Jesse Mudaliyar
In an increasingly dynamic business environment, negotiation is critically important to the success and survival of companies. While distinctive negotiation skills such as relational intelligence and charisma can make significant difference, preparation and strategy are key factors.
In tech companies, it is important to be aware of the broader context of a contract during negotiations. This would mean taking a holistic approach to negotiations to create agreements that support the company’s overall business objectives. Issues such as understanding the market conditions, regulatory environment, and competitive landscape are essential. Also, identifying potential risks that may arise during the life of the contract, and building buffers for such contingencies. Being aware of the potential impact of the contract on other stakeholders, such as customers, employees, and partners.
In a Harvard Business Law Publication; “Why Technology Negotiations Are Different” the authors opined that whether you’re bargaining over the purchase of a new companywide network, coping with a possible infringement of patented technology, or seeking better customer service from a software supplier, technology negotiations have become a fact of managerial life. How do such negotiations differ from those that are less technologically complex? How do companies ensure that for every negotiation, values are maximized while risks are minimized or even eradicated?
Below are some strategies that tech companies may wish to adopt to maximize values and minimizing risks.
- Due Diligence: The very first step for any form of contract negotiation should be to conduct extensive due diligence. For tech companies, the need for an extensive due diligence on the technology provider or vendor is even more imperative. This may involve the traditional review of financial statements to ascertain financial stability, track record, and references, legal records, customer feedbacks and more. This step helps identify any potential risks associated with the vendor and their ability to meet contractual obligations and business continuity.
- In-depth knowledge: Having thorough knowledge of the technology being procured or licensed is essential in tech contract negotiations. A deep understanding of the technology, its features, functionalities and capabilities, can help to negotiate for a more comprehensive solution that aligns with the desired requirements. Operating from a point of knowledge would help to assess limitations, avoid unexpected costs, ensure compliance and understand potential risks to negotiate contractual provisions that mitigate them.
- Define requirements: Clearly articulating specific needs and requirements for the technology contract. This includes aspects such as performance, functionality, scalability, security, maintenance, support, and integration. Clarity in requirements minimizes misunderstandings, aligns expectations, and reduces the chance of delivering a subpar solution.
- Define performance metrics: Clearly define performance metrics and service-level agreements (SLAs) to ensure the technology meets the required expectations. Specify measurable targets related to uptime, response time, availability, and other relevant parameters. This enables a standard monitor and enforce performance standards.
- Allocate risks appropriately: Analyze and allocate risks in the contract fairly between the parties. Identify potential risks such as technology failure, data breaches, intellectual property infringement, or non-compliance with regulations. Clearly define who will bear these risks and establish appropriate remedies and liability provisions.
- Intellectual property considerations: Pay attention to intellectual property (IP) rights and ownership. Clearly define who retains ownership of developed IP, IP that will be developed, any limitations on usage, and any licensing or sublicensing rights. Protect your IP and ensure that the contract respects your rights to use third-party IP.
- Data security and privacy: In tech contracts, data security and privacy are key. Negotiate robust data protection and privacy provisions, including requirements for data encryption, access controls, breach notification, and compliance with relevant regulations. Ensure that the contract addresses data ownership, data handling, and data transfer concerns.
- Termination and exit strategy: Include termination provisions that allow for an orderly exit if the technology does not meet expectations or if the vendor fails to fulfill its obligations. Define the rights and responsibilities of both parties in the event of termination, including data extraction, transition assistance, and intellectual property considerations.
- Engage legal and technical expertise: Involve legal and technical experts who can provide valuable advice during the negotiation process. Legal experts can review the contract terms and identify potential pitfalls, while technical experts can assess the technology’s suitability and risks. Their expertise ensures that you maximize value and mitigate risks effectively.
Always remember that each tech contract negotiation is unique, and the specific strategies employed may vary depending on factors such as the nature of the technology, the vendor’s reputation, and the industry conditions including regulations. Tailor your approach to the specific circumstances and objectives of the negotiation.
Jesse is Vice President, Senior Managing Counsel, EASTERN EUROPE MIDDLE EAST AFRICA at Mastercard