Outsourcing Agreement Competition Law


If outsourcing is a notification transaction, the question of whether or not it requires notification depends on the parties` compliance with the jurisdictional thresholds applicable to the merger control regime in question. These thresholds ensure that only transactions of a minimum size are verified by the competition authority. Many countries use thresholds based on the turnover of the Acquiring Group (the outsourcing service provider) and the company to be acquired (outsourced assets/employees). There are a number of exemptions by different categories, but the one that is most relevant to outsourcing agreements is the vertical category exemption. An outsourcing agreement is within the scope of the Commission`s “vertical agreements” exemption (“VRBER”) when the supplier`s market share does not exceed 30% and the agreement does not include “severe restrictions” such as market allocation and price fixing. When a customer relocates services to one of its competitors, or when outsourced services are transferred from one provider to another or in the case of multisourcing, potential problems may arise when exchanging information. In an outsourcing situation, suppliers and customers need to discuss service levels, costs and strategies in some cases, particularly in negotiations that lead to an outsourcing agreement. While some information sharing will be legitimate and necessary, other types of information exchange may be more problematic. Of course, the exchange of price information is prohibited by cartel prevention rules, and European jurisprudence also provides that the exchange of other information can be problematic. Care may be needed. Transferred assets must include all the essential elements that would enable the acquirer to establish a market presence (production facilities, product know-how, access to the existing market, relevant personnel, intellectual property rights, etc.) or to sustainably increase its market presence. The outsourcing service provider must therefore provide the service not only to the customer, but also to third parties, either directly or within a short period of time after the transfer. It is clear that both the client and the outsourcing service provider are “companies,” and two questions arise: (i) what provisions in an outsourcing agreement lead to or risk distorting competition; and (ii) what are the exceptions to this rule? We will deal with that last point first.

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link 1) Service contract – This agreement is based on the basic model in which the third party performs a particular task for the customer. The company can send its resources. B and its employees to another location where the outsourcing service provider is headquartered, contracting for the same location. Workers will work from this site until the agreement is in effect, but this usually occurs in a joint venture or in the captive outsourcing model. In addition to meeting normal turnover thresholds, there are several requirements for outsourcing operations that must be met before the transaction is submitted to the European Commission. Finally, there are some ambiguities in the use of the term “third party.” In the case of company-wide outsourcing, the subcontractor service provider must provide services to many members of the client group.