How to reduce the risks and costs of projects: Top 10 IT procurement mistakes

How to reduce the risks and costs of projects: Top 10 IT procurement mistakes

IT Advocate: Use these legal guidelines when arranging IT purchasing deals to help your organization reduce the risks and costs of projects.

IT procurement does not always get the management and legal attention it deserves. Unlike other transactions, such as buying property or selling a business, IT procurement is often seen as an informal process -- notwithstanding that the spend is often significant and the IT being procured is also critical.

These are the IT procurement mistakes that I see frequently:

1. Signing the supplier’s contract

If you simply sign the supplier’s contract then you are likely to be accepting an “all care and no responsibility” style arrangement. It is likely that the deliverables and associated timeframes are unclear at best, and your ability to sue the supplier will be limited or nonexistent if the solution does not work, or if you get sued for infringing a third party’s intellectual property rights.

It is preferable to include your own terms and conditions in your RFP or, if this is not possible, negotiate the supplier’s contract to reflect an acceptable position.

2. Downselecting

It is important not to let a supplier know they have been selected until the terms under which they are to supply the solution have been agreed. Once a supplier knows they have the job they do not tend to be very willing negotiators.

One way to maintain the competitive tension is to start with three or more candidates, select two and negotiate two binding agreements before making a decision. At each stage of the process you should emphasise to the suppliers that the position they take with respect to the terms may determine whether or not they are going to progress to the next round of negotiations.

3. Specifying what is being provided

Most supplier contracts are deliberately vague about what is to be delivered. Ideally, if software is provided then the functionality of that software should be clearly set out in a schedule. Similarly, services being provided should also be clearly described as failure to do so would invariably result in everything being an “additional service” for additional fees! In the case of ongoing services, specific service levels should be included with respect to aspects of the services that are both important and measurable.

You may wish to consider including a service credit or rebate concept both to drive supplier behaviour and have relatively easy access to compensation if the services are not provided in accordance with the agreement.

4. Timeframes

Ideally your agreement would include a clear project plan with milestones which the supplier would be required to meet. Suppliers are usually reluctant to do this and the excuse most often proffered is that timeframes are dependent on the customer doing its part. It may then be appropriate to have a schedule devoted to the tasks to be performed by the customer, and excuse the supplier for delays if it notifies the customer of a failure to perform a particular customer task and the consequences of doing so.

5. Right to walk away

At a minimum you should try and obtain a right to perform acceptance testing of the solution and a refund if the solution does not work. Suppliers tend to get distressed when you request this, but it provides a practical remedy in circumstances in which a solution may not otherwise be available.

The alternative is to be stuck with a solution that does not work with the option of suing for damages if you have managed to negotiate appropriate warranties and obligations.

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