Contract Management in IT Consultancy
Contracting Process in IT consultancy
Contracts management in IT consultancy especially in international context follows below steps.
1. NDA - Non-disclosure agreement
NDA is an agreement between two parties who want to exchange information but wish to restrict and protect the same from any illegal disclosure. Disclosure of confidential information can harm or negatively impact the customer. It can be patent, trade secrets, copyright information, ideas, data, business operations or any information that has very high commercial value. NDA normally covers following terms.
- Definition of confidential information
- Reasonable steps to manage the confidentiality of information by supplier
- Process in case of breach of contract/agreement
It is very important to understand and verify that agreement should include what information is not confidential. NDA should cover that any information that is publicly available and is divulged by no unlawful mean of supplier is not confidential information. Outsourcing companies in India normally signs NDA with customer to provide good comfort for information exchange.
2. Proposal stage
Customer and supplier (IT contractor) exchange project information. The way of information exchange differs based on project size, company type and their comfort level. If it is a big company, they may prefer online tendering.
3. Negotiation stage
Negotiation mode normally depends on customer and vendor comfort. It may be online, virtual meeting or personal meeting.
4. Sales agreement and SLA
Sales agreement or SLA should cover following clauses and terms in addition to normal contract terms.
a) Scope work and service level
The contract should precisely describe the scope and nature of all services that would be provided by the outsourcing company. The contract should also include service timing and the level of performance (e.g. turnaround time, system or server availability etc.).
b) Intellectual Property rights
There should be agreement on the ownership of intellectual property rights (such as copyright, patents, etc.) arising from IT consultancy services or activities. Work which may attract intellectual property rights includes data, software programs, manuals and other written documents. Customer should insist that intellectual property produced by the vendor or consultant should belong to the customer. If the customer does not own source code then provisions should be made to give the outsourcing customer access to source code if modifications are needed in the future, or if the agreement is terminated in between. It is important to ensure that the customer retain full potential control and ownership of its information assets.
c) Pricing and payment terms
Agreement on pricing, payment terms and schedule is very important to note. This is not as easy as it sounds. Normally any software development or IT consultancy faces following issues.
- It is difficult to accurately define the milestones that make it difficult to devise the payment schedule. Even if they are decided, there is always certain level of ambiguities involved
- It is difficult to measure performance level unless they are very clearly defined
d) Warranty and liability
From customer perspective, it is very important that the agreement includes warranty and liability terms and clauses in the agreement. This indemnifies customer for any losses, costs, and liabilities arising from the vendor's breach of contract or non-performance.
For large companies (such as airline and financial brokerage companies), losses (including opportunity cost) from even a temporary cessation of their IT function may be very substantial. It is therefore important to ensure that these losses are recoverable by explicitly providing for them in the contract.
e) Dispute Resolution and Termination
IT consultancy contracts are complex and disputes are inevitable. It is very much important to include dispute resolution and arbitration mechanism in the contract to avoid legal process which is lengthy, time consuming and have very high complications. If arbitration does not work, termination of contract may be required. So IT consultancy contracts should cover following aspects.
- buy back arrangements for developed software and services
- transfer of relevant third party contracts and leases (such as maintenance contracts)
- transfer of data and know-how
- guarantee by the vendor to assist and co-operate in a smooth handover of the IT function
f) Information confidentiality and security
Though NDA was signed prior to contract stage, customer should ensure that appropriate clauses and terms be mentioned that protects disclosure of confidential information.
5. Contract sign
Contract sign is normally executed depending upon contract value, type and customer's comfort. Electronic signature and email are valid format for small and medium sized contracts. However companies expect physical presence during contract negotiation and sign.
Contracts management in IT consultancy especially in international context follows below steps.
- NDA between customer and IT contractor
- Proposal stage
- Information exchange in terms of RFP or requirement documents
- Exchange of additional information where required
- Quoting and commercial stage
- Negotiation stage
- Agreement on payment and commercials
- Sales agreement or SLA (service level agreement)
- Contract sign
1. NDA - Non-disclosure agreement
NDA is an agreement between two parties who want to exchange information but wish to restrict and protect the same from any illegal disclosure. Disclosure of confidential information can harm or negatively impact the customer. It can be patent, trade secrets, copyright information, ideas, data, business operations or any information that has very high commercial value. NDA normally covers following terms.
- Definition of confidential information
- Reasonable steps to manage the confidentiality of information by supplier
- Process in case of breach of contract/agreement
It is very important to understand and verify that agreement should include what information is not confidential. NDA should cover that any information that is publicly available and is divulged by no unlawful mean of supplier is not confidential information. Outsourcing companies in India normally signs NDA with customer to provide good comfort for information exchange.
2. Proposal stage
Customer and supplier (IT contractor) exchange project information. The way of information exchange differs based on project size, company type and their comfort level. If it is a big company, they may prefer online tendering.
3. Negotiation stage
Negotiation mode normally depends on customer and vendor comfort. It may be online, virtual meeting or personal meeting.
4. Sales agreement and SLA
Sales agreement or SLA should cover following clauses and terms in addition to normal contract terms.
a) Scope work and service level
The contract should precisely describe the scope and nature of all services that would be provided by the outsourcing company. The contract should also include service timing and the level of performance (e.g. turnaround time, system or server availability etc.).
b) Intellectual Property rights
There should be agreement on the ownership of intellectual property rights (such as copyright, patents, etc.) arising from IT consultancy services or activities. Work which may attract intellectual property rights includes data, software programs, manuals and other written documents. Customer should insist that intellectual property produced by the vendor or consultant should belong to the customer. If the customer does not own source code then provisions should be made to give the outsourcing customer access to source code if modifications are needed in the future, or if the agreement is terminated in between. It is important to ensure that the customer retain full potential control and ownership of its information assets.
c) Pricing and payment terms
Agreement on pricing, payment terms and schedule is very important to note. This is not as easy as it sounds. Normally any software development or IT consultancy faces following issues.
- It is difficult to accurately define the milestones that make it difficult to devise the payment schedule. Even if they are decided, there is always certain level of ambiguities involved
- It is difficult to measure performance level unless they are very clearly defined
d) Warranty and liability
From customer perspective, it is very important that the agreement includes warranty and liability terms and clauses in the agreement. This indemnifies customer for any losses, costs, and liabilities arising from the vendor's breach of contract or non-performance.
For large companies (such as airline and financial brokerage companies), losses (including opportunity cost) from even a temporary cessation of their IT function may be very substantial. It is therefore important to ensure that these losses are recoverable by explicitly providing for them in the contract.
e) Dispute Resolution and Termination
IT consultancy contracts are complex and disputes are inevitable. It is very much important to include dispute resolution and arbitration mechanism in the contract to avoid legal process which is lengthy, time consuming and have very high complications. If arbitration does not work, termination of contract may be required. So IT consultancy contracts should cover following aspects.
- buy back arrangements for developed software and services
- transfer of relevant third party contracts and leases (such as maintenance contracts)
- transfer of data and know-how
- guarantee by the vendor to assist and co-operate in a smooth handover of the IT function
f) Information confidentiality and security
Though NDA was signed prior to contract stage, customer should ensure that appropriate clauses and terms be mentioned that protects disclosure of confidential information.
5. Contract sign
Contract sign is normally executed depending upon contract value, type and customer's comfort. Electronic signature and email are valid format for small and medium sized contracts. However companies expect physical presence during contract negotiation and sign.
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