I’ve been drafting information technology contracts and SLAs for 17 years. I’ve acted for vendors (including some of the major multi-nationals) and for customers sourcing IT. We’ve been working on a set of templates for many years and we’ve used them to draft hundreds of IT contracts for clients. Some of them may even have crossed your computer screen. We have also negotiated hundreds of IT Contracts acting for both sides. I’ve learnt some valuable lessons along the way that you could benefit from. Here are my top tips for getting IT contracts right. If you find these tips useful, you might want to attend our one-day workshop on IT Contracts or the IT Sourcing and Vendor Management Summit taking place on 4 October at which I’ll be presenting.
Understand the Transaction and Relationships
Make sure the parties are on the same page. You might understand what is being recorded, but are you sure the parties know. I’ve been instructed to draft a particular contract by one party, drafted a beautiful document, only to find out that the other party had a totally different understanding of the deal. A good solution here is to draft the agreement in plain language in a few paragraphs and ask both parties to read it and confirm that it reflects both of their understandings of the relationship and transaction.
Spend the time upfront to properly understand what is being recorded in the contract. You must understand the relationship between the parties, and if applicable the nature of the goods or services being provided. It is a mistake that is so often made – the drafter jumps into drafting before they know what they are trying to record. This leads to hours of wasted time. When I draft, I picture myself at an intersection with many roads leading off it. I ask myself – Which road am I going to travel? You must pick the right road, otherwise you’ll find yourself doing a lot of backtracking.
Don’t draft One-sided Information Technology Contracts
One sided contracts are often unenforceable and take a long time to negotiate and sign. If I am asked to review a document that is very one-sided in favour of the other party, the temptation is to take it to the other end of the spectrum in favour of my client. This means that there are lots of requested changes, which leads to a long negotiation.
The agreement has so many changes it ends up looking like a Christmas tree.
An agreement should achieve a win-win situation and protect both parties. One sided contracts are the equivalent of being a bully.
Always draft in Plain Legal language
The law requires some IT contracts to be plain legal language, but it makes sense to draft all IT contracts and SLAs in plain language. You must draft with the reader in mind. And the reader is not a judge – the readers are the parties and the people who must implement or perform under the contract. Not the lawyers, nor legal advisors. Anyone should be able to pick up the contract and understand what has been agreed.
Structure contracts for Flexibility
Relationships and transactions change. The scope of the services will change. More people might need to be covered by a licence. Good contracts provide the flexibility to easily reflect a change. Separate the legal terms from the commercial terms so that more work orders or scopes of work can be signed subject to the same legal terms. Always include a good change control clause.
Don’t play Legal Ping Pong
The signing of an IT contract should take weeks, not months.
Legal ping pong is when a draft contract goes from one side’s lawyer, to the other side’s lawyer – over and over again. Like two people playing table tennis. I enjoy table tennis, but legal ping pong costs money and wastes time. These are the steps for a good process:
- One side drafts.
- The other reviews and comments, and asks for changes.
- The drafter reviews.
- Both parties get together face-to-face with the contract projected on a screen and agree the final changes – there and then.
Use electronic signatures whenever possible
The law enables you to sign most IT contracts with an electronic signature. They are quicker and easier than a handwritten signature, and in many cases carry greater evidentiary weight.
Keep Templates and Instances separate
Use templates to create an instance for a specific relationship or transaction. If you make changes to the instances that are useful for other transactions include them in the template. Don’t make concessions in your template and then give those concessions to every person in the future who signs with you.
Once Signed, Don’t Hide the Contract in a Draw
IT contracts record and manage the relationship. They should offer guidance and help the parties have a good relationship. It should be read, referred to and followed.
Resolve Disputes Amicably
If you get into a fight, do not litigate. Nobody wins, except for the lawyers. Negotiate to resolve the dispute, failing which get a mediator to help you solve the problem. Try to avoid arbitration if possible, and the courts at all costs. They are not an effective dispute resolution forum for commercial IT disputes.