Just like you do when signing any agreement, you should take the time to read your IT contracts. Sometimes you must change your mind about a contract you’ve signed. However, it’s not always easy to get out of these commitments. It’s important to know when signing an agreement for things like branded firewalls, email hosting and more, that it will cost you to get out of these agreements.
Don’t Make These Mistakes
Most IT projects require procurement of equipment or services. It’s essential that you have a thorough understanding of your procurement contracts. But many times this doesn’t happen and important clauses are overlooked.
According to Computer Economics, business owners and managers make two common mistakes when it comes to IT procurement contracts. They delegate the contract to corporate legal counsel, and they are too conservative in their approach to requesting changes in the contract language.
The first mistake is assuming a lawyer can anticipate what can go wrong with a hardware or software implementation. These contracts are too important to just hand over to your lawyer for review. Instead, you must read through every IT contract from a business perspective; then you can hand it over to your lawyer for review.
The second mistake is that business managers and IT directors think that a contract can’t be modified. Vendors of IT products and services usually include boilerplate language in their contract and present it as a standard contract. This language will always favor the seller. What you need to know is that you have a right to suggest changes that will work for you. Nothing is cast in stone.
Take The Time To Read And Thoroughly Understand Your IT Contracts
It can be overwhelming at first, but you must take the time to read through and understand what’s included in your IT contracts.
Here’s a visual describing the different sections included in most IT Procurement Contracts.
Understand These Typical Contract Elements
- Statement of Work: This is a complete description of the requirements that must be satisfied under the procurement. It generally appears early in the contract. For example, the contract for a new server might specify the scope of the agreement including delivery and installation of the new equipment.
- Item Specifications: This is the definition of the technical requirements for the product. It might include design, functional and performance specifications.
- Testing and Inspections: You as the buyer have the right to inspect what you’re purchasing prior to paying for it. And you must be given a reasonable time to do this and make adjustments to the contact if necessary. Set up a schedule for this in advance especially if you will be performing testing and inspections in your office.
- Delivery Schedule: This specifies the timeline for delivery from the vendor, and penalties that they will incur if they fail to meet specified delivery schedules.
- Warranties: An express warranty is detailed in the contract. It may also include a disclaimer as well. So, read this carefully.
- Governing Law: This establishes that the contract is governed under UCC laws (in the U.S.). If the seller’s headquarters are outside the U.S., there should be language detailing which governing body controls the contract.
- Order of Precedence: This establishes the rank order of procurement documents in the event that there are conflicts in the language. For example, if you submit a request for proposal (RFP), the seller may prepare an RFP response. Then you both agree on terms for the contract. In this case, the contract terms and conditions override the RFP, and the original RFP overrides the seller’s RFP response.
- Title Transfer: This details when and if the title for equipment procured passes from the seller to you for the items that have been purchased.
- Termination: You always have the right to terminate a contract if there’s a “default” in performance that results in a breach of contract. Make sure your contract includes language to this effect. And it should include the rights and responsibilities that must continue after the termination (for example, to protect trade secrets).
- Arbitration: This is usually less costly than litigation but a lot more expensive than mediation. If you think you’ll be using arbitration to settle a dispute, insert a clause specifying intent for both you and the seller and whether arbitration is binding or voluntary.
- Charge-Back Policy: This defines costs that are the responsibility of the seller, such as to repair defective items that you might incur but will be charged back to the seller. This should include what can or cannot be charged back to the seller.
- Payment Schedule: This defines your payments to the seller. It may say that you need to pay an amount upfront and pay the remainder within 30 days after the completion of your testing and inspection for acceptance.
What Can Happen If You Break An IT Agreement
Depending on the state where you do business and the type of contract, you may be able to get out of the contract during a specified amount of time. The Federal Trade Commission (FTC) also has a “cooling off” rule saying you can change your mind within 72 hours of a purchase made inside your residence, or a seller’s temporary place of business. The cooling off rule requires the salesperson to explain your cancellation rights at the time of the sale and give you a cancellation form. Many state laws stipulate this as well.
But if you are in breach of the contract, it can cost you. You’ll have wasted both money and time. You might be responsible for:
- Compensatory damages. (money to reimburse costs and compensate for the seller’s losses)
- Consequential and incidental damages. (the indirect or direct result of your breach of contract)
- Liquidated damages (agreed-upon damages specified in the contract)
- Attorney’s fees.
It’s essential that you understand all the terms and conditions in your IT contracts before you sign on the dotted line. If you don’t, it could cost you in the end.
For more information, contact your IT experts in Buffalo – Globalquest.