Critical Contracts: Critically Treated?

Contracts and agreements are like wedding vows, each party lays out their own set – of what they would be doing and come out on one day to call them out to each other. But marriages don’t work like that, do they? Till the time they don’t put out there expectations, beliefs and prospects together, they aren’t on the same page. In the same vein the marriage between an organization and its IT vendor is guided by the vows of Service level agreements. But how often these days a couple pens down their wedding vows sitting together?   Or for that matter organizations having a board room ceremony to put across contracts/ service level agreements along with the second party involved.

With so much communication and information channels available across – guided by the hype of information overload, how much knowledge is actually being communicated across parties is still a point of concern. This is especially true of parties engaged in contracts. More than half of the respondents that participated in our research say that they don’t go through more than half of the IT Contracts that Vendors and OEM`s make them sign during an order closure.  Parties on either side of the table often just lay out their own set of vows but are unable to put both of them together and arrive at the same page. Result of this? – Breach of agreement, a failed marriage.

According to our research we discover that Business Organizations often find the language written in these agreements as all chaotic and confusing while claiming themselves to be the victim of stacks of these fine print paper. While contracts and SLA`s are designed to create a common understanding about services, priorities and responsibilities. 100% of respondents unanimously feel that it is difficult to get any changes done, to these agreements. This holds true despite of the fact that these agreements can be altered at any point of time as these are classified as living documents. The key findings indicate that 50% of the IT heads feel that these SLA`s are loaded with contractual and legal terms, running unnecessarily into multiple pages.

Well it is not to say that all SLA`s are riddled with danger, but it is exceedingly naïve to believe that any SLA is gotcha free. All contracts do take care of stating the service uptime and downtime, but they lack in managing the effectiveness of the services – how information about its effectiveness be addressed? How disagreements be resolved? How parties can revise the agreement? How its cost effectiveness be gauged? How to be aware of alternative service packages? All these questions tend to boggle the mind of IT heads. A clause within these paper stacks could actually seize the saving or in fact rob you of anything beyond what you can imagine. It comes as no surprise then that 83% of respondents feel a need for third party pencil reviews of contracts which may possible inform them on any possible risks or possible issues that may arise in future, on a pro-active basis.

Today’s service providers tend to offer guarantees like 99.7 to 99.9 percent uptime, but does this guarantee a fast and reliable application to the end user. The answer to that is of course not.  This is especially true in case of cloud service providers. Our research moreover indicates that among all service domains, 50% of respondents accounted cloud service agreements as most difficult to understand. This is because vendors often calculate time, periods and roll –up methods with parameters that fall to their advantage. The other two domains in line after cloud services whose contracts require the most understanding was licensing. 33 % of respondents feels licensing contracts require the most knowledge and expertise. 

The bubble burst moment in any relationship is when you realize it’s time to do the “It’s not working out” talk. While every party evades from it, because you don’t want to ruin the long term relationship for which you have worked so hard for. Well the great thing about SLA`s is that it comes up with a liberty to charge, as it contains a charging section of invoking a penalty clause in case of breach of contract. However, we find that 33% of the respondents have faced a breach of contracts/SLA in the past, but out of them, still more than 80% have never invoked a penalty clause. Seems like the two are also avoiding the “talk”. Organizations often find invoking the penalty clause of an SLA is a challenge in itself. Apart from the fact it ruins the long term relationship, “how to charge IT services”, commonly called chargebacks remain a point of great contention between IT organizations and the Vendors.

Rather than viewing it as a complaint-stifling mechanism or a quick fix to a troubled relationship, the vendors and IT organizations need to view them as an expectations-managing mechanism. So a few considerations that you might want to keep in mind to build an effective SLA would be that it should be read by Customers properly, and if need be, is routed for a pencil review through domain experts / consultants. The agreement shouldn’t be seen as who can extract most out of it, but rather should be a win-win for both the parties and must be mutually agreed upon. At the same time the agreement must be periodically reviewed together on hits and misses, and one that must never shies away in case of lack of a perceived mistrust shall a breach happens.

Yes! A successful relationship takes a lot of patience and hard work. In this case a boardroom ceremony characterized with lot of “talk” would indeed be just what you need!

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