Five tips on contract negotiations

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,...

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 >>

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