Negotiate your IT contract

Imagine a day without technology – no telephone system, no email, no internet access, no web-based software to help you manage your day-to-day business needs.

That could be paradise if you’re planning a vacation, but it’s a nightmare if it happens in the middle of your business day.

We all depend heavily on technology to conduct our daily business. Too often, however, technology fails, and how well we’ve negotiated our IT contracts will often determine how quickly we can get up and running again.

Frequently, as a way to manage costs, small business owners will skip having a legal review of their technology contracts up front. Yet this penny-wise, pound-foolish approach will often end up costing the business in lost revenue, lost customers, lost reputation and lost time when the technology fails. 

Common technology contract pitfalls

When you receive the agreement from the technology vendor, you’ll likely find that it’s drafted heavily in their favor. The task is then to help balance the scales to provide your business the protection you will need if things go wrong. Some key points to review in any technology agreement include:

  • Will you be paying your vendor as he reaches specific checkpoints in the contract? For example, do you only pay when portions (or all) of the technology is up and properly running?
  • Are you buying or renting? Is your technology license an annual payment? Or do you own rights to use the technology forever, once you’ve made payment?
  • Does the service level agreement (SLA) clearly define different levels of severity, such as minor problem versus emergency, and the corresponding response times?
  • Does the SLA include bug fixes that may not show up immediately? Also, what upgrades and enhancements are included in your annual maintenance fee?
  • Is the warranty sufficient for your needs? When does it start, how long does it last, and what constitutes “acceptance.”
  • Is the software warranted against viruses or malicious code?
  • What happens to your technology if the vendor goes out of business or stops supporting what you’ve purchased? Will you own or have access to the source code?
  • Is there an intellectual property indemnification sufficient to protect you in case of an infringement suit?
  • If the software or vendor has access to your key data, is there strong security and data privacy language?
  • What remedies are available for general disputes between you and the vendor?

These are just a few of the areas that tend to be unique to software and technology agreements, and that are most critical to protecting your business in the event of software failure.

Key triggers for legal review

Not every agreement or transaction needs legal review, but there are some key triggers to consider when you’re reviewing a technology contract:

  • Is the overall software and maintenance cost significant to my business?
  • Is this software or technology a key component of my day-to-day business operations? Does it integrate with other key systems? Do other key systems depend on this technology functioning properly and would its failure cause a domino effect?
  • How would my business be impacted if this particular software or technology failed? Could I still operate, or would I be completely shut down?
  • How “public” would a failure of this technology be? Would it impact my customers directly?

If a technology or software implementation hits any one of these key points, you should consider having the agreement reviewed by a technology lawyer while it’s still in the process of being negotiated. Consider this: it’s highly likely that an attorney drafted and reviewed the agreement from the vendor’s side. So, you should do the same.

Finding the right legal help

If you’ve determined you do need legal help in reviewing your technology agreement, the next question is: how do you find the right attorney?

For technology agreements, particularly significant ones, you will generally want to have someone who specializes in technology law on your side. Technology lawyers will typically have some practical technology experience, and usually have specialized their practice in helping companies negotiate and draft software license and development agreements. Their technology experience can help them to quickly get to the key issues in the agreement and talk the talk with your IT team.

The best way to locate a qualified attorney is through referrals from people you know. If you already know or work with an attorney who specializes in a different field (such as general business, estate planning or tax), ask them for a referral to a technology lawyer. Industry associations are also a good place to locate attorneys, as well as directories such as the State Bar of Wisconsin or

In the end, the most important point to remember is that it’s better to spend the time and resources to negotiate and prepare a solid agreement with your technology vendors up front, to save yourself and your business time and money when things go wrong in the end.

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