Quinin Consulting's APMEE Insights Part II

Contract Language Awareness for Innovators, Solutions or Services Providers: Barriers, Risks and “Claw-Back” Terms

In follow-up to the first article in this series from Quinin Consulting LLC with the goal of sharing Discovery and Due Diligence leading practices and lessons learned  in previous Account Portfolio Management Evaluation and Enhancement (APMEE) advisory efforts, this second article will provide several additional leading practices as well as observations on significant impacts that limited or hindered the delivery team’s ability to successfully execute upon the agreed upon terms, timelines and Service Level Agreements (SLAs) within the Master Service Agreement (MSA) and supporting schedules. 

Access to Client Resources. Expectations on access to client business operational and technology resources, documentation, information, applications, cooperation of third-party vendors, demos, etc., must be established early and often during the Discovery phase and reinforced in the Due Diligence phase (these phases were shared and described in the previous article).  

Client Barriers and Risk(s). Planning for and identifying potential client barriers and risk(s) needs to begin during the initial sales stage(s), and before the Discovery and Due Diligence phases. This includes anticipating client request to change agreed upon terms, time-lines, deliverable(s), etc., slow or delayed client response(s) or decisions (i.e., tendency to lean on consensus building approach rather leader decision-ing) and no identified client “business owner” of the SLA(s).

The initial Statement of Work (SOW) that describes the Discovery and Due Diligence phases must clearly address potential situations that may arise with client’s barriers, risk(s) or access to client resources (i.e., delays in engagement progress or deliverable(s) production and signoff, increased incurred engagement costs that the client will be responsible for, etc.) impacting the engagement progress and success. Similar input(s) and language should also be incorporated into the MSA and supporting schedule(s) as well. 

Of course, any reviewer (representing the client organization) of the SOW or MSA and supporting schedules should execute confidentiality agreement(s). Additionally, all stakeholders or organizations involved should plan for business disruptions (e.g., natural disasters, pandemics, etc.) and contract terms should include the level of service, delivery timing, etc., each party can expect from one another during the disruption time-period.

Be aware of “Claw-Back” Contract Language and Negotiate the MSA & Schedules Carefully. It is not uncommon for the MSA and supporting schedules in complex deals with multiple practice areas or work-streams involved with the client’s resources (including other third-party vendors, solution or service providers) to be 500 plus pages in length. It is imperative to recognize when the client or the client’s representative are positioning the contract to take revenue dollars from the innovator, solutions or services provider as credits and/or penalty payments to the client.  

“Minimum” and/or “Expected” Service Level Agreements (SLAs). Contract terms that incorporates language describing “Minimum” SLA(s) benchmarks to obtain or hit and also “Expected” SLA(s) benchmarks to obtain or hit, becomes a mixture of SLAs to manage and achieve, and also appear to involve the same SLA(s) should be avoided. A better approach is the use of “Straightforward-Industry” and/or “Industry-Standard” SLA(s) benchmarks to address on a per SLA basis.  

SLA negotiation and then SLA implementation, delivery and management tracking is critical as there are instances you may be relying on either the client or the client’s other third-party administrators (TPAs) for key up-stream processing or system availability. As such, fair and equitable SLA negotiation and agreement is key for the delivery team’s success in implementation and delivery of the innovation, solutions or services in scope.

In some contracting scenarios (MSA and supporting schedules), the client has transferred all risk, exposure and liability over to the innovator, solutions or services provider for any and all SLA(s). This can also include SLAs the client has agreed to with their customers without the innovator, solutions or services provider knowledge, input or involvement of what has been agreed to between the client and their customers. Examples include:

Other Parties or Consulting Firms Involved in Contract Negotiations. It is not uncommon for clients to engage other parties or consulting firms to facilitate negotiation and development of the contract; however, it is important to note that most (if not all) of these firms are seeking a significant post contracting role by establishing “Claw-Back” contracts. “Claw-Back” contracts directly support the ability of these firms to establish a position (for themselves) as Contract Oversight/Governance Facilitation Lead. As such, their fees are subsidized from findings of gaps or faults in your delivery and imposing credits and/or penalties which you (as the innovator, solutions or services provider) either forfeit or pay back to the client to cover the Contract Oversight/ Governance firm’s fees.

Establishment of Deal Review Board (DRB) & Approval Processes.   To mitigate the scenarios of risk(s), exposures and liabilities described above, it is highly recommended that all innovators, solutions or services providers establish the appropriate executive management oversight with DRBs with supporting approval processes to move opportunities, pursuits and contracts to the next appropriate step(s). This should include:

It is crucial that the PMO, Delivery/Solutioning, HR, Finance, Legal and Risk Management be involved with and perform a significant role in the DRC. This responsibility falls upon Executive Leadership to ensure that all key internal stakeholders are involved and are participating on an equal basis (not a subordinate basis), the DRC is adhered to and that the decisions that were signed-off on by the DRB are followed precisely by Sales and/or Account Executive (with no deviations on the parameters of the deal the DRB has agreed upon and signed-off on).   

The success of the delivery team’s implementation, transition and/or transformation depends on the efforts, inputs and work put into the MSA and supporting schedules by you as the innovation or solutions or services provider organization.

About Quinin Consulting LLC

Quinn Consulting helps global clients and partners with disruptive and rapid changes in their industries. The firm provides a variety of consulting and advisory services, including software/applications (core administration, advanced analytical and predictive solutions, mobile, social and digital technologies) market evaluation, selection and implementation, portfolio and program leadership, solution assessment and visioning for technology innovators, as well as, mergers and acquisitions (M&A) information technology (IT) assessment and target integration. For more information about Quinin Consulting and our advisory services, please visit www.quininconsulting.com or email [email protected] or call 860-478-2494.