The Contract Masterclass: Risky business, Tech It Easy part 2.
Tech It Easy Limited has just secured its first deal with a large retail company – score! As an upcoming tech company offering its social media management software, it is ecstatic to have landed a massive client. Before the fun stuff begins, Bob has the unenviable task of getting the contract over the line. Considering the size of the retail client compared to Tech It Easy Limited, one of Bob’s main concerns is assessing and managing the risk that this great opportunity and partnership may bring to the business in order to protect its position. Here, James Corlett and Molly Hackett break down what Bob will need to consider.
Practicalities: what will Tech It Easy actually be committing to?
Tech It Easy will be developing and installing the software for the client and providing support and maintenance services too.
Bob needs to make sure that the client’s expectations are realistic in relation to what Tech It Easy can provide. The client wants 24-hour responses across the board on any and all fix requests, this is unlikely to be manageable! Bob may want to consider proposing tiered response times in the contract, depending on the severity of the issue.
It will be important that expectations and the level of service is clearly outlined in the contract. Tech It Easy does not want to be in breach of the contract if its performance falls foul of what it says in the contract. (More on breaches later in the series…!)
If Tech It Easy is offering ‘premium’ services, will this include “out of hours” and if so, what do the charges look like and are they appropriate? It will not want to get burnt by over-exerting its service with little in return.
No doubt the software will need updating from time to time, or bugs may crop up, Tech It Easy might want to recover any associated costs for fixing these issues with the client. This will need to be clear in the contract!
Because after all… making money is key.
Payment terms and timescales will need to be considered by Bob carefully, to ensure they are clear and enforceable, and take into account the business’ cash flow which is limited at this stage.
Bob may propose including a ‘trigger’ if the client’s payment is ever delayed, giving Tech It Easy the option to stop its services until payment is made or allowing Tech It Easy to terminate the agreement if payment is majorly delayed.
If Tech It Easy was particularly worried about this aspect, it could propose that time for payment to be ‘of essence’, any default in payment would give Tech It Easy opportunity to end the arrangement with the client.
Price increases are on everyone’s mind at the moment.
Bob would be smart to consider the terms that Tech It Easy have agreed to with their suppliers and sub-contractors and what they say about being able to increase costs.
Tech It Easy will want to ensure it can increase its service costs if it takes on higher rates from its suppliers and sub-contractors. In practice this would mean aligning its price increase terms with the client, with the supplier terms.
Alternatively, both Tech It Easy and the client might be happy to agree fixing increased costs in line with an inflation index, such as RPI or the Average Weekly Earnings Index.
Tech It Easy have worked hard to develop its software and it is at the heart of its business.
The most important component will be the company’s source code for building its platform.
Tech It Easy will in this case, want to sublicense its software and platform to the client, granting certain privileges of use and generating revenue, whilst maintaining ownership.
While they will be providing the client this software as part of the service, Bob will want to make sure this is protected and remains the property of Tech It Easy, so the client can’t do a runner with it for its own commercial use! Strengthening terms around ownership, rights to the code (Tech It Easy will want to hold onto this) and design will be in Bob’s interest.
These are only a few considerations that Bob will have to look at… Tech It Easy’s position will need to be protected in relation to potential liability arising from the contract and any warranties it will be giving to its client in relation to is services.
Stay tuned for our next instalment, where we look at what Bob needs to watch out for in outlining Tech It Easy’s pricing in the contact.
By James Corlett and Molly Hackett