United States: 8 Technology Contracting Resolutions For 2014

Last Updated: April 10 2014
Article by Julie E. Korostoff, Sarah T. Hogan and Christine M. Wahr

Along with blustery cold weather (for those of us in New England, at least), the beginning of 2014 brings with it the opportunity to reflect on the past year and to form resolutions to  capitalize on the good trends, correct the bad trends, and contemplate strategies for how to "do better" in the new year.  As with our personal lives, the same goes for business, and it is in this light that we present our top technology contracting resolutions for 2014:

  • Resolution #1: Be Security Savvy:   Security is serious business, as demonstrated by last year's large-scale data breaches.  Protecting the security of your company's systems and data requires constant vigilance.  Make sure that your business partners take security as seriously as you do by imposing contract terms that require them to keep your systems and data secure and enable you to meet your obligations under law.   Check out Mintz Levin's Privacy & Security Matters blog to stay up to date on the latest developments.
  • Resolution #2:  Choose Your Technology Vendors Wisely and Manage the Relationship with Care:  In light of the rocky rollout of Healthcare.gov, we're reminded that relationships with technology vendors for large solutions requiring complex integrations need extra scrutiny.  Don't shortcut due diligence in the procurement process – choose vendors who have a proven track record of success and a reputation for working closely with their customers.  Impose vendor accountability through use of thoughtful, comprehensive contracts and project plans.  Remember that the success of the project depends not only on the conscientious performance of the vendor but also on your own personnel devoting adequate time and attention to vendor management.
  • Resolution #3: Prepare for Business Disruption Events:  Disruption is inevitable – so use contract terms that are designed to protect your technology investment.  In the due diligence process, verify that the vendor employs industry standard business continuity and disaster recovery practices.  Then, by contract, require the vendor to maintain such plans and regularly test them.  Think as well about your own back up plans.  How long will it take you to switch to another vendor or product? Make sure that the contract' termination provisions allow for adequate time and assistance for you to make an effective transition.
  • Resolution #4: Think Carefully About Source Code Escrow Provisions:  Having access to your vendor's source code via a escrow account doesn't do you much good it the code is complex and you lack the specialized expertise to use it.  It may be more worthwhile to focus your negotiation efforts on obtaining other protections, such as liquidated damages and termination rights, that support you in a switch to another vendor in the quickest way possible.  However, if you do obtain source code escrow rights, remember that often times source code is complicated to compile, so requiring that the vendor also put object code (if you don't already have it) and technical documentation in the escrow account can be just as important as the source code itself.
  • Resolution #5: Be Prepared for Disputes:  Your contract should have provisions designed to handle disputes effectively to help save money, time and frustration down the road.   Escalation clauses, where the parties are required to escalate a dispute to senior management before filing suit or invoking arbitration, can be extremely helpful in resolving minor disputes.  Arbitration clauses can help to dictate specific rules in resolving disputes, and a carefully crafted arbitration provision can save time and money (but note that simply requiring arbitration under a major association's rules (e.g., AAA or ICC) can often be just as timely and expensive as litigation).
  • Resolution #6: Do Not Gloss Over "Boiler Plate" Contract Language:  Do not assume that indemnification, limitation of liability, assignment and other legalese-laden provisions are simply non-negotiable "boilerplate."  These provisions are often the most important provisions in your contract, as they allocate the parties' risks and responsibilities.  Take the time to understand their impact on your company's potential liability.
  • Resolution #7: Use Term Sheets Effectively:  Negotiation of technology deals can be very long and complicated.  Starting with an effective term sheet is one of the keys to an efficient contract negotiation.  Work with your lawyer to distill a clear statement of the essential deal points and you will have a good start toward a frustration-free negotiation process.
  • Resolution #8:  Pay Attention to Affiliates:  Know your contract counterpart.  Are you contracting with the parent company or a subsidiary that might only hold nominal assets?  In the event of a breach, can you recover what you need to from the subsidiary or should the parent guaranty performance?  Also, consider whether you have affiliates who may need to exercise rights under the agreement.

We plan to feature each of these topics in an upcoming post in our newly launched Technology Matters blog, so stay tuned for more on these and similar topics.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Julie E. Korostoff
Sarah T. Hogan
Christine M. Wahr
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