IT directors and managers will already be very familiar with how
to negotiate IT contracts.
What they might not be fully aware of is how much time,
resources and cost ares involved in litigating
IT contracts. It is not uncommon for legal costs to run into
hundreds of thousands of pounds, or more on large IT contracts, as
there is no cap on costs due to the uncertainty of when any
litigation might end.
Taking some time to negotiate an IT contract properly at the
outset can vastly reduce the chances of IT litigation and its
potential consequences.
Some things to ask yourself include:
1. On whose terms?
Don't automatically assume the supplier's terms are the ones you
should use. Yes, this may seem simple and you can make some
amendments to these terms. However, the supplier's terms will be in
the supplier's favour and you may have to make too many changes to
these to get them into a form with which you are happy.
2. Agree the price
Many disputes occur over price and payment. Look at the recent
Fujitsu v EDS case where Fujitsu sued EDS for use of servers that
Fujitsu had provided for back-up purposes but which EDS used for
normal day-to-day operations.
Therefore:
• Include worked examples (this can avoid inconsistencies and
can help others to understand the deal pricing without having to
read the whole contract)
• Identify what each payment is for and when it has to be
paid
• Agree how many times the price can be reviewed - eg,
annually
• Agree any discounts, preferential pricing or price caps
• Agree how much changes might cost - eg, on a time and
materials basis or using a specific formula
3. Future proofing
Think about what might happen to your organisation in the
future. For example, it is not uncommon for an organisation to
merge or be taken over. What impact is this likely to have on the
IT? Here, you might build a provision into the IT contract so if
this occurs you are entitled to terminate the IT contract and
oblige the supplier to help with any migration.
4. Liability
It is incredibly important to study the exclusion and limitation
of liability clause very carefully - make sure you get it checked
by your lawyer. It could be disastrous for an organisation to find
that it cannot claim against a supplier if things go wrong.
5. Agree the exit
Many organisations say they have problems with their IT supplier
undertaking a proper handover of the IT maintenance and support at
the end of an IT contract. This might be because the IT supplier
believes there is no real value in the contract when it has ended.
The supplier may also wish to dedicate its resources to other more
lucrative projects or new customers.
Therefore in the contract always insist upon:
(a) an exit plan being drawn up at the start of the contract
(when relationships are likely to be good rather than at the end of
the contract when relationships may not be so good)
(b) the exit plan being updated regularly so you know where the
project is at any time and what needs to be done if the project is
terminated early
(c) the exit plan containing a "stand still" period. Here the
supplier should maintain the status quo while the contract is wound
down - for example, keeping the same staff on the job and not
replacing them with poorer quality staff.
You don't always need a lawyer to negotiate the whole contract
for you but do think about at least getting a lawyer to
check over what you have agreed before signing up to an IT
deal.
Jimmy Desai is a partner at law firm Blake Lapthorn.
Stop 'value leakage' in contract negotiations >>