Negotiating tech contracts into a well-oiled machine: Part 1.

4 September 2020 | Reading time: 2 minutes

    Tightening the ‘nuts and bolts’

Software as a Service and Cloud Service offerings are essential parts of business. A carefully drafted IT services agreement:

  • is critical in every IT project, whether you are a service provider or a customer;
  • helps parties understand their rights and obligations;
  • facilitates the IT solution components working together when put into action.

Based on our extensive experience in this area, the Bespoke Technology Team has put together a series of blog posts identifying key common pitfalls to consider when negotiating IT services agreements.

Part 1 –Tightening the ‘nuts and bolts’

In part 1 of our series, we focus on the importance of clearly defining the parties’ primary responsibilities in every IT project.

1. Clear demarcation of the components

A well drafted IT services agreement will accurately define the scope of services. Fine tuning of the following key provisions is paramount:

  • requirements and deliverables that the customer expects;
  • expected timeline to deliver; and
  • overall scope of the project.

The document should also clarify areas where the services and deliverables are contingent on the customer’s input and co-operation. This will assist in establishing the point at which the service provider’s contractual obligations end and the customer’s responsibilities begin.

Unclear demarcation can result in project delays, payment disputes and service level issues, as parties are unclear of their entitlements, leading to misunderstandings.

2. Deliverables and payment milestones

It is crucial that the customer’s requirements and acceptance criteria are clearly defined. The agreement should unequivocally state:

  • the deliverables expected in the form of feature lists or user stories; and
  • the timeline in which the service provider must complete the work.

IT services agreements commonly fail to draft precisely what the software is supposed to do. Software is an ‘intangible beast’. It is multi-faceted, agile, flexible and needs accurate drafting.

Without clear deliverables or functional or technical specifications, warranties become vague and payment schedules (often closely linked to delivery milestones) are thrown into disarray. All of this may lead to conflict between the parties.

3. Service levels and setting the wheels in motion

Service levels are a measure of the service provider’s performance in carrying out its services, such as support and maintenance. They are commonly measured by:

  • the service provider’s responsiveness to service issues; and
  • the guaranteed or target availability of the systems (eg system uptime).

Service levels should be documented unambiguously and with objective measurables, along with remedies available for service level defaults (eg service level credits, termination rights). This provides a mechanism to quickly access agreed remedies, without resorting to time consuming and costly dispute resolution or court processes.

Stay tuned for part 2 of this series on key pitfalls in negotiating IT services agreements.