Промышленный лизинг Промышленный лизинг  Методички 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 [ 137 ] 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187

live the tenure of the individuals negotiating the terms on either side. We have seen many contract negotiations fall short of the proper due diligence because the individuals involved had personal relationships or ample reason to trust one another. After these individuals have left their respective firms, their successors are left to interpret what may have been agreed on but not documented, producing contention and sometimes resulting in a termination of the agreement entirely. Therefore, it is in both companies best interests to clearly document their agreement for working together.

In every case, the contract should explicitly set forth the terms that govern the relationship and define each partys responsibilities to the other in unambiguous detail. Further, the contracts for many vendor relationships, such as IT services or software, are most often turgid, impenetrable, and complex. For purchases of any material significance, we recommend engaging attorneys or company legal counsel with experience negotiating contractual terms for large purchases or long-term, complex agreements. These professionals have seen the outcomes from poorly negotiated contracts and know which contract terms are of material interest, and they can identify the sometimes hidden, but significant, clauses in a contract. Chapter 19 contains information on entering into contractual agreements, as well as obtaining legal counsel.

We have seen that the outcome of poor contract negotiations is often detrimental to the client company, who is generally the loser in interpreting ambiguities in the contract. In one case, a product vendor found enough room for interpretation to ensure that the new features in its product be considered a new product and required new product use licenses to be purchased by the end client. The new features to be added should have most likely been included in a typical upgrade to the product and, therefore, provided free to all clients paying maintenance fees.

Negotiating the best terms for a vendor contract requires understanding the potential organization requirements not only today, but also in the future. In two other examples, clients have made smart decisions on possible future business actions and protected their rights contractually. In the first case, we assisted a mid-size firm in the spinoff of a subsidiary unit. Fortunately, some forward-thinking negotiator had crafted terms that allowed the licenses for the application system used to run the business to be split between entities and reassigned in the case of such a transaction. This point was at variance to the standard contract from the application vendor and would have likely resulted in significant new license fees payable to the vendor had it not been contracted in advance.

In another case, a firm decided to outsource a portion of its operations to a third party. The vendor that supplied IT systems to the firm was also in the business of outsourcing. The vendor protested vigorously against a third party operating its system, arguing an invasion of its intellectual capital rights and asserting that its licenses could not be reassigned to third parties.



Again, a prescient negotiator for the firm had included the irrevocable and perpetual right to assign the application license to any third-party vendor chosen as an outsourcing partner. Certainly, there was no consideration of outsourcing the technology department at the time of the contract signing, but the negotiation team made sure that all options were covered.

Several important contract terms for vendor services and products are described in the following list. Because of the broad number and types of vendors used by a typical professional services firm, the specific terms will vary from contract to contract; therefore, this list should be treated as merely a starter set for any vendor negotiation conversations:

Insurance: In many cases, clients taking on significant business risk require the vendor to maintain malpractice insurance (often called errors and omissions [E&O] coverage). In any case, critical vendors should be required to provide proof of general and professional liability coverage. Additionally, the firm may choose to be specifically named as an additional insured under the vendor policy.

Completion sign-off: Acceptance of services or delivery of the services, particularly for large projects or implementations of critical products, is an important negotiating point. Typically, the vendor chooses the first possible logical point in a project or service implementation to require payment. The risk to the firm is that the product may not perform as promised or the services are not completed as agreed. To reduce the risk that the company will be obligated to pay regardless of performance, specific acceptance criteria should be constructed. For services, detail the specific deliverables required for satisfactory performance of the contract, the requirements for the deliverable, quality metrics for acceptance, and required delivery dates and milestones.

Assignment rights: Product vendors generally prefer to restrict the assignment privileges of the customer. However, this practice is not in the customers best interest. To allow for company reorganizations and potential merger and acquisition activity, the customer should include a provision to assign rights and transfer the contract in the event of ownership changes, reorganizations, and to subsidiaries and minority interest affiliates.

Product license and maintenance fees: The best case in purchasing product licenses is to obtain a perpetual, fully paid-up license that requires no annual license or maintenance fee. However, many product companies charge maintenance fees and arent willing to support or provide upgrades unless an annual maintenance fee is paid. Set the future maintenance fees before the contract is signed; otherwise, the vendor will gain tremendous leverage during future fee negotiations. Maintenance



fees should begin only when the product or service passes the acceptance criteria, not when actually delivered.

Nonsolicitation clauses: It is in the interest of both the client and the vendor to specify that neither party may solicit to hire each others employees or customers, both during the contract and for some period (usually 24 months) after the termination of the contract. This is generally not an issue for professional services firms, which employ delivery staffwho would not be likely to join a vendor supplying a service outside their expertise.

Description of products or services: Ensure that the description of the product or service to be provided is unambiguous and complete. Often, disputes arise postsigning on what specific service or product was agreed on. With product vendors, this is generally an easy exercise, but it can be particularly difficult to define for business consulting or other professional services vendors.

Right to withhold payment: Ensure the right to withhold fees if vendor services are not properly delivered or product upgrades are not delivered as promised. The end customer or a clear and unambiguous deliverable or result should be the arbiter of what constitutes proper delivery.

Dispute resolution: Consider mediation and arbitration alternatives, which can reduce the cost of disputes and require negotiation prior to legal action.

Future pricing: The vendor will obtain significant leverage in the future if future pricing for products and services is not detailed in the contract. At a minimum, specify that future product or service pricing will be no more than the then-current list less the current customer discount percentage. Ideally, the prices are specifically fixed.

Liability: Vendors will attempt to limit liability to the total sum of fees paid. Clients should attempt to achieve higher, but reasonable, liability limits.

Outsourcing clauses: Provide the right for the customer to transfer license for a product to an outsourcing partner without the licensors consent and without fees. This enables the company to outsource a function without approval from the vendor.

Payment terms: Payment terms specify the cash payments to be paid. Net 30 days is typical for service vendors. Allow for suspension of payments if vendor or product is not performing as agreed.

Warranty: Require the vendor to warrant that the vendor has the right to license the software or provide the services.

Training: Negotiate free training with software products and specify it in the contract.



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 [ 137 ] 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187