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Advanced
How To Guide
Choosing eBusiness vendors and software
2.03 Structuring the Agreement
Many eBusiness vendors will have a standard contract,
or a series of standard contracts, which outline their
responsibilities to their clients. These contracts will
vary hugely between vendors and should be studied carefully
before closing. While standard terms may suit your eBusiness
vendor, your unique situation may require significant
reworking of the vendors contact. Your ability to negotiate
terms with a potential provider will depend largely
on your relative size. For example, if you are looking
for hosting services from a large multinational company
you will have little or no ability to negotiate special
terms or rates. Even if you are negotiating with a smaller
Irish company this company may be acting as an agent
of a larger organisation and have no authority to alter
its standard terms. You are only likely to have any
negotiating leverage when you are dealing with a smaller
organisation. Of course there are exceptions so do try
to negotiate at the outset. It may be possible to tailor
your relationship. And it is important to remember that
negotiating a straight price discount may not be to
your best advantage. You should look carefully at the
items that comprise the competitive bids you receive.
Are they all offering a similar service, are upgrades
and renewals covered in one bid but not another, how
much of your company's resources are required to complete
the project in each of the bids, what is the vendors
understanding of your company's current IT infrastructure
and internal expertise. It is important to remember
that the cost of software may only represent a small
portion of the total project cost, and that a large
amount of your staff's time may be "baked-into"
a vendors bid. Finally, try to avoid getting into a
situation where re-negotiation of a contract involves
protracted and expensive legal advice. If this happens,
a significant portion of the cost savings made on the
contract may end up going in legal fees.
2.04 General eBusiness relationships
The following points represent a few items that should
be kept in mind in your eBusiness agreement. A later
section will provide information on specific questions
to be asked with regard to web development, and will
also touch on service level agreements (SLA's) which
are more technical vendor agreements.
| 1. |
Go
for shorter contract periods, with options to
renew. This brings invaluable flexibility to the
equation. Vendors can be replaced, terms reworked,
new elements added. Renewal dates also serve as
a strong motivating force. |
| 2. |
Define
the number and specific skills of the vendor's
employees who will be available to support your
project and where they will be located. Ideally,
you should name the key people you want to work
on your project. |
| 3. |
List
the names and numbers of senior officials to call
when problems escalate. It's ideal to have the
vendor CEO's home phone number to call in case
of dire emergence. |
| 4.
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Determine
exactly what will be measured, precisely how it
will be measured, who will measure it, and over
what time period. The business maxim "that
which is measured gets managed" holds very
true in vendor relationships. It is important
to correctly identify what should be measured
as an indicator of performance. It needs to be
under the control of the vendor, it needs to be
objectively quantifiable, and most importantly
it needs to reflect the objective of the project.
In some situations it may make sense to measure
both a commercial metric (increased sales volume)
and a technical metric (calls answered within
120 seconds). |
| 5. |
It
is important to set reasonable performance levels
- minimum and target levels should be agreed.
Penalties and bonuses should follow under/over-performance.
Performance levels should not be written in stone
- acceptable performance changes with customer
demands and technological advances. It may make
sense to base performance levels on an outside
measure of acceptable or achievable performance.
Or perhaps the vendor's performance should ramp-up
based on your actual performance - you do not
want your vendor's performance to limit your potential.
Finally, it is worth remembering that performance
comes at a cost. For example, if your business
model does not require 5 nine performance (99.999%
uptime) - agree a lower level at a lower cost. |
| 6.
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Try
to anticipate problems up front and create a timetable
for the vendor to fix them. In this respect it
is important not to confuse problem response time
with problem resolution time. Create a backup
plan for outages - technical, physical, or personnel. |
| 7. |
As
with any contract, it is vital to clearly define
what gets paid, on what deliverables, over what
timeframe. When a series of dates and numbers
are described in contract it is useful to list
out exactly what amount is due on each date. What
this method lacks in brevity and articulation
it more than recoups in clarity. |
| 8. |
Clearly
enumerate and describe all conditions for termination
of the contract. In addition, have a transition
clause and process in place in case you need to
switch to another provider. The level of assistance
the vendor must provide at no additional cost
will often depend on the reason for the termination
-- whether by cause, for convenience, or for other
reasons. A special issue arises in the event the
vendor has been using proprietary software on
your behalf, and you have become dependent on
such software. Provisions should be made for a
license from the vendor to your new vendor of
services, or some other form of assistance from
the vendor to "wean" you from its proprietary
software. |
| 9. |
Any
contract should include all normal legal protections
(warranties, indemnities, and limitation of liability).
Your software vendor should be able to clarify
this for you. For any bespoke development, address
the issue of copyright with the Vendor, as you
will not own this automatically. Your legal advisor
should ensure that you are covered in these areas. |
| 10. |
Conduct
regular (at least monthly) vendor meetings to
review performance and make sure you're both on
the same page. A separate discussion on monitoring
the vendor relationship follows. |
| 11. |
Determine
fines, reimbursements or other natural consequences
if the provider doesn't meet service levels. |
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