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Information Technology Outsorcing Transaction - Halvey K.J.

Halvey K.J. Information Technology Outsorcing Transaction - Wiley Publishing, 2005. - 649 p.
ISBN-10 0-471-45949-6
Download (direct link): informationoutsourcingtransactions2005.pdf
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This will allow the customer to manage the negotiation process as it would manage the selection process and, hopefully, to avoid unnecessary conflicts over issues with little or no practical effect on the project.
At this point, a brief examination of the contract’s role is in order. A contract is a sword or shield to be used in the event of a dispute between the parties. This ultimate purpose should be kept in mind during the negotiation and the preparation of the agreement. It can be safely assumed that most businesspeople desire to live up to their obligations and that most of them substantially do so. The contract, then, must address the various matters that are to be accomplished and to focus responsibility on the party whose obligation it is to accomplish each. Most disputes arise when the parties have failed to consider some potential problem and have, therefore, neglected to specify in the contract who will be responsible.
Finally, this chapter is not intended as a text on negotiation, but instead will concentrate principally on the subject matter to be negotiated rather than on the strategy of negotiation. However, the general methodology of contract negotiation and the techniques that are most useful in defining a comprehensive contract are outlined in this chapter. This discussion is not an argument for tough contracts; it is a plea for well-thought-out, clearly articulated, and detailed contracts. If the duties, obligations, and expectations of each party are expressed, negotiated, agreed to (with an understanding of their implications), and clearly set forth in a written agreement, the chances that both parties will be satisfied with the contract are increased immensely.
3.2 Negotiating Process 121
3.2 NEGOTIATING PROCESS
While most IT professionals approach an outsourcing analysis differently than a hardware purchase or lease analysis, they tend to regard all contracts as having been created equally. There is often a false impression on the part of businesspeople that the details of the contract are secondary to the project. In order to avoid the conflict that can result when the sales cycle has not included a robust discussion of the underlying legal relationship between the parties, the customer’s representative all too often reviews the vendor’s standard contract in light of business issues that arose during other projects, rather than as legal issues unique to the particular project. This, in turn, engenders the classic busi-nessperson-lawyer conflict in which the lawyer points out that the supposed intent of many of the contract’s provisions is not reflected in the actual language of the agreement. This approach ignores one of the fundamental truths of the outsourcing industry: the standard form is invariably inadequate from the customer’s perspective.
This is not to suggest that customers steadfastly refuse to negotiate from the vendor’s form (although as a general matter, the customer should draft the agreement whenever possible to better control the process). It does, however, suggest that customers should not rely on the oral representations of the vendor concerning the intent of the contract and that counsel should be involved as soon as possible. Ideally, this should take place before the vendor is selected. A vendor’s willingness to be reasonable in its legal relationship with the customer should be a significant (although not determinative) factor in the selection process. Just as the IT professional will focus on the vendor’s ability to perform when selecting the vendor, the customer should rely on its lawyer to assess the specific legal risks associated with each vendor, particularly as the regulatory implications of outsourcing continue to increase.
Fundamental to this approach is the need for the customer to be prepared for the negotiation. Taking the following steps before beginning the negotiation can help the customer achieve a more viable contract:
• Define the transaction. The subject matter of the contract is determined by the services being outsourced. As discussed earlier, however, the reasons for outsourcing the services determine the substance and form of the transaction. The definition of the transaction—the process by which a customer prioritizes its goals—is the most basic step in any negotiation. This list must be reviewed and updated throughout the negotiation, because issues may arise that will affect the priority and content given to key objectives. The customer must determine what role it intends to take during the negotiation. Will it control the process by drafting the agreements, setting the timetable for the negotiations, and dictating the content of the meetings, or will it allow the vendor to perform these tasks? In an ideal situation, a framework for the negotiations is established
122 Ch. 3 Negotiations: Strategy and Process
mutually, but as a practical matter, the customer must either lead or follow. Most vendors are accustomed to dominating the negotiation process and are reluctant to disturb the protective blanket of the standard form. The customer should make it apparent to the vendor, early in the selection process, that it will not accept the vendor’s form contract and that the customer has certain contract terms that must be included in any agreement between the parties. If the customer allows the vendor to believe that this will be an ordinary negotiation process until the vendor delivers signed copies of its standard form, the resulting disturbance in the business relationship may not be worth any improvement in the legal relationship. The customer must be careful not to be confrontational in suggesting changes or demanding additional protection. Vendors are more inclined to accept modifications than to make concessions. Although clarifying the legal relationship between the parties is useful and sometimes essential, the customer should never lose sight of the fact that the parties must be willing to cooperate after the contract is signed. If the negotiation has dampened the vendor’s enthusiasm for the business, the real objective of the contract (the successful outsourcing of service) will not be achieved regardless of how well crafted the contract is. In addition, certain rules of engagement must be established.
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