Technology Procurement in the Face of COVID-19: 4 Recommendations to Avoid Pitfalls in the Haste for Tech
May 1, 2020
- Your data protection responsibilities are paramount in your technology purchase contract negotiations
- Beware of “layered” or “embedded” terms in your technology contracts that reference separate documents
- Push for a tailored escape clause if auto-renewals are unavoidable
- Incorporate force majeure clauses to protect you from future uncontrollable events
Plenty can be said of the negative consequences of the current pandemic. Businesses continue to watch their cash flows dwindle in the wake of supply chain disruption and shelter-in-place orders. Reaching and influencing employees and clients through in-person contact, especially when those clients are consumers, has suddenly become impractical, and in a large number of circumstances, against the law. How then, in this era of social distancing, can you keep your employees, clients, and/or consumers engaged?
Businesses with varying levels of sophistication in IT procurement are turning to tech for survival. Obtaining supportive and innovative technology at a “needed it yesterday” pace has become critical in businesses’ efforts to implement successful telework strategies, improve or change internal processes, and develop new ways to operate. In the scramble to negotiate and execute agreements for IT hardware, software, or services, it is easy for businesses to fall into the trap of prioritizing haste over diligence.
You can avoid this trap by keeping these four key recommendations in mind when procuring the necessary technology for your business:
1. Data Protection is Paramount (As Always!)
Federal and state laws governing data privacy and security have always lagged sluggishly behind the pace of technology development, contributing to the culmination of a confusing and less-than-comprehensive patchwork of federal and state (and sometimes foreign) protections for customer and employee data. As a recipient of IT software or services, you can protect your customers’ and employees’ data by paying close attention to the written terms of your contract or order form and asking yourself a few questions:
- What do the terms provide with respect to the provider’s collection, use, and analysis of your customer data?
- Where does the data “reside” and how can you make certain you always have access to it?
- How is your business using the product or service?
- Does your IT provider really need access to your data to provide the services or grant the license to the software?
Recommendation: Nail down any ambiguities in the language by revising it appropriately. Remember, the written terms of your agreement or order form will supersede any oral explanation of the terms offered to you during negotiations. There’s no “pandemic exception” to the data protection laws, and the cost of non-compliance—both in terms of out-of-pocket costs and reputational damage—could be ruinous.
2. Beware of Embedded and Layered Terms
IT providers commonly incorporate additional terms into their agreements by inserting references to additional supplements and appendices that may be found online or provided to you upon request. It is imperative that you locate and read each such supplement and appendix, no matter how tedious. Ask yourself, which set of terms will prevail in the face of a conflict? For example, if the terms of your agreement or order form state that services will be available at least 99.9% of the time, but the terms of an appendix state that a particular service will be available at least 99.7% of the time, which of these terms will prevail (and under what circumstances)? If the order of precedence is unclear, demand clarifying language.
Recommendation: Do not allow embedded and layered terms to supersede key provisions in your agreement or order form over which you have spent considerable time and effort negotiating. Also, beware of the possibility that online terms can be changed at any time, often without notice or your approval.
3. Be Wary of Auto-Renewal Provisions
IT is ever-changing, as are the needs of your business. And in the face of COVID-19, businesses need to remain flexible and adaptive now more than ever. When you negotiate for IT services or software, keep the need for flexibility and adaptability at the top of your priority list. Avoid any burdensome auto-renewal provisions that can lock you into expensive and lengthy renewal terms, burdening you with the cost of expensive software or services that you no longer need.
Recommendation: If the inclusion of an auto-renewal provision is unavoidable, push for a carefully tailored escape clause that allows you to jump ship when circumstances change and ask for limits on how much fees can increase in the renewal term.
4. Check the Pulse of Your Master Agreement
If you have a longstanding relationship with an IT provider, take a moment to confirm that your master agreement sufficiently protects your interests (and data). When did you negotiate your master agreement? What types of products and services were you considering at that time? Has your focus shifted from on-premise solutions to cloud-based services? If it’s been a minute since the negotiation of your master agreement, you might be missing some key protections. But don’t panic. Adding these protections doesn’t necessarily mean renegotiating your master agreement.
Recommendation: Consider how your current agreement leaves you vulnerable and propose an amendment that adds or revises terms to reflect your current needs. Now might be the time to include that force majeure clause you’ve been thinking about (a clause that excuses performance when performance becomes impracticable due to unforeseen and uncontrollable circumstances) or to revise your current clause to expressly identify pandemics and epidemics as force majeure events.
Jen Vessells is a business lawyer at Kegler Brown who advises business owners and in-house counsel on optimizing their technology procurement strategies. She can be reached directly at jves[email protected] or (614) 462-5447.