Christmas Message – the Deal Terms

December 6, 2011

I am feeling slightly jaded this week having been to three early Christmas parties over the weekend. It all helps to get in the mood for Xmas but doesn’t really help with day to day legal work.

Along with the mulled wine I have however been mulling over the SCL technology and risk seminar I attended a couple of weeks ago. I was not actually sad enough to be thinking about this at the parties you understand, but in intervals at work and while travelling. At the risk workshop one of the themes raised by various lawyers and consultants was ‘how do you contract effectively for a major IT outsourcing contract so that it can be understood and implemented by the delivery team?’.

It is all very well for the privileged few who were involved in the negotiations and creation of the contract – they understand intimately what they have constructed. After a while working on a big deal you can generally quote the reference numbers for obscure (but important) clauses, sometimes practically in your sleep. And the thousand page contract will no doubt be a work of art, setting out a myriad of subtle legal and technical and process issues in clear prose.

But does this really help the poor people tasked with the delivery and receipt of the service? Of course it is best when they are also involved with the negototiations. Even then what typically happens after contract signature is that they work out (again) what has to be delivered and get on with it, placing the massive tome they have inherited from their commercial and legal advisers in the bottom drawer, literally or metaphorically. The delivery then departs rapidly and radically from all the careful thought and effort that has gone into the contract.

This, as we all know, is a recipe for disaster, except for those among us who ply their trade as litigation lawyers and their supporting professionals.

So how can we avoid this. We know we have to protect our clients and document what they require. If all of our efforts are to a degree ignored however, have we done our job effectively?

One simple idea which was discussed at the workshop was to create very early on in the process of contract negotiations a “deal terms document” which would set out in plain English the essential expectations of both parties. One adviser told me many years ago that all contracting is really about expectation management.

These Deal Terms would show what the customer wanted and expected to receive and what the supplier was able to deliver and what return they expected to receive. This document could be jointly agreed as a first draft and then be used (a) by the customer to verify with its internal stakeholders what they really, really want and (b) by the supplier to ensure that all its technical architects, transition managers and management knew what they were actually providing.

This document in its final evolved form would eventually form a part of the contract, an annex maybe. It would not intefere with the mechanics of the contract and critical legal issues like the operation of limit of liability clauses. However it would act as a sense check for those (often frequent) occasions when things start to go wrong. The parties could then verify and test any disputes or differences against the objectives and expectations they originally set themselves and gave expression to in the Deal Terms.

If at some stage the underlying basis for the contract shifts is such that the Deal Terms need changing then it is probably time for a contract reset or renegotiation.

So I offer to you, in what is likely to be my final blog for 2011, this simple Xmas thought. Consider creating a set of Deal Terms and include them as a project baseline in outsourcing contracts.

As always I welcome comments and observations.

May I take this opportunity to thank you for reading my blogs over the year and to wish you a very merry Xmas and happy New Year.