The sourcing and selection of your IT Services partner often spans over several months and requires significant time and effort from your cross-functional teams. Closing your services contract on time while preserving the complete integrity of your negotiated commercial construct requires a plan. You must maintain momentum throughout the process and execute an approach that helps mitigate the risks of unforeseen hurdles in a low-leverage environment.
Recently, I have seen more and more situations of value erosion between the business and commercial constructs secured during negotiations and its legal reflection during contracting. Some typical challenges include:
Commercial De-Commitment and Erosion
Preserving the integrity of all business and commercial commitments as you transition from conceptual agreements to contractual language is a challenge. Often, the eroded value of certain commitments is seen via less favorable contractual language or certain unforeseen nuances and caveats that were not properly clarified (or even discussed) during the negotiations.
Sometimes these caveats will even contradict or weaken the essence of the terms that were agreed to. For instance, while your preferred provider may have agreed to “lock” your rate cards for a period of time during negotiations, the actual contractual language may reflect locked or pre-set annual cost of living adjustments applied year-over-year (when the intent of the ask was to preserve the rates with no increase for a period of time).
Solution Value Erosion
Value erosion can go beyond commercial de-commitments as reduced solution value can also be observed between your preferred provider’s initial proposal and the scope reflected in the proposed SOW, which essentially means that you are receiving less for your dollar, even potentially increasing the risk profile of the solution in comparison to what was originally agreed to.
Examples of solution value erosion include reduction of scope within your Business Process Master List (BPML), reduced WFRICE object counts, and decreased responsibilities for your services partner at the RACI level.
Provider’s Internal Misalignment
During the negotiation, competing providers may follow a “say yes now and beg for forgiveness later” approach by agreeing to requests at a high level early on without providing specifics to make it through the rounds of negotiation. Disconnects between the commitments the providers’ business teams make during negotiation and the legal team are often a cause of misalignment between a conceptual agreement and its contractual translation.
Upon contracting, your leverage goes down. Your preferred partner has informally been selected (subject to successful legal negotiations) and, in many situations, the likelihood of losing the deal is very low. At that point, the loss of leverage may impact your ability to maneuver in the negotiation room and limit the level of concessions and agreements you will be able to obtain.
Extended Contracting Phase
A prolonged contracting phase may put your onboarding requirements at risk, but it is not unusual for the contractual phase to extend past your targeted completion date. The need for cross-functional alignment on requirements, challenges coming to an agreement on certain matters that were not positioned or clarified during the negotiation process, or your preferred slow rolling the process against your timeline are examples of factors that may unfavorably extend contract completion.
Fortunately, there are certain tactics companies can use to mitigate these common challenges. To preserve all commitments and drive a smoother, timelier contracting process, include the following tactics in your contracting strategy:
1. Solicit Contractual Language Early in the Negotiation Process
Instead of waiting for the contracting phase to request draft contractual language, ask for it early in the negotiation process to gain visibility into the nuances and caveats that may complement some of the commitments made by competing providers. If you need to course correct, this will allow you to do so while your negotiation leverage is still at its highest point.
This is especially critical in the context of large-scale, multi-tower, contracts that require significant review and validation from cross-functional teams.
2. Obtain Advanced Agreement on RFP Artifacts / Solution Attachments
Ensure you have a clear understanding of the RFP artifacts and attachments obtained as part of the RFP process that will be attached or embedded within the SOW. It is critical to secure early agreement from your provider on all the key elements of scope that will make up the value of your solution. When you conduct an initial review of the SOW(s) upon receipt during the contracting phase, make sure the contracted scope is aligned to the proposed scope to validate that the value proposition is preserved, including provider responsibilities, complexity and breath of WFRICE commitments, deliverable descriptions, usage of provider assets, etc.
3. Ensure Early Legal Involvement from Both Sides
Involving both the preferred partner’s legal department and your legal department early on will help drive alignment between all parties. Though you should not conduct redlining of contracts during the negotiation process, it is important to maintain legal alignment throughout. This will help ensure that your providers speak with one voice from beginning to end and help prevent any disconnect between their business and legal teams in terms of what is agreed to during the discussions.
4. Communicate Your Contracting Execution Plan and Timeline
Be upfront about your contracting execution plan and expected timeline as you move into contracting with your preferred provider, so all parties are aligned on approach and expectations for getting to contract closure. As discussions continue, ensure your preferred provider executes to the timeline and objectives you established from the start.
5. Secure Executive Engagement
Ensure your legal, procurement, and project teams are supported by targeted executive engagement as necessary to continuously drive the appropriate behavior from your preferred partner. Executive engagement is typically limited during contracting but leveraging your executives or sponsors on a targeted basis can help course-correct any issues or disconnects early on.
6. Develop and Maintain a Traceability Matrix
Create and maintain a traceability matrix throughout the process that details the inventory of all terms agreed to during negotiations. This should include specific references to documentation discussions within which commitments were made and confirmation of agreement to each term by the provider. Your legal team will be able to leverage the matrix to support their legal discussions, maintain the document throughout contracting to keep track of closed and open issues and ensure your contracted commitments fully align to the negotiated commitments.
Overall, it’s important to remember that conceptual commitments only go so far. While your negotiation team deserves a pat on the back for a job well done upon completion of the negotiation, you aren’t out of the woods until all the commitments you have worked to secure have the legal juice to deliver the expected value going forward. By following this approach, you can maximize your chances of preserving the integrity of your deal without putting your project schedule at risk or adding unnecessary stress to your vendor partnership before the “real” work commences.
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