No bank wishes to needlessly increase expenses, however, when it comes to contract negotiations the services of a qualified attorney is a justifiable expense. It is an absolute must and it will be well worth the money spent. Today’s technology service agreements have become significantly complex, overly complex. Every year contract complexity seems to increase. While the agreement defines the services being offered, a substantial portion of each agreement is devoted to marginalizing vendor risk in the event your bank does not complete the contract’s term, if the vendor does not perform, or if new regulations are passed…and so on and so on.
There are two types of issues to be concerned with when negotiating a contract: business issues and legal issues. However, if you accepted a contract without negotiating business issues, you’ve put the cart before the horse. Business issues should be considered competitive and should be agreed upon before reaching a final decision. Legal issues on the other hand are how the agreement is expressed and the legal aspects contained within the agreement. My role as a technology consultant is to focus on business issues in vendor selection engagements and in managing renewals. Contracts can become quite expensive if they are not negotiated fairly. I do not provide legal advice, however, I always recommend that my clients seek legal counsel even with a renewal addendum.
Renewal addendums would seem to be a simple process, but addendums made to an existing master agreement that was not negotiated properly in the first place is like building a house on a bad foundation. It may be necessary to open up the master agreement for review which may mean the master agreement will be replaced with the vendor’s master agreement, which adds time, complexity and money to the project. This is a process that you do not want to undertake on your own.
Whenever you are presented with a renewal addendum or a new master agreement, remember that it was written by your vendor to protect their interests first and foremost. The original contract or addendum may contain clauses that assume certain conditions will be present or met during the contract term that could be quite costly if not fulfilled. Many times these clauses do not appear to apply under present conditions. Conditions change, so be aware! I advise that you ask your vendor for explanations for any new unexpected additions. Then make sure to discuss these additions with your legal counsel.
This concludes my series on contracts. I have listed links to five previous blogs on contracts for your reference.