Vendor Contract Negotiation: Everything You Need to Know
A vendor contract negotiation is a necessary part of the negotiation process, and a base template in which you’ll commence negotiations.3 min read
A vendor contract negotiation is a necessary part of the negotiation process, and a base template in which you’ll commence negotiations. Vendors and third party agreements can be a challenge for all organizations, but the process can run smoothly if you know the key steps when it comes to negotiation. The focus on key agreement areas touch upon risks from the effects of cloud and mobile data for vendors and employees. Such data can be burdensome, but it pertains to how vendors and customers gain access to and use information.
The risks are best mitigated when you know five key points of contract negotiations. Security and risk professionals should know:
- Payment and price
- Confidential & proprietary info
- Indemnifications and disclaimers
- Changes in deliverables and scope
- Remedies and termination
The proper negotiation of such terms can lower risk and have a positive influence over decision-making. Several hurdles affect and place limits on successful negotiations. The strategies and tactics tend to show the internal business guidelines of a company, but the five areas would be part of any negotiation strategy. When developed, a management team can allow mid-level managers to make decisions with ease.
The consideration of confidential and proprietary information is important for any business relationship. Also, the following has an impact on pricing and costs:
- Assessing ownership scale of foundational materials
- Obligations in the safeguarding of information
- Examining work products
Businesses commit important resources in the development of proprietary data and the protection of confidential matters. Due to a large amount of middleware (operating systems, ad networks, cell carriers, etc.), assets and proprietary information are increasing. With that, the unauthorized disclosure and misuse of information is a reality that many firms must deal with. Therefore, a business should create and establish an IP checklist that lays out a roadmap in tackling obligations and risks.
In law school, one of the first things taught is that prices are usually negotiations and reflect what buyers agree to pay sellers. As the size, value, and scope of a series or projects increases, so will the pricing structure and the room in adjusting prices. The risks in pricing should be managed by adding cap increases in the following areas:
- Labor costs
- License fees
The negotiation in payment terms accounts for the “time value of money,” which means that the person holding the money has the leverage and receives the benefit. If you lose through short payment terms, for instance, you may offset by paying a lower price. For prepaid fees, non-fulfillment should be added in the remedies and termination section of an agreement. Moreover, it is inevitable that you will have to modify or change the scope of services that are performed.
In addition, changes in deliverables and scope should be assessed carefully to establish clear exceptions and mechanisms in addressing various changes that are expected when considering the nature of services rendered for licensed software. Regardless, good starting points in agreement on budget should include:
Moreover, you should address aspects within the scope that needs licensure or additional regulatory verifications. A built-in approval mechanism will help in streamlining any ministerial variations.
The right to terminate should also be created to honor the value in the original bargain and it should also be reserved to punish egregious conduct of any kind.
Since contract law remedies and rights are based on state laws, you should check the limitations in which you operate in your state. There are 47 state data breach laws, and you must be aware of federal mandates as well. Most states recognize many variations of monetary damages, such as:
- Lost profits
- Indirect losses
With that, the states may vary when considering the time period in which consequential damages could be recovered versus what types of damages are considered consequential. One of the most vital parts of an agreement is the reduction in uncertainties and the mitigation of risk, which is why disclaimers are a vital part of any contract. Although densely-worded at times, so-called boilerplate provisions are overlooked. Such provisions affect a party’s chance to usher in a claim, prove damages, or show liability that’s recoverable.
If you have more questions on a vendor contract negotiation, submit your legal need on UpCounsel's marketplace. UpCounsel’s attorneys will give you more information on vital contract negotiation strategies and how you can get the best terms possible in an agreement. Also, they will help you enforce the terms of a contract if another party fails to live up to his or her end of the bargain.