8 responses so far ↓

• 1 Jeff G // May 19, 2009 at 3:26 pm

  I’m generally adverse to supplier’s paper. It’s not just about who has more skin in the game - it’s about the balance of risk. Supplier’s paper, generally speaking, contains more language adversely apportioning risk to the customer. So I want to start with my own, simply because I know that the starting place will be more balanced.

  Think about it like playing basketball as opposed to football. In basketball’s tipoff, the ref tosses the ball up and the centers vie for height trying to tip it to their side and then have to only go 1/2 court to get it to the goal. I think that’s pretty fair - both sides start in the middle and work outwards. In football, however, the receiving team has to return the ball from as far back as the sending team can kick it. THIS is how it is with most supplier contracts.

  Not only do I have to run the ball as far down their half of the field as is reasonable, I have to run it back to the 50 yard line first across MY side first. This takes a LOT of time and I spend the bulk of it explaining why I shouldn’t have to take on risks such as a lack of IP indemnification… or a skewed limitation of liability section.

  Frankly, I find it quite hard to believe that Fiserv starts from their supplier’s paper. Their standard contracts include limitations of liability to indemnity (when provided) or to a breach of confidentiality (which is very important given that they deal almost entirely in private financial information).

  So, in the end, we’re going to redline the documents no matter whether we start with my template or theirs.

• 2 Diana Cosgrove // May 20, 2009 at 5:28 am

  I agree with Jeff G. I’ve redlined a number of unconscionable supplier agreements for IT purchases. Unfortunately, it is common practice for manufacturers to overlook their contractual risk when negotiating IT purchase agreements and they readily agree to start from the supplier’s paper. It is very difficult to negotiate terms if the supplier is fully aware that the customer cannot easily migrate to another product in the marketplace. A large number of IT Department Managers also prefer to negotiate their own supply agreements making it difficult for procurement professionals to negotiate and execute a fair and equitable contract.

• 3 Wade Lyons // May 21, 2009 at 7:05 pm

  My experience is that the appropriate contract to start with is situational. I find that the least amount of negotiation and redlining is required when using paper from the company that has the most risk, knowledge or experience regarding the commodity or service. Usually the company with the most risk, knowledge or experience has spent a significant amount of time and resources drafting a document that specifically addresses the details related to the risks and complexity of the commodity or service.
  Over time, most contracts are modified to address the recurring areas of heartburn, thus making them palatable to the majority of customers or suppliers. The overwhelming majority of modification requests are presented to the supplier by many customers so they are usually open to discussion or alternative language as long as it’s reasonable. I have also found that clearly articulating my concerns, potential risks, business and/or legal needs generally results in a timely modification to the agreement.
  Companies such as software publishers do face major risk given that a significant portion of their corporate and product value is based on IP, thus the strong push to protect their IP. This doesn’t prohibit a customer from negotiating the critical points to protect their interest. Having worked for a large software publisher, and negotiating literally thousands of IT contracts as an IT procurement professional, I can say that I have less than a handful of experiences where I was unable to negotiate a mutually acceptable agreement. It is critical to address your business requirements in the contract but I have experienced multiple instances where the contract being on the supplier’s paper has ended up favoring me as the customer. Often based on the argument that the burden of ambiguity resides with the company who drafted the document. Whether it was simple escalation, mediation or arbitration I have been able to leverage this point on many occasions.
  When dealing with telecom or other highly complex commodities, I have to believe that few of us are adequately staffed or educated to draft a document that addresses all the federal requirements, tariffs, technical specifications, etc. The resources required to undertake drafting such agreements would quickly exceed any benefit or risk one might achieve or offset. When negotiating complex commodities or services, we as customers shift our focus on pricing, performance metrics, milestones, specification of deliverables and specificity regarding remuneration for failure to deliver or meet performance requirements.
  While my response to this point has been pro supplier paper, I do believe that it is in the customer’s interest to use their own contracts* for work associated with work for hire, consultants, temporary labor, etc. In these situations the customer carries significant risk and must address issues such as potential property damage, indemnification, return of property, insurance, ownership, warranty, etc. Obviously in these circumstances a detailed SOW including pricing, performance metrics, milestones, specification of deliverables and specificity regarding remuneration for failure to deliver or meet performance requirements is still critical.
  I guess my conclusion is that we all have our own opinions based on our individual experiences. I don’t see any way to provide a right or wrong answer when it comes to the appropriate contract to use. Given that there is no right or wrong I would say the key to success is tapping your legal resources and hiring staff with strong contract backgrounds, sound judgment and exceptional negotiating skills to minimize risks take on the inevitable disputes that will continue to arise.
  * Keep in mind that I have worked for companies that insist on using their own paper, which is often substandard so I recommend a periodic review of the standard documents by various individuals in the procurement organization as well as internal and external counsel to get multiple perspectives.

• 4 Tim Cummins // May 22, 2009 at 12:44 am

  Justin,
  I will produce a fuller reply to this question, but of course your respondents are right - the answer is ‘It depends’! A few factors to consider:
  - How risky is the transaction?
  - How established / trustworthy is the relationship?
  - What are the chances you will succeed inthe negotiation?
  - Will you be supported internally - or just be seen as fighting theoretical issues?

  More generally, we are working at IACCM to achieve greater balance in buy-side / sell-side terms. At present, they tend to start from polar opposites and that generates a lot of wasted time and conversation. We are also encouraging use of appropriate terms; to the original point made by John Busch, many buyers try to apply a set of standards that are unsuited to technology acquisition. And finally, we believe the world has changed and that contracts - and suppliers - must adjust their terms to a world where performance is based increasingly on outcomes, not delivery.

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  [...] recent posting over on Supply Excellence left me questioning how far has procurement has really developed over the [...]

• 6 Justin Castillo // May 26, 2009 at 6:43 am

  I represent enterprise customers in IT and telecom procurements, so my comments reflect the buyer’s perspective.

  The vendor’s paper does push risk onto the customer. While it may be that the vendor has more skin in the game, vendors also try to push onto the customer because they can get away with it so frequently: I once asked a former attorney for one of the major telecom companies why their form contracts were so one-sided. His reply: “Because 80% of the customers sign them without making a single edit.”

  Deciding whether to use the vendor’s paper or not depends on many factors, including the size/importance of the deal, the risk involved, the customer’s leverage, the time available and, yes, the budget. But the ultimate issue is not whose paper; it’s adequately addressing the risks created by the transaction. While we often use our own draft agreements in telecom and IT deals, it may be more efficient to modify the vendor’s form to create an agreement that is fair for both parties. That’s especially the case where 20% of the issues create 80% of the risk.

  Customers who insist on using their own form documents should also make sure that those draft contracts are tailored to the products and services that they’re buying. I recently reviewed an agreement where the customer used one of its own form agreements, but it was one that was inadequate for what was buying at issue. The result was an agreement with ironclad but irrelevant language that failed to address many of the key risks in the transaction.

• 7 PB // May 26, 2009 at 11:51 pm

  I agree with Jeff G. I’ve redlined a number of unconscionable supplier agreements for IT purchases. Unfortunately, it is common practice for manufacturers to overlook their contractual risk when negotiating IT purchase agreements and they readily agree to start from the supplier’s paper. It is very difficult to negotiate terms if the supplier is fully aware that the customer cannot easily migrate to another product in the marketplace. A large number of IT Department Managers also prefer to negotiate their own supply agreements making it difficult for procurement professionals to negotiate and execute a fair and equitable contract.

• 8 Supply Excellence — Are Your Contracts Focused on the Right Risks? // Jun 29, 2009 at 3:10 am

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