In a downturn most organisations will be looking at ways to reduce costs and IT Contracts are an obvious target. However, many people are finding that their contracts, which were written when the business was expanding, do not cater for circumstances when the business shrinks.
So how do you ensure that you have the right flexibility when you need it?
There are a number of ways, but fundamentally you need needs two things in the contract:
- The ability to change the contract – i.e. a contract change control process – not a process for changing the service but one to actually change the contract itself. I am constantly surprised by how many IT contracts fail to include any contract change provisions.
- An undertaking to reduce charges if volumes fall – this is usually a negotiation and there may need to be an increase in the unit charge for less volume, but this is better than having no reduction at all.
Suppliers will be reluctant to provide such terms retrospectively, so the time to negotiate the terms is obviously at the beginning.
I normally also include terms so that if volumes increase, then the unit price falls.
In this way the client and the supplier understand what the unit charges are going to be over a range of different volumes and the contract deals with changes in volume, both up and down.
For larger clients where the contract covers multiple business units I always negotiate an acquisition and divestiture clause in addition to the simple volume clauses. This ensures that the client can bring new business units into the contract when they are acquired and exclude ones that are sold.
Mike Hill – Head of Commercial Services – Itica Consulting – August 2009
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