Negotiating nightmare contracts

IT, by its very nature, is a changing landscape so outsourcing contracts need to be flexible to avoid a legalistic and costly nightmare.

Increasingly, IT professionals are tasked with managing contracts and Gartner VP and research director Jack Heine last week warned users to avoid outsourcing providers that are "rigid and legalistic".

Heine said contracts should be flexible; if every change requires a contract modification then it's a sure sign of trouble, because the relationship simply turns into a game of legal gymnastics.

"Most contracts get signed, put on a shelf and the day-to-day business is done on a personal level; when selecting a provider get a feel for how rigid it is and find out how willing it will be to accommodate change," he said.

"Drawing up contracts with lawyers is the easy part; agreeing on priorities and delivery is the real challenge. Often, not enough attention is paid to spelling out how SLA's (service level agreements) are reported and calculated. Don't just include penalty clauses, have rewards too."

During negotiations, Heine said IT professionals place too much emphasis on price, which isn't always effective in the long term.

"Over time, the emphasis shifts to quality and delivery," he said, " If you squeeze the provider too much you get what you pay for; you want them to be financially viable too."

While an 'outclause' is necessary in case the contractor fails to meet SLAs, Heine warned termination is costly.

In a $15 million to $20 million contract, Heine estimates it could cost up to $250,000 to pull out -- so selecting the right provider is critical.

"In well-orchestrated contracts there is little room for assumption," he added.

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