Signing a long-term technology deal is certainly common enough, but according to a group of lawyers Norton Rose Fulbright Canada LLPThere are myriad legal implications that need to be considered once physical outsourcing and procurement has taken place.
Exactly what they are, was recently outlined at the company’s inaugural virtual Technology Privacy & Cyber Security Summitduring an inaugural panel that focused on risk management in technology contracts.
According to the firm, “As businesses engage in digital transformation, they are relying more and more on outsourcing and technology procurement for additional resources and expertise.”
Moderated by Liana Di Giorgio, senior associate with Norton Rose Fulbright in Toronto, the panel included Janet Grove, a partner in the firm’s Vancouver office who focuses on technology and life sciences, Fahad Siddiqui, a litigation partner in Toronto and Nikita Stepin. , is a business law partner specializing in commercial intellectual property (IP) and is based out of the firm’s Montreal office.
Grove said one of the biggest risks organizations face revolves around pricing, and a key question to ask before signing an IT contract is, “is it fixed, or will it move”? She suggested that any signatory who thinks “pricing should be firm,” should make absolutely sure that negotiations are taking place with the seller, and that any guarantees are reflected in the contract.
If growth is going to happen, it is important to know the level of growth, he said. For example, it can mean a price increase related to changes in the Consumer Price Index (CPI), or additional pricing at or above the rate of inflation.
“As you go into the contract, you really have to look at the marketing document that was given to you, look at the sales document, but then look at the contract and make sure that whatever expectations you were given about value and price protection Those are translated into your contract, as part of the pitch, or in the sales document.
Di Giorgio said he’s seen more and more people try to negotiate price increases every year, “especially in today’s environment and not just tie it to the CPI, but actually say They won’t grow by more than five percent, or whatever number makes sense to the business.
The five percent limit might have worked in the past, Grove said, but it’s “going to be more difficult with inflation getting way out of the ballpark last year.
“For sellers, it is difficult to commit to five percent, and we are seeing more conversations about how long they will commit to a particular price cap, especially if they are not tied to the CPI, or an index. Which is more relevant to the technology sector. But if you are the customer, the more certainty you can get, the better.
Acknowledging that “you’re hardly going to have certainty forever,” Grove said the key is to look at the anticipated lifetime of the service, “but also really, at what point do you have to go into it?” will? Do you need to know that you have price certainty for five years to get enough payback from the service? Try and get price certainty for a long time that you have payback, and actually See what kind of notice you get when the price changes.
Sellers, he added, have the ability to change the price at any time in a standard form contract, or at renewal of course. “If your vendor needs to raise the price for whatever reason, how long do you have a time frame that you think is competitive or sustainable? How much notice do you need of it so you can look at an alternative solution?”
Di Giorgio responded by saying that “the dispute mechanism in a contract doesn’t really lend itself to negotiating a price adjustment on an invoice.”
The terms of the contract, which address prices, ultimately conflict where the parties’ desire to make a commercial deal and the lawyers’ desire for outcome certainty, Siddiqui said.
“What you’ll find in all contracts generally, but especially with technology contracts, are clauses that leave these things open-ended,” he said. “And the parties close their eyes and hope that they’ll figure it out along the way, and their external and internal lawyers kind of cringe and hope that nothing goes wrong. And so, generally But, you look at it two ways.
“The first is, you will have a set price in your contract for all of your contractual agreements, and the parties will agree on mechanisms to address necessary changes. Typically, those are change order procedures, going as far as agreeing to a certain percentage variation. which may or may not be accepted.
At the end of the day, Siddiqui said, “What you’re looking for is for your seller to act reasonably, in terms of how much the seller would deviate from what the parties agreed to, and your buyer, unreasonably.” No, going to decline. Choosing a price change to get out of an unfair deal.
“The other way you usually see it is an agreement that the parties have put their minds to the initial budget, but the budget itself is not necessarily the price that will end up. And that’s where the disputes between lawyers and mediators and judges get creative.” And that’s usually not a good thing from a business perspective.
As for the IP issue, Stepin said the key is to establish a written roadmap that defines what data can be shared — whether from a vendor or a customer — and what data needs to be protected. Will be
“These issues typically need to be addressed at the outset before the data has any value in a commercial technology transaction,” he said.