Service - Contract Negotiation

“I really think we need an IT strategy…” Selecting the ‘right’ system is only one part of the story. All too many companies sign the suppliers’ standard agreements only to find that that there is something of a gap between what the salesman has promised and what can actually be delivered.

Negotiating good commercial agreements isn’t just about legal niceties. Ideally the contract should capture, within a sound legal foundation, the entire essence of the project including sensible commercial terms and, most importantly, the practical aspects of how the contract will work.

Given the length of time taken to select a new system, the time and effort which will be expended with implementation, and the likely impact upon the business should things not go to plan, then negotiating a balanced contract is an important step in system acquisition.

Under what circumstances might I need this Contract Negotiation service?

Complex systems are not always acquired on good commercial and contractual terms. This issue is exacerbated when projects go wrong in one way or another. Typical symptoms of this include:

  • the project taking longer than anyone expected
  • the project costing more than had been budgeted
  • the client’s expectations turning out to be significantly adrift of the suppliers’
  • major differences in functionality supplied over what was expected
  • suppliers unexpectedly charging large extra sums for facilities that the customer thought would come as standard
  • demands for payment when the system has yet to work to your satisfaction
  • suppliers losing interest in the project once the contract has been signed

These common problems can be avoided by ensuring that all aspects of the commercial, legal and practical relationship are identified and clearly set out at the start of the process.

To get the best results contractual negotiations should be considered as an integral part of the system acquisition process, not left as a last minute hurdle.

You might find that the approach adopted and the degree of flexibility and willingness to take shared risk offered by the suppliers differs widely. Given the potential long term nature of IT agreements this information might well alter your perception of which supplier should be selected.

What does Contract Negotiation involve?

The process is about achieving clarity. All aspects of the project need to be incorporated into the agreement thus ensuring that both parties are fully aware of their obligations up-front.

First it is necessary to identify and prioritise the issues that really matter. For example, sometimes price is the most important issue whilst on other occasions functionality, payment terms, or indeed the implementation timescale might take precedence.

Once these priorities are clear it is necessary to ensure that the important aspects of the contract are debated and negotiated with the supplier. Merely discussing these issues in-depth often uncovers other aspects which are easier to sort out pre-contract than later on.

These issues, once negotiated, will cover all of the services to be supplied, the price, how and when the system is to be delivered, warranties, remedies and many other legal and commercial terms.

Once these contract issues have been fully clarified your legal advisors can be briefed to draw up the actual contract.

What are the benefits of Contract Negotiation?
  • a properly prepared contract secures the potential benefits identified during the system acquisition phase.
  • aspects which are less than transparent can be identified at an early stage; no unpleasant surprises.
  • the client’s own obligations are made clear at an early stage and can be planned for accordingly
  • effective price negotiations (based upon a sound knowledge of what the market will stand) can often deliver substantial cost reductions
  • as a client you will demonstrate your awareness of all these important issues and you will be seen by the suppliers as a wise buyer