Application service providers (ASPs) and Internet-based business process service providers (BPSPs) are blazing the way for the e-outsourcing market. Forecasters predict that the ASP market, which often overlaps with, and is defined to include, BPSPs, will exceed $22 billion by 2003. The Gartner Group has estimated that 40 percent of all applications will be provided through ASPs within the same time frame. These are staggering predictions for an industry still in its infancy.

In emerging markets, people look to more established markets to identify risks and legal pitfalls. But these issues, while analogous, need to be reevaluated and contracts need to be recrafted to address changes that come from using the Internet as an outsourcing platform. For example, data security issues may take on more weight in an Internet-driven deal than in a typical service offering. The trick for contract drafters and negotiators is to identify and allocate risk in a way that is equitable in light of the overall transaction and market. We've outlined here some of the key legal issues that may arise in connection with e-outsourcing transactions. These issues -- and the ways they are addressed -- will be tested and shaped as the market itself evolves.

Standardized vs. negotiated terms

Historically, few customers would accept a vendor's standard terms as a matter of course. In Internet-based outsourcing transactions, however, service providers have started using standard terms with little or no amendment. This trend is fueled by several factors including customers' urgent need to become Internet-enabled, which does not allow time for lengthy negotiations. Furthermore, market leaders are leveraging their positions to require acceptance of their terms. In an immature market, many customers opt to go with the safest (and most recognized) alternative regardless of the contract terms.

Perhaps the most prevalent use of standardized terms is in connection with "packaged" services. Here, the customer may agree to a contractual relationship through a click-wrap agreement, which by its nature is not negotiated. While there seems to be a trend toward standard terms, negotiation is more likely in large transactions, transactions where the customer has significant clout and transactions for customized services. In order for standardized terms to work, the service provider must develop terms equitable to both parties.

Scope of services

Service providers should be able to articulate, and customers should clearly understand, the scope and type of services to be provided. When defining the scope of services, consider:

Points of responsibility: At what point, or points in the network, does the service provider assume responsibility? For example, most ASPs will not assume responsibility, and in fact they will seek to be excused for performance failures resulting from connectivity failures caused by a third-party provider.

Integration and compatibility: To what extent is the service provider responsible for integrating its systems with the customer's systems or ensuring compatibility of systems? Is any application or data conversion necessary?

Technology changes: What is the service provider's responsibility for knowing of, implementing

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