Is it safe outside? (2)

In the concluding part of his major article on outsourcing, John Virgo , barrister looks at the legal risk to the firm of claims that originate in the behaviour of its service provider outside the scope of the contract, and at the circumstances when the outsource provider might owe a direct duty to the firm’s customers.

John Virgo is a barrister specialising in financial services law and regulatory issues from Guildhall Chambers, Bristol (www.guildhallchambers.co.uk) and at 5, Stone Buildings, Lincoln’s Inn, London (www.5-stonebuildings.law.co.uk). He is co-author with Philip Ryley of the “Compliance Officer’s Handbook” published by LexisNexis.

Legal risks

Sub-contracting framework

As with any third party dependency, outsourcing may affect a firm’s exposure to operational risk as a result of reduced control over people, processes and systems used in outsourced activities. At a superficial level, the ‘legal risks’ can be easily stated. Where a product provider chooses to delegate performance of any part of its contract with its customer to an outsource provider, a breach of duty by the outsource provider will necessarily place the product provider in breach of contract with its customer. This ‘sub-contracting’ model, however, provides no answer to the following (more interesting) scenarios: