Everything is negotiable, but companies can't negotiate

"Diplomacy is to do and say... the nastiest thing in the nicest way."
-Isaac Goldberg 

Most IT managers and executives are not trained in contract negotiations, and understandably, view the process as an administrative headache. Leave it to the lawyers or purchasing agents, right?

But love it or hate it, negotiating service contracts are becoming a big part of everyone's job -- especially as we move more into Software as a Service and outsourcing, and as SOA makes it easier to "hot-swap" vendors and solutions in and out of the infrastructure. We all need to become better negotiators. (As I posted a couple days back, "Greg the Architect" certainly had his bad day dealing with vendors.)

But are we getting better at negotiation? IACCM (International Association for Contract and Commercial Management) just posted their list of "top contract terms" for 2006, based on data collected from more than 500 international companies and organizations, representing several thousand contract negotiators. IACCM's prognosis: companies are not negotiating very well at all with contractors and vendors.

Number one on the list, not surprisingly, is "limitation of liability," which helps keeps vendors' feet out of the fire. However, dropping off the top ten list this past year was "service levels," which actually should be getting much more attention, as we rely more and more on third-party providers for solutions or pieces of solutions. 

A commentary accompanying the rankings states that the "top ten most-frequently negotiated terms reveals a continued focus on failure," and these terms are symptomatic of poor governance:

"At present, there are few signs of change. Companies continue to invest in resources and software systems that focus on control and compliance. Internal measurements are either insufficient or lacking when it comes to the quality or outputs of the contracting process; they do not encourage or prompt change or improvement. They do not require the custodians of terms and conditions to become more innovative or creative in their thinking, or to focus on wider issues of company performance and risk."

Here is IACCM's list for 2006, with the previous years' rankings in parenthesis:

1 Limitation of Liability (1)

2 Indemnification    (2)

3 Intellectual Property     (3)

4 Price/Charge/Price Changes (6)

5 Termination (cause/convenience) (7)

6 Warranty (5)

7 Confidential Information/Data Protection (8)

8 Delivery/Acceptance (9)

9 Payment (4)

10 Liquidated Damages (12)

11 Service Levels  (10)