The outsourcing market in Denmark is well-established, with both domestic and international parties across various sectors.  The key players and sectors for Danish outsourcing are set out below:

IT and Technology Firms:

Companies like IBM, Accenture, HCL, and TCS are prominent in the provision of IT outsourcing services. These firms offer a range of services, including software development, IT infrastructure management, and cloud services.

Business Process Outsourcing (BPO) Providers:

Firms such as Capgemini and Cognizant are involved in BPO, offering services like customer support, finance and accounting, and human resources management.

Local Danish Companies:

Danish companies like NNIT, Aeven, ISS, Netcompany, and KMD are significant players in the Danish market, providing IT services and solutions tailored to local needs.

Sectors adopting Outsourcing:

1. Information Technology: The IT sector is a major adopter of outsourcing services, with companies seeking expertise in software development, cybersecurity, and IT infrastructure management.
2. Financial Services: Banks and financial institutions in Denmark often outsource IT services, compliance, and back-office operations to improve efficiency and focus on core activities.
3. Healthcare: The healthcare sector adopts outsourcing for IT services, particularly in areas like electronic health records and telemedicine solutions.
4. Public Sector: While more cautious, the public sector in Denmark does engage in outsourcing, particularly for IT services and administrative functions, to enhance service delivery and reduce costs.
5. Manufacturing: Companies in the manufacturing sector outsource logistics, supply chain management, and certain production processes to optimize operations and reduce costs.

Overall, the outsourcing market in Denmark is characterized by a mix of global and local service providers, with a strong focus on IT and business process services.

The Danish government and regulators generally maintain a supportive stance towards outsourcing, recognizing its potential benefits for efficiency and cost-effectiveness. However, this support is balanced with a focus on ensuring compliance with applicable legislation, particularly concerning data protection and labor laws.

Data Protection: With the implementation of the General Data Protection Regulation (GDPR) across the European Union, including Denmark, there is a strong emphasis on ensuring GDPR-compliance for outsourcing arrangements. Companies must ensure that personal data is handled securely and that any third-party service providers adhere to GDPR standards.

Labor Laws: Denmark has robust labor laws in place, and there is an expectation that outsourcing should not undermine workers’ rights. Companies are encouraged to ensure that outsourced work respects Danish labor standards, including fair wages and working conditions.

Public Sector Outsourcing: In the public sector, there is a cautious approach to outsourcing, with a focus on maintaining transparency and accountability. The government tends to evaluate the impact of outsourcing on service quality and public interest.

Innovation and Competitiveness: The Danish government supports outsourcing to foster innovation and competitiveness, especially in sectors like IT and manufacturing. There is an acknowledgment that outsourcing can help businesses access specialized skills and technologies.

Overall, while outsourcing is generally accepted and utilized in Denmark, it is subject to regulatory scrutiny to ensure compliance with legal standards and the protection of public and employee interests.

Whenever public authorities in Denmark purchase goods or services, they are subject to strict procurement rules. The rules apply to all types of procurement and outsourcing and are thus not specific to IT-contracting. However, procurement rules are of great practical importance in this area because the public sector in Denmark is a major purchaser of IT.

Depending on the nature of the contract and its monetary value, a public sector outsourcing may be subject to both Danish Procurement Laws and EU-regulation ensuring transparency, fairness, and an efficient use of public funds by establishing competitive bidding procedures.

The procurement rules are mainly based on the EU Public Procurement Directive, which is implemented in the Danish Public Procurement Act.

The key procurement laws and regulations that govern public outsourcing include:

1. The Danish Public Procurement Act.
2. EU Procurement Directives:
   1. Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts.
   2. Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors.

The contract value is the main determining factor when ascertaining the applicability of various regulatory requirements in relation to public procurement.

3.2  The following requirements may apply depending on the total contract value:

1. Obligation to advertise the contract publicly on the national procurement portal (www.udbud.dk), or in the Official Journal of the EU (Tenders Electronic Daily “TED”)
2. Obligation to follow special procedures to ensure that all bidders are treated equally by respecting the principles of equality, transparency and proportionality.

Specific sectors, such as defense, security, and utilities (water, energy, transportation) may be subject to different thresholds and procurement procedures, governed by additional regulation.

A key component of Danish procurement law is the contracting authority’s obligation to determine, in advance, which criteria will be emphasized in the evaluation of the tenders received. This theoretically allows for the assessment of whether the contract has been awarded to the undertaking with the best offer.

Another key element is the prohibition of negotiation with the bidders. The ban on negotiation has caused major problems when public authorities enter complex IT projects, especially the development of large IT systems. This is mainly because a detailed definition of the system’s functionality and the implementation of the project typically can best be determined through a detailed dialogue between the authority and the supplier. However, due to the procurement rules, this dialogue can only take place once the authority is aware of the specific offer and has selected the supplier.

As a result of this, a special form of procurement called “competitive dialogue” has been introduced to procurement law. This involves a phase of dialogue between the public entity and the bidders before the final offer is submitted. It is, however, important to note that competitive dialogue can only be used for particularly complex contracts where it is not possible to specify the service in depth in advance. It is assumed that larger IT development projects typically will meet this requirement.

In addition, the Danish government generally uses four standard contracts for outsourcing arrangements (K01, K02, K03 and K04) aiming to ensure a common contract paradigm in connection with the procurement and development of IT systems across the country.

In Denmark, procurement regulations for private sector organisations are less formalized compared to the public sector, as the private sector is generally free to decide how to procure goods and services.

Thus, private sector organisations in Denmark and the EU are generally not directly subject to the specific procurement rules as described under question 3.

However, there are other pieces of legislation which directly impact outsourcing projects from the private sector.

1. Utilities Directive 2014/25/EU: Private sector organisations involved in certain utilities are subject to stricter procurement regulation, as these utilities often have a significant public impact, especially in sectors like energy, water, transportation and postal services.
2. Public funding and PPP: Private sector organisations may be subject to the public procurement rules when they receive public funds to finance projects and therefore need to ensure transparency and competition in their procurement.

Danish law does not specifically regulate outsourcing arrangements, aside from the exceptions in relation to the financial sector (please refer to question 6). The primary legal basis for the regulation of the parties’ obligations under an outsourcing agreement will thus be the contents of the executed agreement. To the extent that the outsourcing arrangement is subject to mandatory legislation, this will take precedence over the agreement. Delivery of IT services is only to a limited extent subject to mandatory legislation in Danish law.

The key general laws and regulations applicable to outsourcing arrangements include (i) data protection law, (ii) copyright law, (iii) employment law and (iv) procurement rules. An in-depth review of general laws and their implications for outsourcing arrangements will be addressed in the next part of the article.

Further, and as widely recognized across the European market, the Europeans Union’s Digital Strategy includes regulation spanning across all digital sectors, which entails that digital services are becoming subject to an ever-increasing and complex regulatory landscape. Notable pieces of legislation—which have been recently implemented, are subject to negotiations, or which the Commission has publicly stated that they are working on —include:

1. The Digital Services Act
2. Digital Markets Act
3. European Chips Act
4. Artificial Intelligence Act
5. The Data Act
6. The European Health Data Space
7. Digital Operational Resilience Act

Naturally, the amount of legislation currently being implemented across the European Union raises the complexity level for all parties engaging in outsourcing arrangements. Assessing the scope of applicability and the general requirements across the various regulations requires significant resources from all parties involved in outsourcing.

In Denmark, there are mainly two sectors which are subject to specific legal regimes applying to outsourcing arrangements: (i) financial services and (ii) insurance.

Financial institutions: these are regulated under the Danish Executive Order no. 973 of 22 June 2022 (“the Outsourcing Order”), which implements the EBA Guidelines on Outsourcing Arrangements. The material scope of the Outsourcing Order applies where a supplier performs a process, service or activity for a company, that the company would otherwise perform itself.

The overall aim behind the Outsourcing Order is to ensure that any customer who procures an outsourcing service retains an overview and sufficient control of its outsourcing arrangements.

The Order should be viewed as a complementing instrument to the EU legislation on the area consisting of, i.a., the Digital Operational Resilience Act (“DORA”) for when institutions in scope of both instruments outsource (ICT) functions, cf. also the 29th recital of DORA. For practical reasons it should be highlighted that all contracts within scope the Executive Order will be subject to both the Order, EBA Guidelines and DORA requirements, except potentially BPO outsourcing contracts depending on the nature of the main component (whether this is ICT or relies primarily on ICT).

Insurance: insurance companies have been separated under two groups when discerning their legal obligations. Group-1 insurance companies have to comply with the broader regulation under article 274 of the EU Solvency II Delegated Regulation (the “Solvency II”) and in case of outsourcing cloud services also the EIOPA Guidelines on outsourcing to cloud service providers of 2021. Group-2 insurance companies, in addition to the insurance companies ATP and Lønmodtagernes Dyrtidsfond, have complied with Executive order 723 of 28 May 2020 (and not Solvency II as such) and the EIOPA Cloud Outsourcing Guidelines.

Continuing the above, the Danish regulation regarding outsourcing arrangements for financial services and insurance companies should similarly be seen as complementing other legal instruments; namely DORA, provided the outsourcing contract deals with on-going ICT services and are within scope of the EIOPA Cloud Outsourcing Guidelines or Solvency II.

Merger control is subject to both Danish law and EU-regulation. According to Section 12(a) of the Danish Competition Act, a concentration is deemed to arise when an undertaking acquires whole or partial control, on a lasting basis, over one or more other independent undertakings.

Outsourcing part of an undertaking’s activities previously conducted in-house may constitute a concentration. The Jurisdiction Notice,¹ distinguishes between “simple” and “non-simple” outsourcing, with the decisive difference being whether the outsourcing involves the transfer of revenue-generating assets to a third party. In “simple” outsourcing, where no assets or employees are transferred to confer control, no concentration occurs, as market structure remains unchanged.

In contrast, “non-simple” outsourcing constitutes a concentration when assets and/or personnel are transferred to an external provider, provided these assets constitute an undertaking or part thereof, i.e. business with access to the market. The test is whether the transferred assets can generate turnover in the market, and thereby constitute a business. If the assets do not currently generate turnover, the external provider must achieve market access within three years using the transferred assets.

Footnote(s):

¹ Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, para 25-27

Regardless of whether an outsourcing agreement falls within merger control rules, competition law—specifically Section 6 of the Danish Competition Act on anti-competitive agreements—applies to terms that have as their object or effect the prevention, restriction, or distortion of competition within the common market. Outsourcing agreements may raise concerns if they include restrictions that limit market competition or reduce consumer choice.

Restrictive terms: Certain terms in outsourcing agreements—such as non-compete provisions, long-term exclusivity arrangements, and purchase/supply obligations—can significantly affect market competition by limiting the parties’ ability to operate independently. For instance, long-term exclusivity clauses that require a customer to engage a specific supplier exclusively or refrain from competing with the supplier may restrict market access for other providers and reduce the customer’s flexibility to switch suppliers. Similarly, provisions preventing the supplier from serving the customer’s competitors can create barriers to entry, hindering competition in the market. These types of restrictions may have the object or effect of preventing, restricting, or distorting competition. Therefore, such clauses must be assessed carefully to ensure compliance with Danish and EU competition law.

Information exchange: The course of an outsourcing agreement may involve the exchange of competitively sensitive information, such as information about pricing, cost structures, and strategic plans. If the outsourcing parties are competitors in the same or in related markets, this exchange of information could lead to anti-competitive behavior. While some exchange of information is legitimate and necessary, other types of information exchange may violate competition laws. To mitigate these risks, companies are advised to implement appropriate safeguards and consult legal advisors to ensure compliance with competition law.

During an outsourcing agreement, three types of IP rights are typically created.

1. Rights to computer software: Software developed as part of an outsourcing agreement, especially source code, is protected as a literary work under the rules of Danish copyright law. Protection does not require registration but arises automatically when a work is created. The protection accrues to the author, cf. Danish Copyright Act Section 1. The copyright protection will, as a declaratory main rule, accrue to the supplier, unless otherwise agreed by the parties. In the absence of contractual regulation, the customer’s acquisition of rights depends on interpretation, including whether the customer has paid for the development, in which case the presumption is that the customer has the right to use the developed software also vis-à-vis a new supplier.
2. Rights to system data: Another type of IP right that can arise in relation to an outsourcing agreement is the system data generated as part of the outsourcing. It is often agreed that the rights to the system data generated as part of the outsourcing belong to the customer. In the absence of contractual regulation, this will probably also be the declaratory starting point. The consequence of this is that system data stored by the supplier must be returned to the customer at the end of the agreement.
3. Rights to information on the execution of the outsourcing (operation manual): The third type of IP-right relates to information on the operation manual – in other words, information on how the outsourcing is being executed. This information will most often have the character of works (protected by copyright law) or trade secrets (protected by the Danish Trade Secrets Act). As a main rule, the rights belong to the supplier.

The transfer of intellectual property created by the supplier generally necessitates explicit contractual provisions.

Typically, a usage right for the customer concerning the relevant information is presumed as a default position. This usage right may, particularly in instances where the customer has financed the development of software as part of the outsourcing arrangement, ‘follow the customer’ post-termination of the agreement. However, this does not equate to a transfer of ownership of the intellectual property in question.

For details regarding system data, please refer to question 9.

Trade secrets are protected in Danish law pursuant to the provisions of the Danish Trade Secrets Act which transposes the Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure.

To qualify for protection under the Act, three primary criteria must be satisfied. Firstly, the information must be secret, meaning it is not generally known among or readily accessible to individuals within the circles that typically handle such information. Secondly, the information must possess commercial value due to its secrecy, implying that it confers a competitive advantage upon the holder. Thirdly, the lawful controller of the information must have undertaken reasonable steps to maintain its secrecy.

Additionally, confidential information may be afforded protection through contractual mechanisms, such as non-disclosure agreements (NDAs) and confidentiality clauses within employment contracts, which stipulate the terms under which the information is to be handled and safeguarded against unauthorized use or disclosure.

In Denmark, the protection and processing of personal data is primarily regulated by the GDPR and the Danish Data Protection Act.

Both the customer/the outsourcing company (typically the data controller) and the supplier (typically the data processor) are subject to a number of obligations under data protection law. Failure to comply with such requirements, could result in fines for both the outsourcing company and the supplier.

A data processing agreement complying with the requirements set out in the GDPR needs to be in place when processing personal data in outsourcing arrangements. ­Further, standard contractual clauses will have to be executed for transfers out of the EU/EEA to countries without an adequacy decision.

Among other things, there are requirements for records of processing activities, processing security, especially for cross-border outsourcing, adherence to the rights of data subjects and for impact assessments.

In Denmark, the regulation of non-personal data is primarily regulated by the EU Regulation on the Free Flow of Non-Personal Data. This regulation ensures the free movement of non-personal data across the EU and prohibits unjustified data localization requirements, promoting data portability and interoperability.

For outsourcing arrangements, the main implications include:

1. Contractual Clarity: The parties must clearly define data ownership, access rights, and responsibilities in contracts, including data usage and return policies.
2. Security Measures: The parties must implement appropriate security measures to protect data integrity and confidentiality, even though non-personal data is not covered by GDPR.
3. Sector-Specific Regulations: The parties must account for additional regulations in specific sectors such as telecommunications, energy, or finance which may impact data handling.

Denmark’s cybersecurity framework is largely harmonized with EU legislation, including the NIS1 Directive, with forthcoming updates through the NIS2 Directive, the Digital Operational Resilience Act (DORA) and the Cyber Resilience Act (CRA).

Currently, cybersecurity in Denmark is governed by the Act on Network and Information Security, implementing NIS1. The law requires operators of essential services (OES) and digital service providers (DSPs) to adopt cybersecurity measures, report incidents, and manage third-party risks. Organizations engaging in outsourcing must ensure their providers comply with these standards to mitigate risks and avoid liability.

The NIS2 Directive, expected to take effect in Denmark by July 2025, will introduce stricter requirements, including broader sectoral coverage, enhanced supply chain security, and senior management accountability. The Danish implementation is expected to closely mirror the directive’s language and scope, ensuring a minimum implementation approach that avoids placing additional burdens on Danish businesses compared to their EU counterparts.

Additionally, DORA, effective January 2025, will impose specific obligations on financial institutions and their ICT service providers, while the forthcoming CRA will require digital products to meet stringent cybersecurity standards. Both acts will have implications for outsourcing arrangements, particularly in regulated sectors and for the procurement of secure digital solutions.

In Denmark, the use of advanced technologies like AI, RPA, cloud computing, and blockchain in outsourcing is regulated by EU and national regulations.

AI is regulated by the European Union’s AI Act, which prioritizes risk management and ethical standards, focusing on transparency and accountability.

Cloud computing services are required to adhere to the GDPR for personal data, ensuring data security and sovereignty. Although blockchain lacks specific regulations, it must align with existing regulation, especially in financial services, where anti-money laundering (AML) and know your customer (KYC) requirements are crucial.

As a part of an outsourcing arrangement certain job functions previously performed by the customer may be transferred to the supplier.

If the outsourcing arrangement constitutes a transfer of undertakings, it will be subject to both Danish employment laws and EU-regulation.

To constitute a transfer of undertakings, the relevant criteria are:

1. whether a transfer of an economic entity has taken place;
2. whether such economic entity has maintained its identity after the transfer; and
3. whether a change of employer has taken place rather than a change of ownership of the relevant entity (This will be the case where the supplier takes over the customer’s employees in connection with outsourcing of IT-services).

If the conditions are met, the initial outsourcing constitutes a transfer of undertakings, and employees will be transferred by operation of Danish law (The Danish Transfer of Undertakings Act of 20 August 2002, Consolidated Act No. 710 (Danish Act 2002/710)) implementing Directive 2001/23/EC (Transfer of Undertakings Directive), which provides the protection of employees in relation to transfers of undertakings, particularly to ensure that their rights are safeguarded in the event of a change of employer.

The Danish Act and the Directive apply to any type of undertakings whether public or private, whether they are operating for gain or not and whether it is a full or partial transfer. The Act offers mandatory protection to the employee to the same extent as the Directive. Consequently, the supplier cannot circumvent these rules.

Both the Danish Act (2002/710) and Directive (2001/23) have specific implications for outsourcing arrangements in relation to (i) the transfer of the rights and obligations of the employee to the transferee, (ii) protection against dismissal, and (iii) the employee’s right not to continue the employment relationship with the transferee.

If the outsourcing arrangement constitutes a transfer of undertakings, as described under question 16, employees will be transferred accordingly. Generally, employees are automatically transferred to the new employer under the same terms and conditions as their existing contracts and with the same protections. It is customary in major operating agreements to regulate which of the parties must bear different costs in connection with the transfer of employees.

17.1  Pre-transfer 

Notice about the planned transfer: Employers are required, within reasonable time before the transfer, to inform and consult employee representatives, such as unions or work councils, about the planned outsourcing agreement. The duty to notify includes information on the date or proposed date of the transfer, the reason for the transfer, the legal, economic and social consequences of the transfer for the employees, and possible measures available to the employees.

Protection against dismissals: The fundamental right of the transferred employees is the right to continue working after the transfer, which relates to the protection against dismissals. Dismissals may, however, be implemented both before and after the outsourcing if the dismissal is reasonably justified due to economic, technical or organisational changes in the workforce. It is up to the employer to prove that the dismissal is justified, and an outsourcing arrangement does not in itself constitute grounds for legal dismissals. As a result, employees may be entitled to compensation for unlawful dismissal, if the only reason is the transfer.

Employee’s right not to continue the employment relationship with the transferee: A fundamental principle established by the CJEU stipulates that an employee has a right to choose its employer. Therefore, employees may choose not to be transferred under the outsourcing arrangement. This will most likely result in the employees having terminated their employment with immediate effect with no further claim for salary or compensation.

17.2 During transfer

Preservation of existing employment terms: When a business or part thereof is transferred under an outsourcing arrangement, the rights and obligations of the employees along with their individual employment terms and any collective agreements, will be transferred to the transferee. This includes all terms and conditions in relation to (a) collective agreements, (b) provisions on wages and working conditions set out or approved by a public authority as well as (c) individual agreements regarding salary and working conditions.

17.3 Post-transfer

Adoption of collective agreements: If the transferred employees are covered by a collective agreement, the new employer will, generally, automatically adopt the collective agreement and become party to such agreement. According to the Danish Transfer of Undertakings Act 2002/710, however, the transferee may give notice to the unions within a set time limit following the transfer date, stating that the transferee does not want to adopt the collective agreement to which the employee was a party. The transferee will still be obligated to fulfil other employee rights following from the waived collective agreement, such as the employee’s right to payment for extra hours, pension contributions etc. until the ordinary expiry of the collective agreement.

When considering outsourcing arrangements in Denmark, it’s important to understand the tax implications across several areas.

For capital gains and recapture of depreciation, capital gains are generally taxable as income for corporations, and any recaptured depreciation is treated as ordinary income, both subject to the corporate income tax rate. Special rules may apply to capital gains on shares, potentially exempting them under certain conditions.

The corporate income tax rate in Denmark is 22%, applicable to the worldwide income of companies, including business operations, capital gains, and recaptured depreciation. Deductions for business expenses are available, and losses can be carried forward indefinitely, subject to a few limitations.

Real estate transfer tax is imposed at 0.6% of the property’s value plus a fixed fee. This tax is relevant if outsourcing involves transferring real estate assets, typically paid by the buyer unless otherwise agreed.

Denmark’s VAT rate is 25% on most goods and services. In cross-border outsourcing, services provided to businesses outside Denmark may be zero-rated, with the recipient responsible for VAT in their jurisdiction. Companies can usually recover VAT on business expenses, depending on the nature of the expenses and their VAT status.

Understanding these tax considerations can help in structuring outsourcing arrangements effectively.

Denmark is committed to ESG (Environmental, Social, and Governance) compliance, which plays a crucial role in shaping outsourcing arrangements through a range of regulations. The attention to ESG during outsourcing arrangements has been significantly increased in recent years.

Environmentally, companies operating in Denmark must align with the country’s Climate Act targets, which promotes sustainable practices and a general reduction in carbon emissions. Additionally, businesses must comply with the Waste Electrical and Electronic Equipment (WEEE) Directive, ensuring that electronic waste is disposed of and recycled properly.

Socially, companies are expected to ensure that their supply chains are free from forced labor, adhering to international standards against modern slavery. Moreover, any outsourcing arrangements must comply with Danish labor laws, which aim to guarantee fair wages and decent working conditions for all employees.

In terms of governance, Denmark has stringent anti-bribery and anti-corruption laws. Companies are required to implement strong compliance programs to prevent any corrupt practices in their outsourcing activities.

These ESG requirements have several implications for outsourcing. Contracts should include specific clauses that address ESG compliance, and companies must conduct thorough due diligence to ensure that their partners are able to meet these standards. Additionally, businesses should establish ongoing monitoring systems to ensure continuous compliance with ESG requirements.

Meeting these ESG standards is essential not only for legal compliance but also for maintaining a positive reputation in Denmark. By adhering to these guidelines, companies can demonstrate their commitment to responsible business practices and enhance their standing in the market.

Cross-border outsourcing in Denmark comes with unique challenges, particularly in the realm of European cooperation. A key concern is compliance with data transfer laws, especially under Chapter 5 of the General Data Protection Regulation (GDPR). This chapter outlines the requirements for transferring personal data outside the European Economic Area (EEA). Companies must ensure that these transfers meet GDPR standards, often using tools like Standard Contractual Clauses (SCCs) and Transfer Impact Assessments (TIAs) to maintain compliance. Despite the EU’s push for the free flow of non-personal data, businesses must still adhere to data localization requirements to protect personal data.

Export controls add another layer of complexity. Companies must comply with EU regulations on dual-use goods for technologies that can serve both civilian and military purposes and adhere to international sanctions and trade restrictions.

Legal and regulatory compliance is also crucial. Businesses need to navigate jurisdictional differences and draft detailed contracts that address varying legal standards and dispute resolution processes.

Security and risk management are vital in this context. Implementing strong cybersecurity measures and conducting thorough risk assessments are essential to identify and mitigate potential threats.

Successfully managing these challenges is critical for companies to ensure compliance and effectively handle risks in cross-border outsourcing. By doing so, businesses can maintain a competitive edge in the global market.

The default position under Danish law is that a contracting party can claim full coverage of its losses (direct and indirect) provided that:

• the party can document the loss;
• there is a basis of claiming damages, e.g., negligent or strict liability;
• the loss is deemed foreseeable; and
• there is a chain of causation between the act or omission and the loss.

The parties are, however, mostly free to exclude – or to agree a cap on – liability, but such exclusions may be interpreted narrowly by the courts.

Most outsourcing agreements will be subject to limitation of liability provisions, ­setting out a total cap of damages and excluding certain types of losses. Most agreements also include a liability cap, which is either ­limited to a percentage of the total charges paid or payable during a period of, e.g., the preceding 12 months leading up to the default or to the total charges paid or payable under the service order in question.

Danish law recognises that there are certain situations where limitations of liability cannot be invoked, e.g., in terms of personal injury or death, in cases of unfair contract terms, or in some cases of gross negligence, willful misconduct or breach of contract. Such situations will often explicitly be excluded from the limitation of liability provisions. Other mandatory statutory obligations such as environmental protections or obligations under employment law cannot be contractually excluded.

The limitation of liability will often also exclude liability for indirect losses. However, the line between direct and indirect losses is not sharp and will often cause disputes if the definition is not clear from the contract.

It is common practice to place a cap on the following types of claims:

1. Cap on delay regarding transition activities.
2. Cap on service levels regarding recurring charges.
3. Cap on total claims tied to the annual contract value.

Outsourcing agreements will typically contain well-defined “dispute resolution clauses” which govern how the parties will resolve disputes about non-compliance under the contract. A key principle for dispute resolution is the widely accepted deliver-first, settle-later principle, which ensures that service suspension does not occur every time a dispute arises; instead the services continue while the dispute is handled as a separate issue.

The key mechanisms for resolving contractual disputes include:

Negotiation: Outsourcing contracts usually contain provisions encouraging the parties to attempt to resolve disputes amicably before resorting to more formal procedures. Informal negotiation is in theory the most beneficial and the parties will often attempt to resolve the dispute through negotiation before resorting to other dispute resolution mechanisms.

Mediation: Mediation is a voluntary, nonbinding process in which an impartial third party helps the disputing parties reach a mutually acceptable solution. The mediator is appointed by the parties and facilitates settlement negotiation. In Denmark, mediation can be facilitated by professional mediators or industry-specific organisations. While mediation is not mandatory, it is often a recommended or required first step in dispute resolution clauses.

Arbitration: Many outsourcing contracts in Denmark contain an arbitration clause, which states that any disputes will be resolved by an arbitrator rather than through the court system.

Litigation: If the contract does not contain dispute resolution clauses, the general provisions of the Danish Administration of Justice Act will apply, allowing the matter to be adjudicated by the Danish courts.

Regarding contractual breaches, the following remedies are commonly available to the parties:

Specific performance: It is a fundamental principle that contracts are binding and can be enforced by both parties. Thus, the breaching party can be ordered to fulfil its obligations as specified in the contract. The general rule under Danish law is that the customer can demand performance in kind.

Price reduction: If defects in a service cannot be remedied, the customer is entitled to a proportionate reduction in price. However, the proportional price reduction is of little practical significance as the supplier can often repair defects while the customer has a greater interest in receiving a defect-free system than receiving a proportional reduction in the contract sum.

Damages: If the outsourced service is delayed or defective, the customer may claim damages when the general conditions for damages are met, meaning there must be a basis for liability, the customer must document a loss, and the loss must be causal and adequate.

Termination: The customer may terminate the contract if there is significant delay or significant defects in the outsourced service. The material assessment of significance is a specific overall assessment where all the circumstances of the case can play a role.

Many outsourcing arrangements impose a contractual penalty on the supplier, as an agreed measure and extra incentive, that becomes enforceable if the services are delayed or do not meet the agreed contractual target. The contractual penalty provisions stipulate that the customer may claim the agreed penalty as soon as the triggering events occur regardless of whether the customer has suffered a loss.

Further, the purpose behind the inclusion of contractual penalties is to objectify the compensation so that exhausting discussions about the calculation of a compensable loss are avoided. These are also called “liquidated damage clauses”.

Other enforcement measures may include regulatory compliance and fines, e.g., fines for non-compliance with GDPR, DORA or NIS2, including fines for failure to report, if such obligations are regulated in national law. The parties of the contract must also consider cross-border regulatory requirements and enforcement mechanisms in the jurisdictions where the outsourcing provider operates.