Chapter 6 Contracting

Contracting is generally a complex process regardless of whether the product or service

under consideration falls under hospitality, aviation, construction, medical services,
Information Technology, and other sectors of the economy. This complexity is evident in
the back and forth discussions between legal and technical teams of both parties, often
to clarify and understand clauses and the likely impact of statements included in the
contract, on their respective business operations.

How can Company leaders reduce this “pain” and effectively manage the IT contracting
lifecycle?

Collaborative effort

We all agree that poorly written contracts may lead to fines, business losses, additional
project expenditure, and in extreme cases the loss of jobs by the responsible people. It
is common practice in many organizations for the Legal department to take sole control
of the contracting process. 

Whereas this is justifiable because of their specific mandate to advise on legal matters,
Lawyers need to consult the Project Manager, Technical Project Lead, and the key
business owner early during the initial drafting of the document. Early input provided by
the “Techies” and business owners with the guidance of the legal team, often yields
future proof contracts.

On the flip side, IT officers and business owners have little interest in studying the
contents of contract documents. However, this needs to change. Company leaders
should provide the right approaches and environment to enable thorough drafting and
review of legal documents by diverse teams within the company. Only then will they
shield themselves against the aforementioned risks.
Legal and regulatory considerations

In consideration of National, Regional, and International legal and regulatory

requirements, leaders must ensure that whatever is in the ICT service or product
contracts is aligned with the laws, regulations, standards guidelines, processes, and
procedures of the respective environments of operation.

Some notable areas of interest include:- Clear definition of roles and responsibilities
related to payment of taxes and consideration of all relevant taxes as per the service or
product involved. Also, strong adherence to the procurement laws, regulations, and
guidelines within which the acquisition was undertaken are important. Other areas may
include environmental impact, privacy, and security, and currency exchange rates.

Negotiations

If negotiations are held during procurement, such agreed positions must be reflected in
the final contract with guidance from the legal team. Negotiation outcomes often affect
the scope of work, contract price, and responsibilities of involved parties. Exclusion of
that record may therefore significantly affect the business.

Cost of ownership

There is always a good reason for an establishment to celebrate after acquiring a

strategic solution or product, but what does the future hold two, three years along the
road? Will this new “baby” grow and walk or remain crawling? Executives and middle
management must consider the total cost of owning and operating this asset.

Ideally, this conversation should have started during the requirements planning phase
as mentioned in Chapter 4. Nonetheless, serious attention should be placed on sections
regarding licensing arrangements, support and maintenance costs as well as projected
rollout and operational costs in the contract document.

Contract Management

Several ICT contracts are tied to operational services such as- web hosting and domain
name licenses, Security Certificate services, Server and Anti-virus licenses among
others. Failure to track and manage such running contracts is a recipe for disaster in
terms of service unavailability or degradation which could potentially impact business
revenue.

Contracts must be tracked by the company’s service management team and preferably
using automated tools that provide reminders, track deliverables, and monitor the
performance of the supplier. Proper contract management helps in determining:- future
relationships with the supplier, direction of the project in the coming years, and quality of
services offered by the supplier.

Getting out

It is not unusual now and then to read about “bad contracts” between large corporations
or government agencies and suppliers. Such situations have been attributed to most of
the issues we have discussed so far in this book such as poor requirements and poor
contracting. But what next if the two or more parties have failed to work together? Have
you provided for a “clean” exit strategy in the contract? Are you at the supplier’s mercy?
How much will it cost you to terminate the contract? Can a business continue after the
termination? Will you lose the product or service entirely after contract cancellation?
Can you salvage your data after the termination? Always consider these questions
when preparing your contracts.