Contractual Negotiation

“All contracts have a bias towards the Supplier”

Entering into any contractual relationship has inherent risks. Embarking on an IT project without due consideration and the negotiation of adequate terms of the contract only increases the risks to the success of that project.

All too often, it is only after problems arise with the project, the customer reviews the contract and understands the true strength or otherwise of its position.

Ordinarily no business would enter into any contract without ensuring that:

• It reflects the agreement reached by both parties
• The respective parties responsibilities are specified
• It is clear and unambiguous
• There are terms to cover
  • services/implementation as well as
  • licensing and maintenance
• The terms are fair and reasonable

Unfortunately, these basic considerations are often not followed in IT contracts.

The "Lets just get on with it" mentality

In many cases, suppliers try to persuade customers to 'sign up' quickly, not allowing time for a thorough review of the standard contract.

Sometimes even the customer's own staff feel that negotiation and review of contracts is a waste of valuable time.

However, our experience is, that time taken to negotiate and reach an agreement so that a properly formulated contract is signed, will not be considered time wasted when the first problems occur.

It is critical to the business to prepare a properly drawn out and negotiated contract for any IT related project. Anything else adds risk to the project as well as the business in the event of system failure.

Steps to take

Before signing a contract, the customer should be satisfied that not only are the basic considerations adequately dealt with, but specifically the contract should include:

• A functional specification of the system or other document to be used as the 'benchmark' against which the system will be tested and accepted
• Licensing provisions acceptable to the customer with no 'hidden' or unexpected costs
• A commitment from the supplier to meet the detailed Implementation Plan with timescales convenient to operation of the customer's business
• Provisions for support and maintenance of the whole system including acceptable Service Level Agreements to ensure that an effective support, maintenance and development mechanism is in place
• Where possible, a fixed priced contract or alternatively include all known costs including costs of licences, hardware and other equipment, installation, training and consultancy services
• Payments to the supplier only to be against the successful outcome of identified milestones in the Implementation Plan
• Adequate Warranty periods for the System
• Warranties from the supplier including:
  • Operation and Functionality of the system against the 'benchmark'
  • Performance levels
  • Compatibility with other systems and equipment

It is essential to minimise the risks for the client by having a comprehensive contract including adequate redress against the supplier in the unlikely event of a dispute arising.

AIT has the knowledge and practical experience to assist clients during the demanding and difficult process of negotiating the contractual and commercial terms of the agreement. This can occur as part of a selection process or as a quite separate process where the client has already decided on a preferred supplier. This could also include the renegotiation of existing agreements and licences.

With an unbiased and properly negotiated contract being agreed and signed, there is perhaps a greater chance of it being filed away in a cabinet, never to see the light of day again!