Managing Risk With Technology Contractors

Date: January 30, 2014

Tips to minimize the potential legal pitfalls in contracting for technology systems

Acquiring the right technology systems is often critical to an association’s success. Too often, however, associations rush through technology system acquisitions and sign unfavorable vendor contracts that ultimately provide little protection to the association if the system or its vendor doesn’t perform as expected. To minimize the potential legal pitfalls in contracting for technology systems, consider the following five contracting tips:

  • Carefully assess your requirements. Critically assess the goals of the association and identify what technology system functionality and capabilities are required to achieve those goals. You should clearly identify the project scope, duration of the project, budget, and how the new system will be managed after deployment. Careful acquisition planning should give you a clear understanding of your technology system requirements, which you should then use to identify viable technology systems and their vendors.
  • Consider issuing an RFP. Consider issuing a request for proposals to help you evaluate potential technology system proposals from an objective baseline. A well-written RFP can be invaluable to avoiding disputes later on about expectations and performance obligations. Include in your RFP (1) a detailed description of the project scope, (2) specifications regarding key system functionality and capabilities, (3) your evaluation scheme for reviewing vendor proposals, and (4) the initial contract framework, especially contract terms you want. A vendor’s proposal submitted in response to your RFP should be attached and incorporated into the resulting contract so that commitments made by the vendor in its proposal become enforceable contract requirements.
  • Don’t skimp on the due diligence. Review each proposal against the RFP evaluation criteria and perform due diligence on each vendor under serious consideration. You will want to ensure that potential vendors have adequate financial health to perform the project successfully to completion. Request vendor references and check them – a vendor should have a positive past performance record on similar projects and a good industry reputation. You also should investigate any previous and pending litigation against the vendor that could potentially impact your project. And it’s best not just to select one vendor, but rather choose the final two and negotiate with them to determine the right fit when the association has the most leverage.
  • Don’t accept a boilerplate contract. Technology vendor contracts are almost always written to protect the vendor’s interests, not yours. Don’t accept the vendor’s “standard” contract without insisting on contract terms that are equitable and that provide a reasonable amount of protection to you. Read the contract thoroughly and challenge any terms that are unclear or too one-sided. Insist on having any ambiguous language clarified, and make sure that contract terms are equitable. In particular, focus on the vendor’s payment terms, warranty provisions (and warranty disclaimers) and terms regarding contract termination, indemnification, and limitations on damages. You should incorporate any RFP terms that specify minimum core system functionality and performance to avoid later disputes about system capabilities. Finally, if a vendor insists that its boilerplate contract can’t be changed or altered, and the terms are too one-sided, consider other vendors.
  • Monitor deliverables and performance carefully. You must keep track of vendor and system compliance with the contract terms. If the system is not performing as required, address the issue with the vendor at once. If you do not promptly inform the vendor of system defects or deficiencies, you may waive your right to have these things fixed. For that reason, it is especially important to understand both the inspection/ acceptance, deliverable and warranty provisions in the contract. If your contract contains service level agreements or uptime guarantees and the vendor fails to meet them, actively pursue your contract remedies.

This article originally appeared in the Association TRENDS newsletter.