of disputes between the parties
that fall short of termination or litigation. The
agreement should also state whether the
customer will pay for the services during
disputes. One option is to have the customer
put any disputed payments in an interest
bearing escrow account until the dispute is
resolved, with interest on the escrowed amount
disbursed in accordance with the resolution.

TERMINATION
TRIGGERS: The agreement should specify the
circumstances under which one or both of the parties
may terminate the agreement.
The agreement should specify a date on which it will
expire and any renewal rights or mechanism
One or both parties may opt to terminate the agreement
id the other party undergoes any change of control
One or both parties may provide for termination if the
other party commits a material breach
The agreement may include termination for convenience

EFFECTS OF TERMINATION OR EXPIRATION

The rights and duties of each parties upon
termination or expiration of the agreement would
depend upon the circumstances of termination.
Ownership of propriety information or technology
Ownership in any assets used, transferred or
acquired during the agreement
Application of termination fee or repricing charge
for an unexpired contract

HOUSEKEEPING ON TERMINATION
Whether the parties will need to return
materials to parties
Whether there will be ongoing license fees or
other payment obligations
Whether the customer will have the right to
purchase equipment or other assets

TRANSITION SERVICES
The termination transition services are those
additional services the service provider may
undertake to provide upon the expiration or
termination of the business process
outsourcing agreement.

CONSIDERATION ON TRANSITION
Duration the service provider will provide
transition service
The need for confidentiality agreement should
the customer wants a transition from the
services to a third party service provider
Payment

CONTRACT REVIEW