What are the main components of a vendor contract and how do you negotiate them?

Depending on the perceived risks associated with scope changes during the term of the contract, it may also be beneficial to define how scope changes are to be included. You don’t want “open season” to additional charges that exceed original costs per unit for scope additions.

Keep in mind that specific contract terms and negotiations may vary depending on the industry, jurisdiction, and specific circumstances involved. (Suggested shopping list) Parties and Contact Information Scope of Work Payment Terms Intellectual Property (IP) Rights Confidentiality and Non-Disclosure Term and Termination Liability and Indemnification Dispute Resolution Negotiating Vendor Contract Terms Prepare and Research Prioritize Key Terms Clearly Communicate Expectations Seek a Win-Win Outcome Use Objective Criteria Consider Legal Advice Remember that negotiation is a dynamic process, and both parties should aim to achieve a mutually beneficial agreement.

My perspective is based on negotiating 100s of technology related statements of work over the past 25+ years. I believe that all statements of work should reflect the agreed upon scope, the assumptions upon which that scope of work will be delivered, the roles/responsibilities of both parties, what defines acceptance, how governance of the work and the contract will be addressed and lastly the fee structure. Changes to the SOWs should only be allowed when the scope has changed from what was documented, an agreed upon assumption does not hold or one of the parties failed to meet their responsibilities. Investing the time up front will save a lot of time and effort in the long run.

As commented above, vendor contract should account for nominal scope increase. That is virtually certain to happen. This is not to be confused with scope creep. That needs to be managed as part of project management.

In addition to the points above you should negotiate the rates for change - what will it cost to assess the impact of a missed assumption, change in scope and or failure to meet a responsibility, who will pay for what level of work, what requires pre approval, will the new work follow the same payment terms as negotiated or will there need to be a new payment/holdback schedule. If the plan is to engage a vendor for multiply SOWs establishing a master set of terms that call out all these elements will expediate the negotiation of a new SOW or an amendment.

Again if the plan is to engage a vendor for multiple SOWs then establishing master terms will make it easier in the long run to work together. Consider that you may have multiple SOWs and if they each have their own liability and indemnification terms and the time to get to execution will be longer, the opportunity for the vendor to renegotiate each time can introduce multiple layers of risk for the company.

Same comment as above - negotiating a master set of terms may benefit both parties by only having to engage full teams, including legal, risk management, etc once and enabling the functional teams to move forward with the work under agreed on paramters

Word of caution here - while I believe that companies should have the right to terminate an agreement with agreed upon implications, I get concerned when a vendor wants to terminate as oftentimes contracts don't allow for the implications of what terminating an existing SOW or agreement might mean internally. For example, if a vendor decides to terminate the agreement/sow early, will your company have to undertake another selection process and if so, who pays for that level of effort? If you are going to allow both parties to terminate the implications on both sides have to be negotiated before the work begins.

Few other commercial terms to consider are: - Service Level Agreements (SLA) - RACI, Project PoC & Escalations - Governance Framework - Product Delivery & Acceptance - Lead times, Damaged Goods, RTN - Cost of Living Adjustment (COLA)

Also, renewal cost increases based on a fixed percentage should also be examined with potentially adding evaluation points to discuss opportunities to modify said percentage increases due to say, exponential growth in whatever the pricing is based on such as users count or total spend on licensing. Say if licensing spend increases dramatically due to organic growth or acquisition, a threshold could be set to trigger the re-eval. If renewal pricing is driven by a variable value such as estimated or written premiums (specifically insurance admin systems on live companies), find out how they define whatever metric they will be using in the calculation to be sure it is line with your definition so there are no surprises at renewal.

One area where Procurement adds value is reviewing the SOW from the perspective of the supplier, e.g. do I know what I am supposed to supply, and when? Are there any special industry or quality standards to which my goods must adhere? Are the conditions for acceptance clear and defined so I am paid for having delivered the goods without dispute?

Quality is non-negotiable, no one buys poor service no matter how low a price. Secondly, I've seen first hand how buyers are focused on traditional T's & C's, applicable to licensing. When services are cloud based, there are more material opportunities to achieve lower costs and improved SLA's. I provided consulting services to a client that was 100% focused on saving 5% per unit they missed greater opportunities. The provisioned/activated subscriptions were only 70% utilization. Do your homework and see how many of the subscriptions are active, as well as how often and for how long. There may be an opportunity to reduce the number of subscriptions or other possibilities- concurrent users versus dedicated. Think Cloud!

Often times, many forget to consider what becomes of the work products after contract disposition. Whether its allowing you or customers to keep copies of softwares, returning an asset, or even aligning to the destruction of certain work products it is important to ensure you consider the outcome after the eclipse of the contract, itself. Beyond this, it is important to understand the dynamics of the negotiation itself. For instance, how badly do you need these goods or services? The more "walk away" power you have, the stronger your negotiating position will be. While some may argue this mentality promotes a one-sided perspective, a strong position provides assurances that the negotiations will be equitable to your interests.