A technology escrow is a risk management tool.
In an escrow, one party deposits money or documents with another (the “escrow agent”) for safekeeping. If an event specified in the escrow agreement occurs, the escrow agent must comply with the instructions in the agreement to deliver the money and/or documents to the other party to the transaction.
The transaction resembles a letter of credit without a bank. One party submits an asset to a third party, who is bound to transfer that asset to the beneficiary of the letter of credit (or escrow) upon the occurrence of the defined event.
In outsourcing, the service provider maintains the keys to the technology. In some cases, the risks of a service provider’s non-performance may be mitigated or managed by the use of a technology escrow covering the technology that is used to process the enterprise customer’s operational data.