Technology procurement projects can present substantial business and legal risks. Many projects fail to achieve the customer’s primary business objectives – the on-time, on-budget delivery of the required technology solution. Following are some simple, tried and true ways that a customer can increase the chances of successful technology procurement and manage the associated risks.

  1. Business Requirements/Due Diligence: The customer should understand its business requirements (short, medium and long term needs and wants) for the technology solution. The customer should assess the technology solution and investigate the technology vendor, its financial viability, and its ability to deliver on-time and on-budget services required for the implementation and maintenance of the technology solution.  
  2. Preliminary Work: The customer should not agree to purchase a technology solution until satisfied that it is suitable, satisfies the customer’s business requirements, and is affordable (based upon total cost of ownership). It may be impossible to make those determinations without some preliminary work, such as a fit/gap analysis and preparation of an implementation plan. In those circumstances, the required preliminary work can be performed by the technology vendor under a simple preliminary work agreement.  
  3. Basic Business Deal: The customer should not begin detailed contract negotiations until the customer and vendor agree in principle to the basic business and legal terms of the technology procurement deal. In most circumstances, those issues are best addressed at the beginning of negotiations, when the customer usually has maximum leverage. A non-binding term sheet can be used to document the agreed business terms.  
  4. Project Structure/Management: A key part of a technology procurement deal is usually an implementation project. All aspects of the implementation project (including the services and deliverables to be performed and provided by the vendor, tasks to be performed by the customer, and the project management roles and responsibilities of each of the customer and vendor) should be comprehensively described in a contract document (such as a statement of work). The implementation project should be structured to provide the customer with reasonable project control mechanisms, including change control procedures to protect against unacceptable changes to the scope of the project, unanticipated costs and unexpected delays, and reasonable remedies for deficiencies and delays.  
  5. Plan for Disaster: Key parts of a technology procurement deal are the parties’ respective rights and remedies in the event of a disaster – implementation project failure or customer-vendor relationship breakdown. The customer should ensure that it has reasonable and sufficient rights and remedies if those events occur, such as project termination rights and remedies, maintenance/support availability guarantees, service levels and remedies, technology licenses that are truly perpetual/irrevocable, and rights to access and use source code held in escrow.  
  6. Risk Allocation: Technology procurement presents risks of losses to the parties and liabilities to non-parties. A key part of a technology procurement deal is the allocation of risk, which is usually based upon each party’s ability to manage risk and each party’s risk/return preferences. A primary function of various kinds of contract provisions (representations and warranties, disclaimers, liability limitations/exclusions, indemnities and corporate guarantees) is to change the allocation of risk that would result from generally applicable legal rules. Risk of loss and liability can also be managed through insurance. The customer should make an informed decision regarding the contractual risk allocation.  
  7. IP Ownership/Licenses: Technology procurement often involves a combination of commercial-off-the-shelf (COTS) technology, third party technology, and custom technology created specifically for the customer. In most cases, an optimal allocation of rights and obligations regarding each technology component is based upon an understanding of the legitimate business interests of the customer and vendor regarding the present and future use of the technology component, rather than whether the technology was created specifically for the customer.  
  8. Standard Form Contracts: Vendors’ standard form contracts should be used with caution. A standard form contract should be carefully reviewed and revised so that it is reasonable, fair and comprehensively describes all aspects of the technology procurement deal. Substantial revisions may be required. Ancillary and operational documents, such as statements of work, are often key parts of the contract, and should be prepared with appropriate care and legal advice.  
  9. Negotiation Plan: The customer should prepare a reasonable and realistic negotiation plan, and allow sufficient time to deal with difficult issues and unanticipated delays. The customer should be prepared for negotiation fatigue. The customer should not establish or rush to meet arbitrary or unreasonable deadlines. The customer should not allow the vendor to start work without a signed contract, and should not sign a bad contract intending to work through problems as they arise.  
  10. Use the Contract: The customer’s decisions throughout the technology procurement project should be informed by an understanding of the contract and the respective legal rights and obligations of the customer and vendor.