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A Guide to IT Contracting by Michael R. Overly, Matthew A. Karlyn

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Collecting Basic Deal Information
CHECKLIST
Basic Principles
Marshal basic information
Value of proposed transaction?
Term of agreement?
Criticality of technology to business?
Unique regulatory issues?
Other foundational information?
Circulate a “deal memo
Circulate a “term sheet”
Describe the Engagement
What is the deal about?
Business advantage from contract?
Use nontechnical English
Useful Life
Anticipated duration of contract
Desired renewal terms
Duration of services rendered
License for years or perpetual?
Renewal rights
Costs for renewal
Expected Fees
Compensation to vendor
Breakdown of rst-year fees
S License
S Professional services
2  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
S Implementation
S Customization
S Hardware
S Telecommunication
If no fees, good faith estimate
When to use customer’s form
Performance
Customer-facing application?
Location for service performance?
Oshore vendor?
Vendor uses oshore partners/aliates?
Vendor uses subcontractors? If so, who?
Location for vendor performance?
Vendor provides hosting services?
Intellectual Property
Will the customer want to own vendor-created IP?
Vendor cannot share with competitors?
Vendor cannot share with industry?
Vendor has access to sensitive IP?
Personal Information
Vendor access to personally identiable information?
What information is at risk?
Financial account information?
Health information?
Social Security numbers?
Legal and regulatory requirements
Transmission across international borders
Information Security
Vendor access to sensitive customer data?
Cloud computing–based service?
Hosting service?
Is vendor sole custodian of customer data?
Unique Issues
Vendor’s nancial situation is suspect
Vendor is subject of litigation
Vendor had recent security breach
Performance constraints
Substantial regulatory/compliance issues
Collecting Basic Deal Information • 3
OVERVIEW
Before any proposed technology contract can be reviewed, certain basic
information about the deal must be marshaled. is includes the value
of the proposed transaction, the term of the agreement, the criticality of
the technology to the business, unique regulatory issues (e.g., is sensitive
personally identiable data at risk?), and other foundational information.
While this process may seem self-evident, it is common for businesses to
rush forward in the review of a proposed technology contract without this
critical information.
In our experience, moving forward without a clear understanding of
the “deal” can result in misunderstandings with the vendor, failure to
achieve an adequate and appropriate contract, delays in negotiations, and
increased costs. For example, it would likely not be appropriate to require
the same level of contractual protection in a $20,000 o-the-shelf license
agreement as one would require in a $20 million custom soware develop-
ment deal for a critical client-facing application. Similarly, it would prob-
ably not be fruitful to propose extensive information security language
in a contract that does not involve highly sensitive information. Finally,
it would be all but impossible to impose one-o service-level obligations
in a small, noncritical Application Service Provider (ASP) deal, but those
obligations may well be entirely appropriate in a large-scale transaction.
While the foregoing may seem obvious, we frequently see businesses
proposing contract terms that are inappropriate for the contemplated
engagement. In most cases, the problem arises from a failure to assess the
transaction adequately from the outset. e reason for that failure is almost
always a lack of clear foundational information about the transaction.
In this chapter, we identify key areas for which information should be
obtained and understood before any review of dra contracts commences.
By assessing this information, businesses can make more informed deci-
sions about their proposed technology engagements and ensure their con-
tracts are appropriate to those engagements. is list is not intended to
be exhaustive. Other issues unique to a particular transaction or business
should be added and, of course, the vendor should conduct appropriate
due diligence.
Many businesses now require the foregoing information to be recorded
in an internal “deal memo” and circulated to all relevant stakeholders

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