May 17, 2021 Last updated May 17th, 2021 636 Reads share

23 Best Practices To Negotiate Technology Contracts In 2021

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Every year emerging technologies are being adopted and procured by companies. To say the least buying tech products and services with different, complicated business, pricing, and usage models has become a big challenge for CIOs, CFOs, Procurement & Sourcing teams. I hope that this checklist of terms and examples will help you navigate the negotiation and contract process better for your new and upcoming tech renewal contracts in 2021.

These 23 actionable tactics with relevant examples apply to small and large enterprises in commercial and government sectors. So you can deal with technology contracts better, manage vendor relationships effectively, and reduce your organization’s risks in technology investment and adoption.

Note: Not all tactics might apply to you, but having them in your arsenal always helps.

Contract

Checklist & some relevant examples to get you thinking:

1. Definitions:

Definitions need to be explained with complete clarity about every aspect of your contract, addendum, proposals with their versions, and any other relevant document which was presented in the sales and pre-sales process, that might impact the project and vendor relationship.

Sounds trivial, but you will be surprised how many organizations take this for ‘granted’ and miss out on important terms, which might turn the entire contract upside down and put you and the vendor at risk.

For Example: Define all the clause headings, important terms, and their understanding between parties as a reference to the entire agreement & additional addendum or appendix.

2. Guiding / Strategic Principles:

Very few organizations, actually put Guiding and Strategic Principles as a part of the contract or the intent of why a particular technology or a service is being procured?

It is important to highlight the overall principles since both parties should be in agreement and synergy of the outcome expected of this relationship.

Example: An understanding from all the parties on the intent of the deal, outcomes, defined objectives & results for the project to be successful and relevant to the organization. You can also incorporate strategic objectives of the management, timelines, and organizational Impact if you will.

3. Risk & Governance:

A section which describes how can risks can be ‘Identified’ between all the parties, i.e.‘Highlighted’, ‘Communicated’, ‘Mitigated and Reduced’Almost all CXO’s focus more on the latter and are reactive rather than being proactive about it.

Effective procurement and sourcing teams have a focused approach on a proactive approach rather than being reactive, so they can see the future risks in advance and a strategy to plan ahead of time.

Example: Jot down project management plan, employee and key personnel engagement plan, risk matrix, governance model, roles and responsibilities, process ownership, etc.

4. Control and Authority:

This section focuses on defining the control on aspects of the project by each party and individual (team members involved) at certain times and milestones of the project.

Example: List down decision overriding rules, signatories, project sponsors, target audience both internal and external and processes to be followed clearly.

5. Communication Plan:

Almost all organizations should have this section which is tightly linked to the initiatives’ progress, status, risks, and governance model.

Word of Caution: Many organizations lose their project’s control, bitter vendor relationship, and fail in their endeavors if this section is not executed well enough.

Example: Put a proactive communication plan in context to your project, its methods, ways of communication, steering committee & management involvement from all parties, routine meeting schedules, and timelines, escalation methods, objective & expectation setting matrix.

6. Legal Compliance:

As a client and service provider legal aspect should have the following to keep the right perspective in place if things go south.

  • court of law,
  • location & Jurisdiction,
  • legal escalation process,
  • settlements,
  • dispute definition,
  • dispute resolution measures out of court,
  • legal liability of costs,
  • company solvency,
  • take-overs, mergers, and their impact.

7. Termination:

Many organizations focus on having a termination by convenience especially in the government sector, however, this is a double-edged sword for all the parties involved in the project. Since all parties will have the right to pull out of the project with no reasoning, it tends to drain out the overall objective of the value that the project will generate for the organization and the vendor or service provider.

Example: Terms of termination and reasons to terminate should be explicitly mentioned in this clause and how they can be avoided with reasonable endeavors to continue the relationship

8. Non-Disclosure:

NDA’s are very commonly used across organizations, however, a good practice is to put some specifics around it.

  • Reasonable disclosure,
  • Impact of disclosure,
  • The validity, referencing,
  • Intellectual property,
  • Business processes,
  • Product innovations disclosure.

9. Audit and Assurance:

This section is very specifically added or removed from a lot of IT strategy contracts based on the relationship between the parties specifically when licensing of Intellectual Property and commercial viability is measured. Both tech providers and client organizations should incorporate this clause in the best interest of all parties.

10. Representation and Warranties:

This section should clearly define the ability of the vendor and service provider to deliver based on the promises made on that particular project. The inclusion and exclusions of what is covered under warranties and not. Another important aspect to be noted is the way the services and products are warranted as both parties need to be reasonable to each other to achieve value for everyone involved. Example: Ability to provide the proposed services and clauses related to incentives, penalties, ownership of the warranty, and its limitations.

11. Assets and Resources:

Almost all organizations have such information in their contracts, however many of the companies miss out on the below specifics, which are critical to subscription, proprietary products, and services.

Example: Apart from the physical infrastructure, technology infrastructure, specific information protecting the client and vendor’s intellectual property, licensing, and personnel details should be mentioned, and how this information should not be abused should be specified.

12. Fees and Payment Terms:

Many organizations today are thinking about the option of ‘Value-based Pricing and Terms’, this means that the payments and terms of the project are linked to the value delivered to the client organization compared to the traditional milestones based or time and material based pricing. Both client and technology providers should discuss and agree on the value-based model, so all parties are involved in the project to achieve success with minimized conflicts of interest. However, this needs to be carefully formulated for the reasonable good of all parties. Secondly, if traditional technology practices are considered such as the fixed costs or time and material, the payment terms split should be in a way that the technology provider has the skin in the game until the project’s finalization and handover.

13. Limitations and Liability:

Link this information and clause tightly with the risk and governance section which speaks about how your proactive approach to Identify and Mitigate risks can affect the overall project.

Example: Limitations of each party, % value of liability ‘caps’ for all parties concerning the project, based on the value being delivered, Involvement of project steering and management committee, the process to be followed on how liabilities will be addressed, company solvency, take-overs, and their impacts, etc.

14. Service and Delivery Descriptions:

Many organizations completely or partially fail to connect the dots, by not populating and integrating all the sales documentation including proposals and emails shared between the technology provider and client organization.

Sourcing teams, CIO’s and IT Teams should be very closely working to articulate and include the service and delivery of the project and what is covered and not covered as a part of the service.

Examples: Services, deliverables, outcomes, stakeholders affected, and value provided by the provider at each stage of the project, inclusions, and exclusions of the service, process which defines, any additional services to be incorporated in the future, etc.

15. Vendor and System Integrator Support:

Many times IT & Sourcing teams misunderstand or are not clearly explained by technology providers on various support models which exist and could be leveraged by a client enterprise for its unique needs and requirements, research on different support models of the vendor and system integrator needs to be explored before the contract is signed.

Example: Explore different support models such as onsite, offsite, email, telephonic & portal or subscription, support models duration, support personnel details, time zones in which support will be delivered, different slabs of support, and its outcomes, etc.

16. Security:

This section will help you put a security perspective to not only your physical organization but importantly the intangible piece of your enterprise, sometimes organizations also attach this piece to Non-Disclosure however it is a good practice to define security aspects separately in a different section altogether.

Example: Securing infrastructure, project, client and vendor documentation, personnel & employee information, business process information, innovation & differentiation practices, the process to quality check & audit the agreed security at any given time in the duration of the project, etc.

17. Knowledge Transfer and Training:

One of the very critical aspects to your project’s success and which also helps to drive the change are training and knowledge transfer.

It cannot emphasize enough, on how critical this parameter is to CIO’s and sourcing teams.

The information which needs to be covered, well-articulated & referred such as training and knowledge transfer objectives, the methodology used, the medium of training and knowledge transfer, individual duties & responsibilities, success parameters, documentation of both internal and external personnel involved in the project, duration, trainers & their qualifications, language proficiency, training plan & assessment, etc.

18. Licensing:

As the licensing policies of existing and new vendors changes with a new product launch, upgrades, & delivery models. It is recommended to carefully assess License type and definition, licensing models for the product & service, transparency clause on different licensing models, several licenses and their validity, annual maintenance and renewal process, % on maintenance, inclusions & exclusions on features and functions on each license type, % discount offered for current and future additions to licenses, etc.

19. Personnel:

As an addendum or a separate appendix do list the internal and external people involved in the project, their competencies, prior experience of deploying such projects earlier.

20. Proprietary Rights:

A specific information section that defines the proprietary rights and their authority vested with both the client and technology provider.Ownership and secrecy of IP, documentation, business processes, business differentiation & innovation, personnel information, client & vendor internal documentation, etc.

21. Service Level Agreement:

Service level definitions, duration and turn-around timelines, process & critical levels, documentation, personnel, the method to deliver the solution for both onsite and offsite, penalties, and incentives related to critical support, working hours, and time zone information.

22. Subcontracting:

Applicability and reasoning, primary & secondary parties involved, duties, responsibilities of each party, commissioning timelines, service definitions for all parties, liabilities, legal & project obligations, commercial impacts & transparency clauses.

23. Force Majeure:

Also for the benefit of all parties put a standard force majeure clause which reasons the unavoidable situations occurred because of nature, war, terrorism, etc.

Keeping the above topics in mind, you are placed to negotiate better technology contracts in 2021.

Sharekh Shaikh

Sharekh Shaikh

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