Catching 'gotchas' in tech contracts

Computerworld - NEW YORK -- Most technology contracts crafted between vendors and user companies "are atrocious, poorly written and short on details," according to attorney Mark Grossman. In short, he said, "they're a breeding ground for litigation."
The breakdown in writing effective contracts is largely the fault of enterprise customers, said Grossman, chairman of the technology law group at Becker & Poliakoff P.A. in Coral Gables, Fla. That's because IT and contract managers at user companies often fail to apply critical negotiation techniques, such as ensuring that performance promises made by vendors during the request for proposals process are incorporated into any final agreements, said Grossman.
He presented several sessions on the legal aspects of technology contracts at the IBM Share user group conference held here yesterday.
Part of the problem is that a vendor's response to an RFP is usually driven by its sales force to help clinch a deal with a would-be customer. The performance and support promises offered during this stage are typically omitted from the final contract draft submitted by the vendor's more cautious legal staffers, Grossman said.
It's a common occurrence. "We do it all the time," said Earl Johnson, an application programming manager for the city of Dallas, referring to the city's failure to incorporate RFP responses into tech contracts. The main reason that happens, said Johnson, "is the need for expediency and to maintain good relations with the vendor." He noted that the city hasn't taken any steps to try to resolve this issue.
Enterprise customers are usually less prepared for software negotiations than vendors are, said William Snyder, an analyst at Stamford, Conn.-based Meta Group Inc. "If you're in negotiations with a software vendor, in 75% of the cases they know more about your company than you do," he said.
That's because a vendor's salespeople are trained to investigate prospective customers, including what other IT projects they might have in the pipeline and how a particular deal might fit in, said Snyder. By contrast, a software licensing manager is probably familiar with just one division of his company.
It doesn't help that most companies go into contract negotiations at an immediate disadvantage because the draft of the agreement is typically crafted by the vendor, unless it's a Fortune 100 company with considerable purchasing clout, said Grossman.
"We've taken a different approach," said an IT manager for a major auto manufacturer who requested anonymity. Last year, the company hired Gartner Inc. to create a master service agreement template that the company has begun using witha group of four offshore application development outsourcing vendors it plans to work with.
"Historically, our 15 application development managers each had the authority to negotiate such deals on their own," said the IT manager. The master service agreement approach, he said, "should give us more unanimity on contracts."
But the master service agreements aren't a silver bullet for the automaker. Since the offshore vendors returned the contract proposals with suggested changes five months ago, little progress has been made toward finalizing the agreements.
"The IT department is ready to go, but when we bring this to our contracts and legal team, they tell us it might take them a few weeks to get around to this," he said. "It's holding up the whole process."

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