WIN Wise: Top tips for making the most of your IT contracts
There can sometimes be a disconnect between lawyers who draft contracts, and those with primary responsibility for implementing them. But it doesn’t have to be that way, and through smart collaboration, effective communication and shared vision, in-house lawyers and their commercial counterparts can work together to maximise value and generate extra revenue from IT and outsourcing contracts.
To be clear this is not a process to generate extra revenue or value by squeezing your contractual counterparty, but a roadmap for working with them (both in-house lawyers and commercial leads) towards mutual gain through effective partnership. It requires some key elements:
1. Shared purpose and vision for the contract
Early collaboration and frank discussion between the legal and commercial teams (ideally of both parties together) can help to frame the discussion around the particular nuances of the services to be provided, the expectations and needs of both parties, and their commercial drivers. If this is achievable before work begins on the drafting of the contract, then so much the better as the contractual wording can be driven by stakeholder interests and objectives, rather than existing precedent documents, and all teams feel more vested in the end result.
Each party needs an understanding of the ecosystem within which the contract will be operating to be able to identify opportunities for mutual gain: highlighting the utility of the frank discussion at the outset, and the idea that the contractual counterparty is operating as your partner and not your opponent.
2. Understanding what you’ve got
The basis of the contract will already set out a number of elements for success. Healthy contractual relationships are built on understanding and implementing the contractual foundations. Carefully implementing the procedures envisaged in the contractual documentation also allows for easy identification of where these can’t be followed, or where the foundations need shoring up.
Many contracts are drafted to “bake in” governance, audit and monitoring provisions to allow for the smooth running of the contract, early identification of issues, and resolution by consensus. However, the level of detail and complexity which often accompanies these contracts, whilst comforting to a lawyer, can be somewhat daunting to others, who struggle to locate or understand relevant clauses and mechanisms.
For active contract management to be a source of revenue generation and value preservation, rather than a painful administrative task, which can leave parties at loggerheads, the legal drafting needs to be “translated” into practical tools. For example, excel spreadsheets designed to log change requests and automatically calculate timescales for next steps, checklists for what a request has to contain, flowcharts showing the overall process in common scenarios and dashboards, tailored to ensure key information can be accessed at a glance, and considered, to determine what is going right and what may need to be improved.
Not every contract will necessarily warrant the level of investment the production of these tools involves, but for key contracts with a number of moving parts, they can be an invaluable way of bridging the gap between the complex legal drafting and the reality of daily contract management.
3. “Baking in” creativity and a revenue generating mindset
Many contracts contain provision for suppliers to suggest cost-saving measures as changes to the contractual processes, albeit often at a cost to the customer for initial testing and set-up.
However, revenue generation exercises are not the preserve of either contract managers or lawyers. Those implementing day to day processes may be in a far better position to spot potential efficiencies, extensions of functionality, and new uses for existing products and services.
This “crowd-sourcing” approach to value maximisation is often tied to corporate culture, but could also be tied into employee remuneration and bonus schemes.
Shared benefit helps to cultivate a partnership mindset. That the risks and benefits of revenue generation projects can be shared may not already have been incorporated into a contract, for example in a profit-sharing agreement, but this can always be added, either as a long-standing contractual option, or for specific projects. A contract can (and arguably should) be changed to accommodate new ways of working where these can be beneficial to both parties.
4. Trust
Trust is needed between partners to allow and explore process changes. The key to good contract management in this context is knowing the difference between managing the contract versus managing the processes. A customer will have bought in expertise from the supplier, and the contract should contain a specification of what the expected result from the supplier is, but not necessarily detail the process by which that specification is met. Where SMEs become project managers, the temptation can be to manage the process, rather than the outcomes, which can often lead to strained relationships, rather than value creation.
Where a supplier knows that it is being trusted to deliver outcomes, it can enable it (with the proper controls) to design and test new, more efficient ways of working, and to query with the customer what value is being created by certain parts of a mandated process, and whether they are really necessary elements to be delivered to achieve an overall outcome. Cutting out inefficiencies in the system can benefit both parties, but it requires a willingness to be open-minded and trust your counterparty.
Trust that a customer will ultimately allow a worthwhile change is also key to a supplier being willing to invest time and resources in developing alternative models, and, for example, running AI/ Automation in the background for a specific process to compare against existing models, and hone processes before agreeing a full roll out.
5. Dialogue
It may not feel like it at the time that disputes arise, but a disagreement can present a further opportunity for frank dialogue, understanding of different stakeholder pressures and priorities, and innovative solutions. Disputes generally arise because something is not working.
The underlying causes of a dispute are not always evident from the contents of lawyers’ letters, but instead it can sometimes be necessary to “read between the lines”. It may be that mistakes have been made in a supplier’s modelling, meaning that it is now operating unprofitably and feels that it needs to claw back those losses, or alternatively that a customer’s priorities have changed, and what was previously a key focus for the business (for which the supplier was remunerated accordingly) is now no longer required.
Day to day commercial pressures will impact both parties, as they navigate new obligations and changing background scenarios. But parties who see disputes as an opportunity for mutually beneficial outcomes, including revenue generating activities, will see their objectives achieved sooner, and potentially at a much reduced cost.
For example, in Norway’s construction sector, savvy companies include reference to the PRIME mediation model in their contracts. This provides for the parties to put in place a regular (say monthly) top level meeting where executives discuss minor contract issues (and come together for a discussion even where they do not think there are any issues at all). This means that commercial teams, in-house lawyers and executives have to prepare for these meetings, so requiring a discussion of issues which might not otherwise be aired. As a result, the parties better understand the pressures and drivers of the other side, enabling them to come to earlier agreement and so mitigating the risk of issues spiraling out of control. This method resulted in one of Norway’s major road systems being built on time and without a single dispute on a multi-billion dollar contract – some achievement…
Find out more about our Tech Disputes products here:
