When smaller technology businesses land a big client, they are rightly excited about moving up the value chain. However, they can quickly become disillusioned by what is often a protracted and painful contract negotiation process. In this article we set out how best to manage this process so that IT businesses can protect their positions and negotiate a contract that appropriately allocates risk between the parties.

The procurement problem

After winning a tender or making a successful pitch, a technology business usually wants to move swiftly on to providing their service and, in turn, the commercial teams at the customer are generally eager to receive that service. However, there is often a disconnect between what technical and commercial teams in a big corporate want to buy versus what the procurement teams are prepared to sign off on. 

Technology businesses generally provide innovative, often complex, products and services. This can mean that the procurement teams who are involved in the contractual negotiation process don’t have an in-depth understanding of the products/services being offered and when this is coupled with the procurement team’s remit to drive down costs for the company and mitigate risks it can result in a bottleneck in the purchasing process with the procurement team not having the time or the bandwidth to be creative to find an innovative solution which works for both parties.

The issue is compounded when the customer is a “large” customer as it then becomes very appealing for procurement to try to insist on using their standard terms and conditions and threaten delays and loss of opportunity if the supplier wants to negotiate changes or use their own terms, using lines such as “we will have to involve our legal team and this will add several weeks onto the purchasing process” and “during this time we may go out to market again and find an alternative supplier who will agree to our standard terms and conditions”. 

Why you shouldn’t give in

The impact of giving in and accepting a big corporate’s standard Ts and Cs with no amendments can be felt in several ways. 

  • Firstly, you may have to live with a contract which either isn’t profitable in the short, medium or long term or is riddled with risks and potential liability. This will not paint you in a good light when the next round of funding or exit due diligence is carried out. 
  • Secondly, you may find yourself tied in to numerous obligations which are irrelevant to the services you are providing. 
  • Also, having to accept terms which are customer-skewed and inappropriate for the product can create bad feeling at the start of the business relationship which commercially is not ideal.

Our advice to clients who find themselves in this situation is to stand your ground and call their bluff. If you have the confidence in your product or service then this is normally the right option, after all you’ve been picked as a preferred supplier because your customer’s technical teams and/or commercial folks decided that there was a very good reason they needed your company’s services and products. Most procurement managers will not want to go to the hassle of re-tendering for suppliers OR explaining to their technical and commercial colleagues why they can’t agree terms with their preferred supplier. In addition, it makes most commercial sense for both you and the customer to negotiate terms and conditions at the outset. As a supplier, this is often the only time you do have the power or opportunity to negotiate your preferred contractual terms and conditions. 

Time to act

It isn’t always easy to find a workable solution, especially with procurement’s agenda. At Clayden Law we can provide valuable assistance with negotiating terms and conditions to ensure that the final contractual solution is one that works well for both parties.  We focus on the key issues that matter for your business and take a cooperative rather than a combative approach without introducing unnecessary delay or argument, taking the heat out of negotiations that are at an impasse and helping you avoid getting stuck with unsuitable and cumbersome terms.

If you are in the midst of negotiating terms and conditions with your customers and you can’t seem to find a breakthrough or if you have just been presented with standard terms and conditions and you aren’t sure where the risks lie or how to mitigate against them, please do get in touch with any of our team (contact details here) for a complimentary 30-minute Contract Assessment Consultation. This consultation will help you to identify the risk areas in the proposed contractual arrangement and work out the best way to proceed for your business. 

Louisa Taylor

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