Are your IT/Tech contracts designed to fail or to create success? The difference may lie in whether the contract addresses the essential issues crucial for a productive and rewarding collaboration.
In the article “Have we designed our contracts to fail?” it is emphasized how commercial success can be enhanced by focusing on the 10 most value-creating and disputed topics (documented by WorldCC’s surveys). If these 10 key topics are integrated effectively, it can ensure that contracts not only protect one’s interests but are also attractive to potential business partners.
The 10 most value-creating and disputed topics:
- Scope of Services
- Roles and Responsibilities
- Collaboration Model
- Change Management
- Pricing Model
- Testing and Approval
- Service Levels and Penalties
- Customer Obligations
- Termination Rights
- Delivery Standards
But how do we incorporate these topics in a way that is attractive to both parties? Before answering this, it is essential to understand two primary approaches to contract negotiations.
Negotiation Styles*: Positional vs. Interest-Based
The two dominant negotiation styles are positional and interest-based/relational. The positional style prioritizes self-interest and is often used by those with a strong market position. This approach can be detrimental in development projects, long-term partnerships, etc.
The interest-based style, on the other hand, is based on the idea that contracts should benefit both parties. This approach encourages looking beyond immediate needs and making agreements that create value for both parties.
Integration of the 10 key topics and 4 criteria
If you truly want to make your IT contract attractive to your partners, it’s unfortunately not enough just to integrate the 10 key topics; it is also necessary to understand and incorporate the following four criteria: Balance, Relevance, Clarity, and Market Adaptation.
Balance:
Consideration should be given to both parties’ interests with a fair distribution of rights and obligations. The contract should create a healthy and fair dynamic between the parties, promoting a long-lasting collaboration.
Relevance:
The contract is tailored to the specific situation, including the customer’s current and future needs, without unnecessary regulation. The contract becomes a plan and an ongoing tool for the parties’ collaboration.
Clarity:
Means clear wording and definitions of terms and conditions. Parties achieve mutual expectations, and the risk of interpretation disputes and potential lawsuits is reduced.
Market:
Adaptation Examine whether the contract adequately considers the conditions relevant in the market in which the parties operate and navigate. A prerequisite for a balanced and relevant contract.
A Practical Example:
Let’s take a practical example: when drafting the contract section on the key point “Testing and Approval,” include the 4 criteria by asking the following questions:
- Balance: Does the agreement ensure fair conditions for both parties for when delivery has occurred?
- Relevance: Are testing procedures and criteria relevant to the specific agreement?
- Clarity: Are all terms and conditions clearly defined to avoid misunderstandings about when delivery has occurred? Are approval criteria clearly defined?
- Market-Adapted: Are approval criteria in line with common standards and practices in the market?
By asking these questions for each of the 10 key topics, you ensure that your contract not only covers your risks but is also attractive to potential partners.
Conclusion:
A well-crafted IT contract is more than just a legal document. It is a tool to build strong, mutually beneficial business relationships. By considering the 10 key topics and integrating the principles of relevance, clarity, balance, and market adaptation, we can create contracts that invite collaboration rather than threaten potential growth.
) Refer to “Getting to Yes” by Roger Fisher and William Ury, Harvard Law School, for more on negotiation styles.
