In this blog post we will share some great examples, best practices and experiences working with commercial & government sector CIO’s, IT sourcing teams & procurement departments in getting the best short & long term outcomes on technology procurement.
With new technologies being procured and adopted every year by your enterprise; CIO’s, CFO’s, Procurement & Sourcing teams are continuously facing challenges, because products and services are delivered in different ways, which changes their usage models, pricing structures, licensing policies, terms & conditions and much more.
Below are some of our experiences of consulting and advising both small and large enterprises in commercial and government sectors, on how to deal with technology contracts, manage vendors effectively so you can reduce your organization’s risks in technology investment & execution.
As an objective and unbiased entity, we would recommend you to take a second look at your current and future technology contracts in the light of the following aspects, this will not only help you leverage more value, but also gain additional control on the project’s objective and minimize risks while maintaining healthy technology vendor relationship.
“Everything is negotiable. Whether or not the negotiation is easy is another thing”
Checklist on 23 practical & relevant examples to get you thinking
The definition section in the proposal or any contractual document needs to be explained with complete clarity about every aspect of your contract, addendum, proposals their versions and any other relevant document which might impact the project and vendor relationship. A lot of 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.
Example: Define all the clause headings, important terms and their understanding between parties as a reference to the entire agreement & additional addendum or appendix.
Guiding / Strategic Principles:
Very few organizations, actually put Guiding / Strategic Principles as a part of the contract or intent and we feel this is important since both parties should be in agreement and synergy of the outcome expected of this relationship.
Example: 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 & organizational Impact.
Risk & Governance:
A section which describes how can risks be ‘Identified’ between all the parties, ‘Highlighted’, ‘Communicated’, ‘Mitigated & Reduced’ almost all CIO’s & Sourcing teams focus more on the latter and are reactive. 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: Project management plan, employee & key personnel engagement plan, risk matrix & critical aspects, governance model roles and responsibilities, process ownership etc.
Control & Authority :
This section focuses on defining the control of an individual aspect of the project by each party and individual
at certain time or milestone of the project.
Example: Decision over riding rules, signatories, project sponsors, target audience both internal and external, processes
to be followed.
Almost all organization should have this section which is tightly linked to the initiatives progress, status, risks
and governance model. ‘Word of Caution’ we see so 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.
As a client and service provider the legal clause should have the following to keep the right perspective if things
go really bad.
Example : Court of law, location & Jurisdiction, legal escalation process, settlements, dispute definition, dispute resolution measures out of court, legal liability of costs, situation of company solvency, take-overs and their impacts etc.
Many client organizations focus on having a termination by convenience specially in the government sector, however this is a double edged sword for all the parties involved in the project, since any party 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 for the vendor or service provider.
Example : Terms of termination and reasons to termination should be explicitly mentioned in this clause and how this can be avoided in case of reasonable endeavors made by each party to continue this relationship.
This clause is very commonly used across all organizations of all types and sorts, however we would recommend
to put some specifics around it.
Example : Reasonable disclosure, impact of disclosure, validity, referencing, Intellectual property, business process & product innovations disclosure etc.
Audit & Assurance:
This section very specifically is added or removed from lot of IT contracts based on the relationship between
the parties in particular when licensing of Intellectual Property and commercial viability of entities is measured, our recommendations to both tech providers and client organizations would be to incorporate this clause in the best interest of all parties.
Example: Specific audit rights for licensing and commercial viability for all the parties involved.
Representation & Warranties :
This sections should clearly define the ability of the vendor and service provider on the particular project which has a specific sub section for inclusions and exclusions. 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 in this section to achieve vale for all organizations
Example: Ability to provide the proposed services and clauses related to incentives, penalties, ownership of the warranty and its limitations.
Assets & Resources:
Almost all organizations have this information in their contracts, however many of the enterprises miss the below specifics which are critical when involved in subscription and proprietary products & services based resources.
Example: Apart from the physical infrastructure, technology infrastructure, specific information protecting the client & vendor’s intellectual property, licensing and personnel details should be clearly mentioned and how they should not be abused or misused be specified.
Fees & Payment Terms:
As a consulting and advisory marketplace, we are seeing many of our client organizations inquiring about the feasibility to partner with technology providers who are open to discuss 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, time and material based pricing.
Example : We recommend to both client and technology providers, to discuss the value based model so that all parties are involved in the project to achieve success without having conflicts of interest, however this needs to be carefully formulated for the reasonable good of all parties. Secondly if the traditional technology practices are considered such as the fixed costs or time and material, we would recommend to have the payments terms split in a way which are likely to blow up at the end of the services, so the technology provider has the skin in the game till finalization and handover.
Limitations & Liability:
Link this information and clause tightly with risk and governance section which speaks about how your
proactive approach to Identify & Mitigate.
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 & management committee, process to be followed on how liabilities will be addressed, company solvency, take-overs and their impacts etc.
Service & Delivery Descriptions:
Many organizations completely or partially fail to connect the dots, by not populated and integrating all the sales documentation including proposals and emails shared between the technology provider and client organization. Sourcing teams and CIO’s & IT Teams should be very closely working to clearly articulate and include the service and delivery of the project and what is covered and not covered as a part of the service.
Example: Services, deliverable, outcomes, audience affected & 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 future, etc.
Vendor & System Integrator Support:
Many a 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, a 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 on-site, off-site, 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.
This section will help you put a security perspective to not only your physical organization but importantly to intangible piece of your enterprise, sometimes organization also attach this to Non-Disclosure however it is recommended that it is defined well
and separately described as a heading.
Example: Securing infrastructure, project, client and vendor documentation, personnel & employee information, business process information, innovation & differentiation practices, process to quality check & audit the agreed security at any given time in the duration of the project etc.
Knowledge Transfer & Training:
One of the very critical aspect to your project’s success and which also helps to drive the change if done effectively is training and knowledge transfer. We cannot emphasize enough on this critical parameter and would like CIO’s and sourcing teams to carefully look into this aspect of the contract and information on a continuous basis.
Example: Information which definitely needs to be covered, well-articulated & referred such as training and knowledge transfer objectives, methodology used, 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.
As the licensing policies of existing and new vendors changes with new product launch, upgrades, & delivery models. Our recommendations would be to carefully assess License type and definition, licensing models for the product & service, transparency clause on different licensing models, number of 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.
As an addendum or a separate appendix, do list the internal and external people involved on the project, their competencies, prior experience on deploying such projects earlier.
A specific information section which defines the proprietary rights and their authority vested with both the
client and technology provider.
Example: Ownership and secrecy of IP, documentation, business processes, business differentiation & innovation, personnel information, client & vendor internal documentation etc.
Service Level Agreement:
Service level definitions, duration and turn-around timelines, process & critical levels, documentation, personnel, method to deliver the solution for both on-site and off-site, penalties and incentives related to critical support, working hours and time zone information.
Applicability & 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.
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.