Outsourcing: Sweden overview

A Q&A guide to outsourcing in Sweden.

This Q&A guide gives a high level overview of legal and regulatory requirements on different types of outsourcing; commonly used legal structures; procurement processes; formalities required for transferring or leasing assets; data protection issues; customer remedies and protections; contracting parties' remedies; dispute resolution; and the tax issues arising on an outsourcing.

To compare answers across multiple jurisdictions, visit the Outsourcing Country Q&A tool.

This Q&A is part of the global guide to outsourcing. For a full list of jurisdictional Q&As, visit www.practicallaw.com/outsourcing-guide.

For the rules relating to transferring employees, visit Transferring employees on an outsourcing in Sweden: overview.

Contents

Regulation and requirements

National regulations

1. To what extent does national law specifically regulate outsourcing transactions?

There is no act or other legislation specifically aimed at regulating outsourcing in Swedish law. However, there are several regulations relevant to outsourcing transactions that apply to various sectors.

Sectoral regulations

2. What additional regulations may be relevant for the following types of outsourcing?

Financial services

Financial legislation contains specific requirements applicable to an outsourcing of financial services. The main laws include the:

  • Banking and Financing Business Act (2004:297).

  • Securities Market Act (2007:528).

  • Investments Funds Act (2004:46).

  • Payment Services Act (2010:751).

  • Electronic Money Act (2011:755).

The Swedish Financial Services Authorities (Finansinspektionen) (FSA) supervises companies operating in the financial sector. It has issued regulations and guidance applicable to outsourcing transactions, including:

  • Regulations regarding Securities Business (FFFS 2007:16).

  • Regulations regarding Investment Funds (FFFS 2013:9).

  • Regulations and General Guidelines regarding Payment Institutes and Registered Payment Service Providers (FFFS 2010:3).

  • Regulations and General Guidelines regarding Institutions for Electronic Money Institutes and Registered Issuers (FFFS 2011:49).

  • General Guidelines regarding Governance and Control of Financial Business (FFFS 2005:1).

Companies that pursue business under the Banking and Financing Business Act can outsource parts of their operations, subject to this Act and the regulations and guidance issued by the FSA. A company must:

  • Notify the FSA of any intended outsourcing.

  • Provide the FSA with a copy of the outsourcing agreement.

The following requirements apply to an outsourcing in the financial sector:

  • The outsourcing company must remain responsible to its customers for the outsourced activities at all times.

  • The supplier must conduct the business with sufficient control, knowledge, competence and an adequate level of security.

  • The agreement must not prevent the:

    • customer from fulfilling its obligations under the applicable legislation; or

    • the FSA from monitoring the customer's compliance with its obligations.

The FSA's regulations and guidelines outline the requirements for an outsourcing in the financial sector. The outsourcing agreement must be in writing and clearly define the parties' responsibilities. The outsourcing agreement must also ensure that:

  • Confidential information is protected.

  • It can be terminated without negative effect on the continuity or quality of the supervised company's business.

  • There is an action plan to deal with unforeseen events (that is, a contingency plan and disaster recovery plan).

  • The supplier has sufficient competence, capacity and the relevant licences that are required to provide the outsourced service (if any).

  • Procedures for risk management are in place.

  • The supplier co-operates with the FSA regarding the outsourced business.

The customer is responsible for compliance with the requirements under the relevant legislation.

In addition, the Anti-money Laundering Act (2009:62), which implements the Third Anti-money Laundering Directive 2005/6/EC, applies to financial institutions supervised by the FSA and to businesses that have been notified to the FSA. Therefore, outsourced departments of these institutions must control the:

  • Identity of customers.

  • Purpose and type of a business relation.

The outsourcing requirements of Directive 2004/39/EC on markets in financial instruments (MiFID) are implemented into Swedish legislation by the Securities Market Act. Directive 2014/65/EC on markets in financial instruments (MiFID2) has not yet been implemented into Swedish legislation.

Business process

There is no specific legislation regulating business processes outsourcing. However, certain business processes may require consideration of particular rules or legislation. For example, customer services of a financial institution must consider rules on banking secrecy (see Question 9, Banking secrecy).

IT

There are no specific regulations for an outsourcing of IT services or infrastructure.

Telecommunications

The Swedish Electronic Communications Act (2003:389) governs the provision of electronic communication networks and services. The Swedish Post and Telecoms Authority (PTA) supervises the Act. Under the Act, the provision of publicly available electronic communication networks or services must be notified to the PTA. Therefore, the outsourcing of these networks or services requires notification.

Public sector

Public procurement is regulated primarily by the:

  • Public Procurement Act (2007:1091).

  • Act on Procurement in the Water, Energy, Transport and Postal Services Sectors (2007:1092).

The basic principles of public procurement are:

  • Non-discrimination.

  • Equal treatment.

  • Transparency.

  • Proportionality.

Services and contracts whose values are under certain thresholds are exempt from some or all of the public procurement rules.

According to a recent decision of the Swedish Parliamentary Ombudsman, Swedish authorities cannot use cloud services in outsourcing.

An authority must assess whether information is classified prior to making it available to any member of the public. Providing information to an outsourcing supplier is considered as making the information available.

For more information, see Public procurement in Sweden: overview.

 
3. What further legal or regulatory requirements (formal or informal) are there concerning outsourcing in any industry sector?

Certain industry sectors (some entities of the healthcare sector and the food industry) are subject to specific regulations (for example, the Patient Safety Act (2010:659) and the Food Act (2006:804)). Other general regulations may also apply, including regarding employment law.

 
4. What requirements (formal or informal) are there for regulatory notification or approval of outsourcing transactions in any industry sector?

Financial Sector

An outsourcing in the financial sector must be notified to the Swedish Financial Services Authorities (FSA) before entering into the outsourcing agreement. Businesses regulated by the Investment Funds Act must notify the FSA at least one month before the agreement comes into force.

The notification must meet certain formal requirements and be accompanied by a copy of the outsourcing agreement. The FSA will analyse the agreement to verify that it fulfils the requirements under the applicable legislation. In general, the FSA completes its assessment within 45 days. In addition, the regulated entity may need to pay a notification fee. For example, the notification of an outsourcing of the management of a securities fund is subject to a fee of SEK24,000. The FSA will not approve the outsourcing agreement until the notification meets the formal requirements and the notification fee is paid.

The outsourcing does not require formal approval, which means that the notifying company can start the outsourcing before receiving feedback from the FSA, provided that the legislative requirements are met.

Failure to notify can result in:

  • A warning by the FSA.

  • The entity being deprived of its licence.

Telecommunications

An outsourcing of publicly available electronic communication networks or services must be notified to the Post and Telecoms Authority (PTA) before the network or service is provided (see Question 2, Telecommunications).

Changes in the provision of previously notified services also require notification to the PTA. This means that both the customer and the supplier may have to notify the PTA.

The notification is not a request for approval but registers the supplier in the official records of the PTA.

Failure to notify may result in the PTA informing the entities of their obligation to notify. If the entities do not submit a notification after this, the PTA can order notification and levy a fine.

 

Legal structures

5. What legal structures are commonly used in an outsourcing?

Direct outsourcing

Description of structure. An outsourcing often involves the transfer of assets and resources used by the customer to the supplier. The supplier often undertakes an end-to-end responsibility for providing the services. The agreement should therefore include the following:

  • A full description of the transition period and the service provision.

  • All the customer's obligations.

  • Provisions on the supplier's assistance obligations on termination.

Advantages and disadvantages. The advantages of direct outsourcing include the following:

  • Less involvement by the customer.

  • Cost-saving goals may be easier to achieve.

Disadvantages can include the following:

  • Lack of customer's control over the services.

  • Transferring the service to a new supplier on termination may be more complex and involve unforeseen costs.

Company

Description of structure. The customer creates a company for the purposes of the outsourcing, which it then sells to the supplier.

Advantages and disadvantages. An advantage is that the customer controls the form and organisation of the company. The disadvantages are that:

  • Creating a company requires more effort from the customer.

  • The supplier may be less willing to assume responsibility for the inefficiencies due to the customer's set up.

Joint venture

Description of structure. The customer and the supplier form of joint venture entity that provides the outsourced services.

Advantages and disadvantages. The advantages include the following:

  • The customer retains a high degree of control over the services.

  • Risks are limited.

However, the structure involves greater efforts for the customer. In addition, it may be difficult to achieve the cost-saving goals of the outsourcing.

Subsidiary

Description of structure. The customer creates a subsidiary that provides the outsourced services.

Advantages and disadvantages. The structure has similar advantages and disadvantages to joint ventures (see above, Joint venture).

Single-sourcing

Description of structure. One supplier manages a number of services for the customer. Single-sourcing is often used in IT outsourcings, where the customer's entire internal IT system is hosted and managed externally. The supplier has an end-to-end responsibility for delivery of the services in relation to the customer. However, the supplier often engages subcontractors, including offshore subcontractors.

Advantages and disadvantages. Advantages for the customer include that dealing with a single supplier makes it easier to:

  • Control the provision of services.

  • Contact the supplier.

  • Manage issues of liability.

However, it may be difficult to change the outsourcing model or to exclude some services. This is because the outsourced services may be co-dependent, and a change would require further changes to the service delivery and the contract. An exit can also be difficult as single-sourcing contracts often have a long duration, which can lead to a lock-up. In addition, the contract can limit the supplier's end-to-end responsibility (see above) and require the customer to be responsible for various aspects of the services.

Multi-sourcing

Description of structure. In a multi-sourcing set-up, the customer engages multiple suppliers that provide different services.

Advantages and disadvantages. Advantages include the following:

  • Each contract is less complex.

  • The suppliers can have a higher degree of expertise in their respective area.

  • The pricing model is less dependent on third parties (such as subcontractors), as each supplier is more likely to control its own costs, making it easier to negotiate prices.

  • It is easier to change suppliers than in a single-sourcing set-up (see above, Single-sourcing).

However, this model requires the customer to provide a higher degree of management. For example, the customer must ensure that the different services function together. The suppliers of the different services are often competitors and may be reluctant to co-operate to the degree required by the customer. In addition, the suppliers may still be co-dependent, making it difficult to assess who is at fault when things go wrong. Therefore, operating level agreements may be required, which can complicate the overall contract structure.

 

Procurement processes

6. What procurement processes are used to select a supplier of outsourced services?

There are several procurement processes to select a supplier of outsourced services. These are largely unregulated under Swedish law, except for public procurement. A procurement process may consist of one or more of the following:

  • Request for information (RFI).

  • Request for proposal (RFP).

  • Invitation to tender (ITT).

Initially, the customer often conducts an internal due diligence procedure to establish it service requirements and conditions.

Request for proposal

The customer may issue a RFI or RFP to various suppliers, asking those to provide proposals and references.

In a public procurement, the RFP must include:

  • The commercial terms of the final agreement. Generally, a complete contract proposal is included.

  • The requirements that must be met and those that are open for negotiation.

  • The evaluation criteria.

Most public procurement contracts must be advertised publicly. The procurement of contracts that exceed certain thresholds can be open, selective or negotiated. Less strict rules apply for contracts below these thresholds. In addition, contracts under a certain amount can be procured directly. However, the basic principles of public procurement still apply to all public procurement processes (see Question 2, Public sector). The procuring authority can use frame agreements under which the procurement process is pre-determined and less rigid.

Invitation to tender

After considering the responses to an RFI or RFP, the customer can send an ITT to shortlisted companies. The ITT often includes:

  • The requirements that must be met.

  • A draft agreement for further negotiations.

The customer rate the tenders based on their fulfilment of the requirements set out in the tender.

Negotiation and due diligence

The customer can conduct negotiations with:

  • Several potential suppliers (this can be costly and time consuming).

  • One potential supplier only. The lack of competition gives the supplier a stronger negotiating position.

There are no formal requirements to conduct any due diligence. However, prudent customers and suppliers can carry out both:

  • Internal due diligence to establish their own requirements.

  • Due diligence of the other party, to clarify how and under what conditions the services are to be performed and received.

 

Transferring or leasing assets

Formalities for transfer

7. What formalities are required to transfer assets on an outsourcing?

Immovable property

The sale of immovable property is regulated by the Swedish Land Code. Certain formal requirements must be fulfilled for a transfer to be valid. The sales contract must:

  • Be in writing.

  • Be signed by the purchaser and seller.

  • State the purchase price.

  • Contain a statement that the seller transfers the property to the buyer.

  • Be witnessed by two persons to register title to the property (see below).

The purchaser must apply for registration of its title with the Swedish Land and Cadastral Registry within three months of the date of purchase. Registration gives the purchaser protection against the seller's creditors.

There are no specific requirements for transfers of immovable property outside the jurisdiction.

IP rights and licences

There are no formal requirements for the transfer of IP rights and licences.

However, the transfer of a licence requires either:

  • The licensor's consent.

  • The right to transfer to be included in the licence.

The buyer should therefore ensure that the licensor has given its consent to the transfer. However, copies of a licensed computer program can be transferred without consent.

The buyer of a trade mark or patent should register its interest as evidence of the transfer. Although this is not a requirement for the validity of a transaction, it will provide the buyer protection against third parties.

A buyer located outside the EU may be required to have a local representative (for example for the transfer of trade marks).

Movable property

There are no formal requirements to transfer ownership of movable property. However, to make the transfer enforceable against the seller's creditors in case of the seller's bankruptcy, the property must not be in the seller's possession.

In an outsourcing, the property is sometimes left at the seller's premises or transferred under a leaseback agreement. Therefore, to be protected from creditors, the buyer should register the transfer with the relevant district court through a chattel sales procedure.

There are no specific requirements for transfers of movable property outside the jurisdiction.

Key contracts

Any assignment or transfer of key contracts should be in writing. Although this is not a formal legal requirement, it is often required in the contract itself. Furthermore, contractual obligations cannot be transferred without the counterparty's consent, which is often required under the transfer agreement.

Formalities for leasing or licensing

8. What formalities are required to lease or license assets on an outsourcing?

Immovable property

There are generally no formalities to lease immovable property. However, a lease of premises (such as offices) must be in writing where one party so requests. There are also certain mandatory rules regarding the parties' obligations and termination periods.

There are no specific requirements for leases of movable property outside the jurisdiction.

IP rights and licences

Licences of IP rights should be made in writing for purposes of clarity, although this is not a formal requirement.

There are no specific requirements for licences of IP rights outside the jurisdiction.

Movable property

There are no formal requirements to lease movable property.

There are no specific requirements for leases of movable property outside the jurisdiction.

Key contracts

A contract cannot be leased or licensed under Swedish law, but rights under a contract can be assigned (see Question 7, Key contracts).

For information on transferring employees on an outsourcing, including structuring employee arrangements (including any notice, information and consultation obligations) and calculating redundancy pay, see Transferring employees on an outsourcing in Sweden: overview.

 

Data protection and secrecy

9. What legal or regulatory requirements and issues may arise on an outsourcing concerning data protection?

Data protection and data security

General requirements. The Data Protection Directive 95/46/EC was implemented into Swedish legislation by the Personal Data Act (1998:204) (PDA). The Data Inspection Board (DIB) is authorised to issue further regulations.

The PDA applies to all wholly or partially automatic processing of personal data, including registers, databases and personal data contained in continuous text. The definition of personal data is broad and includes the following (provided a living person can be identified from that data):

  • Pictures.

  • Sound recordings.

  • Location data.

  • Names.

  • Addresses.

  • Phone numbers.

  • Personal identification numbers.

Therefore, there are various issues related to personal data processing that can arise on an outsourcing.

Security requirements. The controller must take adequate technical and organisational measures to protect the processed data. These measures must be taken having regard to the:

  • Available technical possibilities.

  • Costs.

  • Particular risks accompanying the processed data.

  • Data sensitivity.

The controller must ensure that a data processor has the ability to take the necessary security measures, and that these measures are actually undertaken.

Mechanisms to ensure compliance. The customer is generally the personal data controller and is responsible for the processing of personal data. The supplier is the data processor. Under the PDA, there must be a written agreement between the controller and the processor, which is subject to various requirements specifically set out in the PDA. For example, the agreement must state that the data can only be processed in accordance with the controller's instructions. The processor agreement is normally part of the outsourcing agreement and requires the supplier to take adequate technical and organisational measures to safeguard the processed personal data.

International standards.

Offshore transactions require specific precautions, and it is important to verify where the processing of personal data will take place. Transfer of personal data outside the EU or EEA is generally only permitted if:

  • The recipient country provides for an adequate level of security, for example according to the safe harbour principles or by decision of the EU Commission,

  • The data subjects have consented to the transfer.

  • The rights of data subjects' rights can be protected, for example by using the EU Commission's standard contractual clauses or the binding corporate rules approved by the DIB.

Sanctions for non compliance. There are various sanctions in the event of non compliance. The DIB must first seek self-correction by the controller. However, the DIB may order administrative penalties of fines. The controller must also compensate the data subject for the damage and violation of integrity caused by the violation of the PDA. Additionally, intentional or grossly negligent violations of certain provisions of the PDA may give rise to criminal penalties or fines, or imprisonment up to a maximum of six months (up to two years for severe violations).

Banking secrecy

General requirements. The processing of personal data within the financial sector is subject to the PDA. In addition, banks and financial businesses are subject to the Banking and Financing Business Act which provides that all customer information must be treated confidentially and prohibits unauthorised disclosure of this information.

However, banks can disclose customer information in certain circumstances. For example, disclosure with the customer's consent is permitted, provided consent is given for each disclosure (that is, a general consent by acceptance of general terms and conditions is not sufficient).

Security requirements. The security requirements of the PDA generally apply to the processing of personal data within the financial sector (see above, Data protection and data security: Security requirements). However, such personal data is often categorised as sensitive and more extensive technical and organisational measures may therefore have to be taken.

Mechanisms to ensure compliance. Generally, the outsourcing agreement provides that the supplier is under an obligation to separate data that is subject to banking secrecy from both other customers' data and the supplier's own data.

International standards. See above, Data protection and data security: international standards.

Sanctions for non compliance. Except where specific regulations apply, sanctions for non-compliance are governed by the provisions of the PDA, (see above, Data protection and data security: Sanctions for non-compliance).

Confidentiality of customer data

See above, Data protection and data security.

 

Service specification and levels

10. How is the service specification typically drawn up and by whom?

The service specification is often based on both the customer's requirements and the supplier's description of its services. It is common for the parties to draft the specification jointly to ensure that the customer's needs are considered and can be met by the supplier. The service description is often divided into the various components of the overall service (even in a single-sourcing set-up (see Question 5, Single-sourcing) to increase transparency and allow for a detailed follow-up. The service specification typically includes:

  • A detailed description of the service and how it is provided.

  • Any availability and response times agreed by the supplier.

  • Any prerequisites for receiving the services (for example, technical requirements).

Experienced customers (especially in procurement procedures) generally draft an extensive list of requirements to be met. Less experienced customers may require more information from the supplier. However, in both cases, the customer relies on the supplier's service description to a lesser or greater extent, as the supplier typically has more experience in its particular field of services. In addition, as the supplier often provides its services in a certain manner, customer's demands that require departing from the supplier's standards can be costly.

 
11. How are the service levels and the service credits scheme typically dealt with in the contract documentation?

Service levels are usually included in the outsourcing agreement. These can be referred to in the case of errors or delays in the delivery or failure to provide a consistent service. Service levels usually consist of objectively measurable criteria to be met by the supplier. Variance from the required level of performance is often by reference to a set of percentages.

The aspects of a service that are subject to service levels depend on whether these are measurable and on the need and willingness of the parties to include them. The customer often wants to include more service levels to have greater control over the service delivery. In contrast, the supplier is inclined to limit the number of service levels, as measurement and reporting increase both:

  • Administrative costs.

  • The risk of having to pay service credits or liquidated damages if service levels are not met (see below).

The measurement of service levels can be by reference to either each service or the supplier's overall performance.

The service credits can be pre-defined amounts or percentages of the fees paid to the supplier or payable during a certain time (often a month) and are usually capped. The supplier often wants the service credits or liquidated damages to be the sole remedy, whereas the customer will want to have the possibility of invoking other remedies. However, the customer can often invoke a material breach of the agreement where the achievement of service levels is too low (for example, maximum service credits are payable for the entire service for a certain time) (see Question 23, Material breach). The service credits can either be:

  • Payable directly.

  • Constructed as an undertaking for the supplier to invest the relevant amount in its service, to improve its services and avoid further breaches of service levels.

In multi-sourcing set-ups, the suppliers are often very careful to limit their liability for the other supplier's breaches of service levels. The parties will often consider which parts of the service are in the supplier's control. However, the customer can require the suppliers to enter into operating level agreements. Suppliers can seek to insert provisions in these agreements to limit their potential liabilities.

In a business process outsourcing (BPO) or IT systems outsourcing, there is often a stabilisation period after the commencement of the service, during which service levels are not fully applicable. In some cases, parties use baselining mechanisms and define service levels during the commencement period as they may not have had the possibility to properly evaluate the service until then. In single-sourcing set-ups that are part of a supplier's standard operations, the parties may agree that service levels apply on service commencement.

 

Flexibility in volumes purchased

12. What level of flexibility is allowed to adjust the volumes customers purchase?

For a supplier, an outsourcing often involves making an initial investment that it wishes to recoup during the term of contract. It is therefore common for the customer to accept certain target and minimum purchase or volume commitments. The specific commitment levels are often defined early on, as these constitute a factor for determining the supplier's price. Minimum volume commitments allow the customer a high level of flexibility in the volumes purchased above these commitments. The customer can also agree to a compensation scheme in the event it does not reach its commitment.

A contract can include mechanisms for adjusting the volume commitments at certain intervals. However, there are typically limits to the extent of these adjustments (for example a maximum percentage). Adjustments can be included in the fee or lead to price adjustments. Usually, prices per unit decrease with increased volume. However, high and unexpected increases can lead to additional costs for the supplier, who will therefore want to limit its exposure by including additional rights, such as a right to:

  • Renegotiate prices, triggered by increased volumes.

  • Additional compensation, to cover necessary investments.

Many outsourcing contracts are exclusive for the scope of the service, at least for the initial term of the contract, as a supplier typically wants to recoup its investments.

 

Charging methods and key terms

13. What charging methods are commonly used on an outsourcing?

There are many charging methods that can be used in an outsourcing, depending on the type of service provided. The price model is usually flexible as the scope of the service can fluctuate. It is not uncommon for unit prices to decrease with volume, but other factors, such as additional investments, can lead to renegotiations and increased prices

Risk and reward

The parties can agree on a volume prediction or budget, and on a mechanism for sharing the surplus or additional costs due to variations from the actual volumes or budget.

In some cases, a reward model is used as an incentive for the supplier (as a counter-mechanism to the service credits) where optimal performance is either:

  • Rewarded by additional payments.

  • Set off against previous or future service level breaches.

Fixed price

A fixed price can be used when there is a regular and predictable scope of services. Fixed price services can still be subject to renegotiation or inflation/index adjustment mechanisms. Fixed prices can also be used during certain periods of an outsourcing project, such as the initial phase during which the scope and pricing of the services are being determined.

Cost plus

Cost plus is a transparent model of pricing, where the customers pays the supplier its costs and a set margin. However, this can lead to uncertainties for the customer as it is dependent on the efficiency of the supplier. The customer should therefore require open book reporting to verify the supplier's costs. This may however be difficult due, for example, to transfer pricing models used by the supplier.

Cost plus is often used in intra-group outsourcing projects, where a company provides services to its affiliates.

Pay as you go

Pay as you go is a unit-based pricing model that can be appropriate when the volume of services fluctuates. This gives the customer a high degree of flexibility. However, this is not suitable for all types of services, including those that are resource dependent.

This model can combine a fixed minimum fee and a unit price for items of service over the base volume. This gives the customer flexibility whilst providing to the supplier a certain income that can be used to guarantee the availability of the service.

 
14. What other key terms are used in relation to costs, including auditing and benchmarking mechanisms?

Key terms in relation to costs often include indexation and benchmarking (where possible). In cases of offshore outsourcing, there may also be currency exchange protection mechanisms.

Many outsourcing contracts include audit rights for the customer, which may be particularly important in cost plus or other transparent pricing models. These rights give the customer the opportunity to verify the supplier's costs and efficiency (see Question 13, Cost plus).

 
15. If the supplier fails to perform its obligations, what remedies and relief are available to the customer under general law?

If the supplier fails to perform its obligations, the customer may be entitled under general law to:

  • Require rectification or redelivery.

  • Price reduction.

  • Withhold payment.

  • Purchase the services from another party or perform the services itself.

  • Rescind the agreement.

  • Damages, including indirect damages if the breach is due to the supplier's negligence.

 
16. What customer protections are typically included in the contract documentation to supplement relief available under general law?

The contract usually provides that all the available remedies are set out in the agreement. Remedies are often defined in detail by the parties. Customer protections often include:

  • Service credits or liquidated damages, for delays or breaches of service levels or key performance indicators (KPIs) (see Question 11). KPIs may have a wider scope than service levels and target other parts of the service provision. Service credits can be an exclusive remedy for breaches of service levels.

  • The right to require rectification, which can be linked to service levels.

  • The right to withhold payment (of at least any disputed amount).

  • Step-in rights for the customer or a third party.

  • The right to terminate the contract.

  • The right to rescind the contract.

 

Warranties and indemnities

17. What warranties and/or indemnities are typically included in the contract documentation?

An outsourcing that includes a transfer of business is likely to involve a transfer of the customer's employees to the supplier. Swedish law entitles the transferred employees to retain their employment benefits, such as their accumulated term of employment. Therefore, the parties often include a warranty that no employee has a right to be transferred to the supplier other than those specified in the agreement. In addition, the customer also often warrants that no employee has any claims against the customer other than those specified in the agreement.

For more information, see Transferring employees on an outsourcing in Sweden: overview.

The customer usually warrants that it has the right to transfer any property to the supplier. The customer also warrants freedom from liens and encumbrances, the right to transfer contracts and the absence of liabilities under contracts transferred.

The supplier often warrants performance of the services:

  • With due or reasonable skill and care.

  • In a timely manner.

  • In accordance with applicable laws. The parties can choose to refer to any laws that apply to the customer or only to those that apply to the supplier. If a particular law or regulation applies to the customer only, the supplier often agrees to provide services in accordance with these laws. However, this is often subject to additional compensation and to the customer undertaking to keep the supplier informed of the relevant laws.

It is common for any party that transfers or licenses an IP right to:

  • Warrant that the right does not infringe any third party IP rights.

  • Indemnify the transferee/licensee against infringement claims by third parties.

In the last few years, it has become increasingly common for customers to require an indemnity in relation to compliance with personal data legislation (see Question 9, Data protection and data security).

 
18. What limitations are imposed by national or local law on fitness for purpose and quality of service warranties?

There are no limitations imposed by Swedish law on fitness for purpose and quality of service warranties. However, there are statutory warranties under which:

  • Goods must be fit for purpose.

  • A product or service is of a quality that can reasonably be expected considering relevant factors.

These statutory warranties are optional and parties can agree that services are delivered "as is". Limitations on warranties should preferably be specific to avoid underlying warranties.

 
19. What provisions may be included in the contractual documentation to protect the customer or supplier regarding any liabilities and obligations arising in connection with outsourcing?

The outsourcing agreement often requires the supplier to:

  • Hold an adequate insurance for the term of the agreement.

  • Provide evidence of this insurance on the customer's demand.

Each party may also be required to:

  • Ensure that it has and maintains all necessary licences and permits for its business (if any).

  • Provide documentation of these licences and permits on request.

Where employees are transferred to the supplier, the customer may be required to warrant and/or prove that there are no outstanding liabilities in relation to transferred employees (for example that salary or pension payments have been made). The customer typically warrants that any required union negotiations were held in accordance with Swedish labour legislation. For more information, see Transferring employees on an outsourcing in Sweden: overview.

 

Insurance

20. What types of insurance are available in your jurisdiction concerning outsourcing, and to what extent are they available?

A supplier is typically required to maintain an adequate insurance for its potential liabilities under the agreement. Specific types of insurance may be required (for example property insurance for an outsourcing involving hardware). However, the requirement is generally limited to maintaining general professional liability insurance.

The outsourcing agreement can specify an overall minimum coverage amount of the insurance, or specify a minimum amount for individual claims. The agreement can also merely state that the coverage should be adequate.

 

Term and notice period

21. Does national or local law impose any maximum or minimum term on an outsourcing? If so, can the parties vary this by agreement?

Swedish law does not impose any maximum or minimum term on an outsourcing. The parties are free to agree on the term of the outsourcing.

An outsourcing agreement is often for a term of at least three years, although longer terms are common. The customer often has a unilateral right to extend the term for pre-determined extension periods (for example, one year).

In public procurement processes (see Question 2, Public sector and Question 6), the initial tender often sets out a fixed term with an option to extend the term for a specific duration (for example a fixed term of three years and an option to extend for two years).

 
22. Does national or local law regulate the length of notice period required (maximum or minimum)? If so, can the parties vary this by agreement?

National law does not regulate the length of notice period required to terminate an outsourcing agreement. However, if the agreement does not provide for a notice period, general law provides that it must be reasonable. This is assessed from factors including the:

  • Length of the relationship.

  • Possibility of making other arrangements.

  • Value of the contract.

Parties usually agree on a notice period that varies depending on the:

  • Type and scope of the outsourcing.

  • The grounds for termination (for convenience or cause).

A 12 month notice period for termination for convenience is not uncommon. The agreement also generally includes an option to extend the services post-termination to allow for transferring the services back in-house or to another supplier.

 

Termination and termination consequences

Events justifying termination

23. What events justify termination of an outsourcing without giving rise to a claim in damages against the terminating party?

Material breach

A material breach of the agreement usually entitles a party to terminate the agreement without giving rise to its liability. A material breach is generally described as a breach of a material or core obligation of the agreement. The definition of material breaches in the agreement can vary and include, for example:

  • Multiple non-material breaches taken together.

  • Reaching the maximum level of service credits or liquidated damages (see Question 11).

However, a party should be careful when terminating an agreement for material breach, as a wrongful termination is considered a material breach.

Insolvency events

The other party's insolvency generally gives a party the right to terminate without giving rise to its liability.

Force majeure

If a force majeure event continues for a pre-determined time/certain duration as defined in the agreement, either party may have the right to terminate the agreement.

 
24. In what circumstances can the parties exclude or agree additional termination rights?

Parties are free to agree on specific or additional termination rights.

Common grounds for termination include:

  • Material breach that is not or cannot be cured.

  • Multiple ordinary breaches.

  • Reaching maximum service credits, liquidated damages or liability caps.

  • Insolvency.

  • Force majeure.

  • Change of control.

  • A party losing relevant licences and/or permits (if any).

It is common to include cure periods during which the breaching party has an opportunity to rectify its breach before termination is allowed.

 
25. What remedies are available to the contracting parties?

A party may have the right to terminate the agreement for (see Questions 23 and 24):

  • Breach (actual or expected).

  • Insolvency (actual or expected).

  • The counterparty's lowered credit ratings.

Further remedies include:

  • Step-in rights, for the customer or a third party

  • Partial termination.

  • Price reductions.

  • Rectification or redelivery.

  • Rescission.

IP rights and know-how post-termination

 
26. What implied rights are there for the supplier to continue to use licensed IP rights post-termination? To what extent can the parties exclude or include these by agreement?

The use of IP rights is often regulated by agreement between the parties. Typically, the supplier does not have a right to continue using the customer's IP rights after termination of the agreement.

 
27. To what extent can the customer gain access to the supplier's know-how post-termination and what use can it make of it?

The parties are free to regulate the use of IP rights, including know-how. The customer is often allowed to use the supplier's IP rights and know-how post-termination as necessary for the services (for example during a transition period until such know-how is no longer required). However, the customer's use must usually be limited to that which is necessary for the performance or receipt of the services. The agreement usually excludes stand-alone use or use in relation to any commercialised product. The customer may also be allowed to sub-license the customer's IP rights or know-how to another supplier for the necessary time post-termination.

 

Liability, exclusions and caps

28. What liability can be excluded?

The agreement generally excludes liability for indirect losses. This is often supplemented by a list of examples of losses that cannot be recovered (whether indirect or not), such as loss of profit, business or revenue. The customer may also wish to include examples of losses (direct or indirect) that are recoverable.

Under Swedish law, it is not possible to exclude liability for damages caused by gross negligence or intent. In this case, a party is also liable for indirect losses.

Suppliers often limit their liability for loss or corruption of data and are generally reluctant to accept liability for the underlying value of data.

It is common to exclude liability for:

  • Breach of confidentiality.

  • Infringement of IP rights. These are often regulated in detail by the parties.

 
29. Are the parties free to agree a cap on liability? If so, how is this usually fixed?

The parties are free to agree on monetary caps on liability, except where loss is caused by intent or gross negligence (see Question 28). The cap is usually either a:

  • Fixed amount.

  • Percentage of the:

    • contract value; or

    • fees paid over a certain period.

Liability is often limited to the annual fees payable under the agreement. The supplier's liability for direct losses is also typically capped at a certain amount.

 

Dispute resolution

30. What are the main methods of dispute resolution used?

Arbitration is a common method of dispute resolution for commercial contracts. The arbitration procedure is commonly administered by the Arbitration Institute at the Stockholm Chamber of Commerce.

Many outsourcing contracts also contain an escalation procedure, under which parties must submit their dispute to several forums within a certain time before starting the arbitration process.

Before commencing litigation, parties can also attempt to resolve their dispute through:

  • Mediation.

  • Third party expert opinion (especially for disputes of a technical nature).

 

Tax

31. What are the main tax issues that arise on an outsourcing?

Transfers of assets to the supplier

Where assets are transferred at a market value higher than the tax value (for example due to deductions), the capital gain is taxed at a flat rate of 22%.

Where assets are transferred at their tax value, a seller is taxed on the market value of the assets unless the following requirements are met:

  • The buyer must be tax resident in the European Economic Area (EEA).

  • The buyer must not have any losses carried forward.

  • The assets must constitute a business division.

It is not allowed to offset low purchase prices against reduced service prices in order to avoid taxation.

Transfers of employees to the supplier

Transfers of employees to the supplier do not trigger any specific tax consequences.

VAT or sales tax

The transfer of assets is exempt from VAT, provided that:

  • The customer and supplier have the same VAT status.

  • The assets are transferred as a going concern.

Where the customer is exempt from VAT and the supplier is not, VAT on the supplier's services may constitute an added cost for the customer. Customers that are not subject to VAT should therefore consider this issue before outsourcing services.

Service taxes

There are no specific service taxes in Sweden (other than VAT (see above, VAT or sales tax)).

Stamp duty

Stamp duty applies to direct transfers of immovable property at a rate of 4.25% of the value of the property (that is, the highest of the registered tax value or the purchase price), if the buyer is a legal entity. If the buyer is an individual, stamp duty applies at a rate of 1.5% of the value of the property.

 

Corporation tax

Corporate income tax is currently 22%.

 

Online resources

The Post and Telecoms Authority (PTA)

W www.pts.se

Description. Official website of the PTA. Contains resources and information on the outsourcing of telecommunication services.

The Financial Services Authority (FSA)

W www.fi.se

Description. Official website of the FSA. Contains resources and information on outsourcings in the financial sector.

The Swedish Data Inspection Board (DIB)

W www.datainspektionen.se

Description. Official website of the DIB. Contains resources and information on data protection.

Swedish Parliament

W www.riksdagen.se

Description. Official website of the Swedish Parliament. Provides access to official legislation (in Swedish).

Swedish Government

W www.regeringen.se/sb/d/1910

Description. Official website of the Swedish Government. Contains translations of certain acts (in English).

The Swedish Competition Authority

W www.kkv.se

Description. Official website of the Swedish Competition Authority. Contains resources and information on public procurement.



Contributor profiles

Jim Runsten

Synch Advokat AB

T +46-761 761 999
E jim.runsten@synchlaw.se
W www.synchlaw.se

Professional qualifications. LL.M, 1996

Areas of practice. IT; telecommunications; outsourcing; corporate and commercial.

Languages. Swedish, English

Professional associations/memberships. Member of the bar association since 2002.

Charlotta Emtefall

Synch Advokat AB

T +46 761 761 909
E charlotta.emtefall@synchlaw.se
W www.synchlaw.se

Professional qualifications. LL.M, 2000

Areas of practice. IT; telecommunications; regulatory and commercial

Languages. Swedish, English, French

Anders Hellström

Synch Advokat AB

T +46 761 761 990
E anders.hellstrom@synchlaw.se
W www.synchlaw.se

Professional qualifications. LL.M, 2003

Areas of practice. IT; telecommunications; data protection; outsourcing; commercial.

Languages. Swedish, English

Professional associations/memberships. Member of the bar association since 2009.


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