Understand the common types of agreements for vendor selection.
Understand the different areas of negotiation.
Learn the best practices around contracts and negotiations.
Before entering into the contracting process, it’s crucial to reach the handshake or proposal stage which includes agreeing on overall pricing, length of the agreement, and the predefined scope of the deployment.
Cloud services agreements and software license agreements are the two types of agreements that are mostly used when purchasing a new tool or entering into a business with the treasury technology provider for the first time.
Difference between software license agreement and SaaS agreement
In a software license agreement:
Hosting is done using the client’s data centers or through third-party vendors.
Upgrades need to be managed from the client’s end.
In a Cloud/SaaS agreement:
Hosting is done from the vendor’s end, and multiple clients can access and utilize the same version.
Maintenance and upgrades are much easier.
Areas for negotiations
The available areas for negotiations in a SaaS agreement are as follows:
Daily rates: Using blended rates helps to stick to the budget. The vendors usually provide fixed fee types of agreements to improve cost savings.
Payment terms: Clients prefer longer terms, ranging from 60 days to 90 days, but vendors typically require their payments within 30 days. It is therefore convenient for both parties to keep it for 45 to 60 days.
Inflation adjustments: An inflation adjustment clause allows prices to be changed regularly based on fluctuations of price indices due to external events such as inflation. This helps to reduce the cost of the agreement.
Termination rights: Termination rights are typically driven by exceptional events such as bankruptcy and data breaches. In such cases, termination rights help with negotiations. In the event a vendor fails to keep the system running, the clients can terminate the agreement.
Tougher areas for negotiations
There are some areas in contracting that are tougher to negotiate, such as:
Intellectual property: This belongs to the vendor and the clients need to pay for the services. If the client makes suggestions for customizable dashboards or any improvements in the products, the vendor can roll out such customizations to other clients as well.
Service levels: They are usually fixed and subjective to the technology provider. However, Cloud services provide the same SLAs to all the clients, which helps clients to cut costs.
Data protection: Since data is very valuable to the client, the solution provider needs to ensure the security and confidentiality of the data. Since the costs for data protection are dependent on the scope and type of data, it is harder to negotiate in terms of data protection. However, controls with banks or internal IT systems help mitigate the damaging effects of data breaches.
Liability limits: Liability limits need to be high enough to ensure data protection, but it is subjective to the size of the company of the technology provider. For instance, larger companies can provide better insurance on data protection than smaller companies.
Best practices around negotiation and contracting process
Here are some of the best practices to ensure a seamless contract and negotiation process:
Pre-negotiate the basic components such as price, length of the agreement, and general scope.
Keep IT questionnaires, SOC 2, SSAE 16 types of reports with the vendors handy before entering into the legal agreement contracting phase.
Maintain dated documents with all comments and edits.
Plan ahead for urgent contracts or negotiations to ensure ample time for legalities.
Involve the business clients in the process.
Give the other party the benefit of the doubt and try to have a positive attitude to gain a possible positive outcome.