The strange reality of software development and implementation agreements is that they are often prepared in the wrong order. In fact, as soon as the customer and the supplier (the IT developer or implementation partner) reach an oral outline understanding of the deal basics, the project often immediately starts. This is before their understanding is properly documented and worked out in more detail in a Master Services Agreement (MSA). Although understandable, this is risky for both parties. It is the MSA that contains the detailed terms and conditions that govern the agreed software development and implementation project.
Ideally, the supplier for your project is selected during a thorough selection process. As part of this, potential suppliers are shortlisted and a RFP is prepared that contains the wishes of the customer and the essentials of the project. In extensive RFP’s, often a template MSA forms part of the RFP documentation. Suppliers participating in the RFP are in that case only allowed to negotiate a pre-arranged number of clauses and will have to confirm to agree to the remainder of the clauses in the template MSA.
The request for proposal is then preferably shared with several prospective suppliers. After their responses have been received and analyzed, the supplier for the project is selected during one or more selection rounds, with a focus on experience, requirements, timelines and commercials such as fees and costs.
After selection of the supplier, the deal basics are negotiated and should ideally be documented in a Heads of Agreement (HoA), Letter of Intent (LoI) or similar document. A HoA or LoI documents the outline agreement regarding, for instance, the scope and intention of the project, the IT development model (i.e. agile or waterfall), timeline(s), commercials, and the ownership of intellectual property rights. Each of these topics can be a deal breaker. It would be a waste of your time and money to find out that no final agreement can be reached whilst in the middle of lengthy MSA negotiations, or even worse, when the project has already started. To assure that any potential suppliers know your wishes in these areas upfront, it is essential to inform them about your wishes as early as possible. Especially when you did not share a template MSA as part of the RFP documentation, it is recommended to attach a draft HoA or LoI to the RFP that is shared with the prospective suppliers.
Do not succumb to time pressure or mutual enthusiasm after agreeing on the deal basics, and do not start the work before the MSA is duly executed. Take the time to properly negotiate the MSA. As indicated, the MSA contains the terms and conditions that will govern the project, the support of the new application and your entire future relationship with the supplier. Essential terms and conditions are e.g. payment terms (including payment on the basis of milestones), termination rights, warranties, liabilities and indemnifications, ownership of intellectual property rights, scope, use of licenses, confidentiality, nature of supplier’s obligations, service levels and service credits. Also, in the context of the dynamics of a software development and implementation project, do not forget to include a lean process around agreeing on amendments to the MSA or any Statements of Work (SOWs) governed by it.
SOWs are sub-agreements that are part of and governed by the MSA. A SOW documents the specifics of a single project or part of the scope of work performed under the MSA. In many cases, SOWs are prepared during the course of a project to cover new requirements. SOWs are the heart of your relationship with the supplier as they describe the exact services and deliverables to be provided by the supplier. As such, they are key to getting what you want and the success of the cooperation. Unfortunately, due to time pressures, SOW’s are often prepared at the very last minute at the expense of the desired level of detail and comprehensibility. We recommend to avoid this, and take the time to describe all services and deliverables and any relevant arrangements around timing, acceptance and commercials in in as much detail as possible. The preparation of a template for SOWs as part of the MSA or starting with the preparation of the SOWs during the negotiation process of the MSA may be helpful so that the MSA and any future SOWs seamlessly work together. It is our experience that it contributes significantly to the quality of the SOW to let the business (i.e. IT professionals, project managers, etc.) have a prominent role in determining the content of the SOWs.
The above steps describe the shaping of an IT development and implementation agreement in an ideal world. In reality, the shaping and structuring of IT development and implementation agreements takes place under a lot of time pressure and therefore often in a less structured way, which comes with its inevitable challenges. The reality is also that (external) legal support is often not called upon in the early stages of a procurement process – sometimes not even during the first rounds of drafting of the MSA and the SOWs. Legal departments and external counsels often become involved when the business needs a legal signoff and ask for “a quick final check”. Although understandable in the rush to get to a deal, early legal assistance has considerable advantages and may even speed up the process in the end.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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