I have managed and overseen many multi-million dollar projects in my career, mostly high-tech, complex projects in the utility industry. I previously wrote a blog about “developing a contract” and heard that it was so impactful I am including almost the same content here, (other than making it a bit more generic to fit all types of contracts). I wanted to share some thoughts that should help companies maximize the value they receive from their contracted partners.
Remember that every situation is a bit different, but here are some ideas for your consideration to maximize the value you receive from contract partners.
Don’t underestimate the importance of the contract. You may have had a great relationship thus far with a company account manager, salesperson, etc., but don’t fall into a false sense of security. The contract is the most important document you will have to explain what you require, when you require it, at what price, and exactly how it will be accomplished. You may have had dozens of calls and meetings with the vendor where you have heard what the vendor’s solution is capable of, but the contract is what will make the capabilities a reality for you. Ensure all of the key aspects from prior discussions, including the RFP response from the vendor, are incorporated in the contract. The salesperson will probably not be engaged with you once the contract is signed anyway, so you’ll need a document to memorialize the promises made for all of the other employees the vendor will assign to your project.
Don’t lose your leverage during the RFP and contracting process. In your eagerness to move forward, you may unknowingly provide too much information to the vendor with which you want to do business that can negatively impact your bargaining position. It is not a wise practice, in my opinion, to inform a vendor that you loved their solution and are ready to sign on the dotted line! There are many ways to approach this with a vendor that is fair and ethical. Using one example I was involved with many years ago, our team made it a point to visit another provider as well as some of their customers so that the provider we really liked would take notice. The strategy worked and the provider we truly wanted to partner with offered very fair pricing and terms. One side benefit was it helped solidify for us the decision to move forward with supplier A instead of supplier B.
Don’t sign the vendor’s standard contract. You may not have the time or inclination to review and modify the vendor’s template or sample contract, but you need to and here’s why: a contract that fully explains your requirements along with “teeth” (explained in a moment) will receive a lot more focus and attention from the provider than their standard contract. Imagine a provider assigning resources to work on your project…the provider will likely assign inexperienced resources if the contract offers little risk to them. On the other hand, if the contract is detailed, stringent, and has “teeth” to protect you, the provider is much more likely to assign their top resources to reduce their risk and ensure the project is successfully completed. Furthermore, your project will receive a lot of attention from the provider’s middle management and C-level executives if your contract is viewed by them as a “tough” contract that they need to keep an eye on.
Make sure you have “teeth” in the contract. You need to add some sort of recourse if the provider does not meet your requirements. You will always hear that “you can walk away if you are not satisfied” but everyone knows once you get involved with a vendor you are highly unlikely to walk away as it will cost you dearly in time, money, credibility, and more. Your contract should state what will happen if the supplier does not provide exactly what you want, when you want it, and even how you want it. For example, assume you require functionality that is unique to your company and this requires a product that is not yet available from the vendor (but it is promised by the vendor). It is not sufficient in the contract to say the vendor must provide the product by a certain date. The contract should clearly state what the recourse will be if the result is not fully met (in terms of meeting the required functionality and meeting the due date). Examples could include a reduction in ongoing fees, a certain number of no-charge products or services, better terms, liquidated damages, etc.
Align the contract with the business case. Your business case is your reason for implementing the project. A best practice is to ensure your business case drivers and major benefit areas are addressed in the contract. You want to do this so the vendor puts a focus on these areas to minimize your risk of not meeting your business case. As an example, suppose the primary driver for your project is to enhance your utility’s outage management capabilities. If so, the contract should call out requirements relating to outage management functionality you require, performance levels you demand, how it will be accomplished, and what recourse exists if the vendor fails to meet your functional, performance, and service requirements. You should also itemize in the contract the acceptance criteria in detail so the provider fully understands what it will take to satisfy you. By detailing this in the contract, you are protecting your employer, reducing the risk that the contracted solution doesn’t fulfill your business case, and provides the vendor plenty of notice early on of what is important to focus on to meet your expectations.
Incorporate risk mitigation into the contract. During the initial assessment phases of your project, undoubtedly you have heard concerns raised from others that have implemented a similar solution. These concerns have made you and your executives hesitant to move forward on such a large, mission-critical investment. One of the best ways to handle these concerns is to make a list of these “risks to success” and circulate the list to all stakeholders to ensure it captures everyone’s concerns adequately. Once this is done, incorporate the risks into the contract. For example, suppose the primary risk is schedule slippage because you are committing to your customers that the solution will be implemented by a certain date. If the solution must be implemented by this date, the contract should clearly indicate the date the solution must be implemented (along with defining what it means to be “implemented” to meet all of your requirements). As discussed earlier, you should add “teeth” to ensure the provider meets this deadline. As another example, if you are hearing from other customers that the vendor has product quality issues, negotiate in the contract stringent terms for product failures.
Address future needs and considerations in the contract, even if they are not fully fleshed out. During contract negotiations, you know you need certain products and services but you also know that you plan to add on to the solution over the coming years to fully maximize your investment. If this is the case, creatively think through what you may want in the future and incorporate into the contract now rather than wait until later. This can be a challenge but if you don’t at least attempt to do this, the vendor will have most of the leverage when you want to incorporate additional services and may not have any incentive to offer you a great deal.
Be reasonable and fair. I wanted to end with this because one might assume this blog is about “sticking it to the vendor”. That is not the case at all. Issues and challenges will undoubtedly arise during the contract term (some may be caused by your company), so work in partnership so you can resolve issues in a fair manner that works for all parties and allows you to continue to constructively work together. That said, if you do run into issues and need to escalate up the vendor’s chain of command, build this escalation process into the contract so everyone is clear on expectations.
There are certainly more strategies to consider and one size does not fit all, so if you are considering a major contract with a provider, consider the above ideas or consider investing in a consultant who can help you navigate these complex waters. It could be time (or money) well spent to help you avoid potential hassles for years to come.