IT managers deal with contracts a lot — from technology vendors, systems integrators, outsourcers, and other miscreants who regularly darken the doors of corporate IT. Even many who recognize the importance of strong negotiating skills do their best to ignore the contracts that express a negotiated agreement. Mostly, it’s a matter of time and attention span. They have too little of either.
It should be obvious: What you agreed to doesn’t matter. It’s what the contract says you agreed to that matters. Even if the contract is an End User License Agreement (EULA) or some other “shrink-wrap” contract that wasn’t preceded by a formal negotiation, it’s still an agreement, and it’s up to you to negotiate a fair version of it.
So if you negotiated the deal, you need to read the contract provisions to make sure they accurately reflect the deal you negotiated, and if you didn’t negotiate the deal, you need to read the contract provisions to find out which terms need to be negotiated.
Here are a few rules of the road to keep in mind as you do so:
1. If you weren’t party to it, you aren’t bound by it. For example, it’s increasingly popular for EULAs to make the transfer of software licenses to another party, even an acquiring corporation, a contract violation. If you’re on the wrong end of this provision — perhaps you have to integrate the information technology of an acquired company — are you stuck buying new licenses, just because the company you acquired agreed to the EULA and that’s what it says?
No, you aren’t. Yes, you acquired the signed EULA as part of the corporate acquisition. One of two conditions is true: Either you own the license as part of the acquisition and are bound by its terms and conditions, or you don’t. If you do, you can use the license, if you don’t you aren’t bound by it. Even if, for some reason, you’re stuck with the worst of both worlds, so what? Call the offending vendor and make it clear: Either it sells you new licenses for a dollar and continues to collect revenue from annual maintenance, or you’ll convert to a different vendor that’s interested in your business.
2. What isn’t in the contract is more important than what is in the contract. Not really, but there’s more risk there. Spotting circumstances that might arise and prove disadvantageous to you that aren’t described in a contract is much more difficult than analyzing what’s there. If it’s a negotiated contract, shame on both of you for not thinking of the circumstance and negotiating it in advance. If it’s a non-negotiated contract, spotting the missing items takes more work. Before you sign, make sure you can live with its terms and conditions; negotiate those you can’t live with.
3. Contracts only matter when things go wrong. Probably the single biggest mistake managers make in reviewing contracts is focusing their attention on whether the contract accurately reflects the intent of the agreement. That is, of course, necessary, but it’s pretty much irrelevant, because so long as everything is going well, neither party will ever pull the contract out of the file drawer. Companies review contracts when something goes awry. When you analyze a contract draft, do so from the same perspective.
4. After non-delivery, the second-biggest problem that can arise in a contract is excessive success. Take a step back. Does the contract assume failure, or at best mediocre results? Joint ventures are especially susceptible to the danger of success, with one side often giving away far too much on the premise that, “We have nothing right now, so there’s no downside risk.” Sure there is — whatever you’re trying to accomplish might work out far beyond your current estimates, which are, after all, predicated on worst-case analysis.
5. Involve the lawyers, but don’t make it their problem. It’s your deal. Their job is to help you make sure it’s the right deal, not to make sure it’s the right deal themselves. Which means, by the way, that it’s up to you to make sure you’ve established a strong working relationship with your corporate attorneys.
Speaking of lawyers, a common negotiating ploy is for a vendor to say to you, “Do you really want to let the lawyers become involved?” It’s an implied threat: The lawyers will kill the deal, or at best cause unaffordable delay. Your best response is to answer with a question: “Why — is there something in the contract our lawyers might object to?”
If nothing else, their response will have some amusement value.