Evaluating And Negotiating An IT Contract — The Buyer’s View Allan P. WeeksAttorney-At-LawLaw Office of Allan Page Weeks

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Introduction

• Presentation Objectives• APW’s Core IT Contract Negotiation Concepts• Shared IT Transaction Objectives• Customer “Attitudes” That Cause Delay• Vendor Caused Delays• Customer Caused Delays• Customer’s Need To Tailor Standard Vendor’s

Contract (“War Stories”)• The Lawyers Caused The Delays

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Presentation Objectives• The program description highlights the tension

between:– Desire of both parties to quickly conclude an IT

transaction, which seldom happens;– Customer’s perceived need to adapt the Vendor’s

standard form contract’s terms to a particular transaction; and,

– Vendor’s intention to use a standard form of IT agreement that should only be minimally altered.

• Presentation focuses on the Life Science Customer’s perceptions, biases, experiences and procedures about IT contract negotiations that are too long.

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APW’s Core IT ContractNegotiation Concepts

• Operating Agreements• Construction Contracts• Competing Business Models• Outsourcing Contracts• Lawyer’s Proper Role

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Operating Agreements

• IT product and services contracts are operating agreements.

• Requires careful attention to:– who will use the IT products;– where will they be used;– the functions performed by those products and

services;– what is the output from their application; and,– especially for database licenses, who owns what part

of the output.

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Construction Contracts

• IT contracts, particularly those with a significant services component, such as software development, software customization and systems integration contracts, are similar to construction projects/contracts, with a major distinction—there may not be an alternative Vendor or IT product for the project.

• Primary Customer leverage is achieved by building in milestone testing and payment events.

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Competing Business Models• Vendor’s software license and other IT contracts reflect

the Vendor’s business model for the license/sale of its product and any associated services.

• Customer needs an IT contract that matches the end-user’s business model for the IT products and services that are being acquired.

• Protracted negotiations about the legal or business terms of a software license often arise because the Vendor’s license bears little resemblance to the Customer’s business model for its use of the software.

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Outsourcing Contracts

• Web-enabled access to various IT applications, as well as software hosting, means that many IT contracts are actually outsourcing agreements.

• The use of third party services leads to additional and complex negotiations about the third party’s control of the Customer’s operational responsibilities.

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Lawyer’s Proper Role

• Customer’s lawyer should assure that:– the final IT contract is both legally sufficient

and appropriately protective of the Customer’s interests; and,

– the end-user(s) will be able to utilize the IT products (e.g., software or a database) in the manner expected when the IT project was authorized.

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Shared IT Transaction Objectives

• Customers and Vendors usually want:– the IT contract signed as soon as possible;– the amount of money to be paid and received

by each party to be within their reasonable expectations; and,

– at contract signing, a sense of mutual satisfaction on each side of the table.

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Customer AttitudesThat Cause Delays

• Life Sciences personnel may not understand the important differences between an IT transaction and the more collegial collaboration agreements utilized for drug discovery and development.

• Too much or too little trust in IT Vendors.• Lack of familiarity with the computer industry and the

manner in which it sells IT products/services and negotiates its contracts.

• Risk allocation between a Customer and Vendor may seem unfair and/or over-reaching.

• Computer industry’s well-deserved reputation for over-promising product performance and project completion dates.

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Vendor Caused Delays• Submission of a contract that is too Vendor-biased.• Negotiations handled by personnel not appropriately

knowledgeable about IT transactions. • The failure to be forthcoming in response to Customer’s

questions, due to a desire to protect the sale. • Desire to avoid or postpone detailed contract

discussions, to keep the sale on track.• If a database license is involved, a failure to understand

the differences between a software license and a database license, particularly with respect to output ownership and post-contract retention matters.

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Customer Caused Delays• Failure to clearly communicate or define project

requirements. • Complicated and slow internal decision hierarchy. • Lack of experience with IT contracts and their

negotiation.• Changes in operational needs or corporate policies that

affect the process of negotiating the contract.• Failure to involve knowledgeable persons early enough

in the procurement process, e.g., IT and legal.• If a database license is involved, a failure to understand

the differences between a software license and a database license, particularly with respect to output ownership and post-contract retention matters.

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Customer’s Need to TailorVendor’s Standard Contract – “War Stories”

• License grant would not permit the software to be utilized as expected.

• The output from processing a database could not be retained by the Customer if the database/software license was terminated.

• The centralized management of the software “keys” needed by the Customer was not permitted by the Vendor’s business model.

• The Vendor would not support software updates or new releases beyond the most recent release.

• The contract submitted by the Vendor’s sales person was not applicable to the transaction.

• The contract between the Vendor of outsourced software hosting and the vendor to which that Vendor had outsourced those services did not match the performance terms (i.e., SLA’s) in the proposed agreement between the Vendor and the Customer.

• Neither party understood the Customer’s corporate structure, resulting in an inaccurate identification of end-users and an incomplete license grant.

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The Lawyers Caused The Delays

• The Vendor’s contract was not submitted by the Vendor until relatively late in the procurement process.

• The responsible Customer personnel did not send the contract for legal review until the last minute.

• The contract was sent to the lawyer(s) on a timely basis, but the IT transaction was not considered to be a priority.

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For more information, contact:Allan P. Weeks Law Office of Allan Page Weeks 183 State Street, Suite 4B Boston, Massachusetts 02109

Tel: 617/725-0222Cell: 617/304-4542E-Mail: allan@aweekslaw.comwww.aweekslaw.com