I’ve been negotiating quite a few IT contracts this week and I thought that it would be interesting to reflect upon the kinds of clauses that IT Customers should ask for but which they often don’t. I think that this is partly due to many IT Customers studying an IT Supplier’s standard terms and conditions and working to improve clauses that the IT Supplier has tabled.
For example, the IT Supplier might have said that the IT Customer can only terminate upon 12 months notice and the IT Customer then spends a lot of time trying to reduce this termination period so that the IT Customer can, say, terminate upon 6 months notice. Clauses like these are important but the focus of the IT Customer is then centred on this type of clause, whereas a lot of other clauses which are simply not mentioned in the IT Supplier’s standard terms and conditions do not even get considered by the IT Customer.
Hence, an IT Customer may simply improve upon the IT Supplier’s standard terms and conditions but might sometimes forget to add its own new ideas, thoughts and clauses to the IT Supplier’s standard terms and conditions.
Here are 7 clauses that you, as an IT Customer, should at least consider tabling in negotiations on IT Contracts with IT Suppliers:
1. Most Favoured Nation Clause – The general purpose of this clause is to say that you as an IT Customer are getting no less favourable prices than any other customers of the IT Supplier. Further, you might add that if the IT Supplier provides any special deals to customers in the future then you, as an IT Customer, can ask to have those deals and you can take advantage of those deals – this means that you will not lose out on future deals offered by the IT Supplier to “brand new customers only”.
2. Price Caps – You may ask that the prices that are quoted will not rise throughout the period of the contract or, if they do, then these are capped at a certain percentage increase and that the price rises can only happen, say, once a year.
3. Renewal – You may ask that if you renew the contract, let’s say for another 12 months, then the prices that you agreed at the start of the original contract will apply to the renewal period, rather than new increased prices being quoted at the time of renewal.
4. Benchmarking – For larger and long term contracts you might ask that the prices and services are compared against the market average at regular points in the contract (e.g. every 2 years) so that the prices that you are being charged are in line with the market. This is the general idea although this kind of clause can become complex as there are plenty of variables such as, for example, how are prices and services compared against “the market” and it might be difficult to compare “like with like”.
5. Termination Fee – You may agree particular “break points” in the contract where you can exit the contract early and for no fault of the IT Supplier on the payment of a pre-agreed termination fee to the IT Supplier. This might at least provide you with an option to exit the contract early if your circumstances change such as if your organisation merges or is taken over or if you simply do not require the services any more (for whatever reason).
Otherwise, without such as option, you might be “locked into” the contract for the full duration or, alternatively, you might explain the position to the IT Supplier at the time but at that stage your bargaining position may be weak. Further, any termination fee that the IT Supplier might require at that time might well be much higher compared with if a termination fee had been pre-agreed at the start of the contract when you might have had a better bargaining position.
6. Step-In Rights – The general idea behind this type of clause is that if the IT Supplier’s performance is poor then you have the right to “step in” and operate the services (or part of the services) yourself or via one of your agents (i.e. another IT Supplier). This step in right might be used in certain limited circumstances (i.e. if there has been data loss). However, before tabling this kind of clause you need to carefully consider whether or not you would ever really invoke such a clause in reality and the practical consequences of invoking such a clause.
7. Data Protection – If your IT Supplier is processing personal data on your behalf then there are a whole list of clauses that should be inserted into the contract to ensure that, amongst other things, the personal data will be kept safe and secure and that it will not be transferred to countries outside the EU. The list of conditions regarding an IT Supplier processing your data can be extended to include issues such as the IT Supplier notifying you as soon as it becomes aware of any data loss.
These are just some of the “additional” types of clauses that you might consider adding to standard terms and conditions that might be presented to you by an IT Supplier. However, a word of warning – it is important to make sure that these kind of issues are tabled in the right context and to make sure that such clauses are appropriate for the type, nature and duration of the particular IT services that you are buying.
Next week I’ll provide some tips on cloud computing, the pros and cons and also things to watch out for when negotiating these kind of deals.