The Biggest Legal Risk You Never Heard OfAdded by Bradlee R. Frazer in Articles & Publications, Business Law, News on June 2, 2016
I used to work for a technology company that engaged a lot of outside vendors to assist it with what I call “IT implementations.” These included everything from customized software development and deployment to hardware configuration and installation to data storage in the cloud (although back then we just called the “cloud” a “data center.”)
Invariably the internal purchasing cycle went like this: (1) internal business person had a need for a new function or gadget for the enterprise; (2) business person prepared an RFP; (3) multiple vendors prepared and submitted responses to the RFP; (4) sales people arrived on-site armed with food, gifts and PowerPoint presentations; (5) based on the pitch of the successful sales person, a (large) PO was prepared; (6) a contract was prepared and signed; (7) the IT implementation began; (8) the IT implementation failed; and (9) litigation ensued. Sound familiar?
If you have no personal experience with such an IT sales cycle, it may be that it occurred and you were just never aware of it unless you were in the legal department, were an outside lawyer, were the CFO/CIO/CTO, or worked in the IT department. Please find the phrase “failed IT implementations” with your favorite search engine and you will quickly see what I mean. For example, here’s a headline from March 16, 2016: “NYC hospital CMIO quits over EHR implementation, cites Challenger report.” Many other examples exist. Not all end in litigation, true, but many do, and in almost all cases the customer either does not get what the sales person promised or they end up spending two to three times the RFP amount (via change orders and scope creep) to get what they thought they were promised.
In my experience, most failed IT implementations begin with a poor contract. Note that in my sales cycle example above, the phrase, “Legal Department got involved early and often with contract preparation” is not to be found. That omission was intentional. Some IT implementations will fail no matter what, but in most cases the customer/client can improve its chances of getting what it thought it was paying for if Legal is involved early and often, beginning with preparation of the RFP—if not before.
A smart, proactive, IT-savvy lawyer will know the most likely legal reasons an IT implementation will fail and can anticipate them from the earliest stages of the engagement. This is critical so that if in fact you must litigate, the contract supports the aggrieved client’s/plaintiff’s position in the dispute. Heck, after the first couple of sales cycles like the one above, I even started going to the sales presentations and challenging the sales guys on their statements and warranties. They loved that.
For example, imagine that you engage someone to paint your house for $5,000. That’s it. That’s the whole contract. You come home from work and find your house painted bright pink. You are understandably aggrieved and consult legal counsel to seek recovery of your $5,000. The lawyer should immediately ask: “What did the contract say? Did it say you wanted forest green?” You see the point. Unless the contract delineates specific metrics against which the court can assess the vendor’s performance, it is very difficult for the client/customer/plaintiff to have a legal remedy when, in their estimation, the other party’s performance fails.
This is why I emphasize the importance of the Statement of Work, a document that describes the work to be performed by the vendor during the IT implementation. Two key things to remember about the SOW: (1) it must articulate in as much detail as possible the expected performance metrics of the vendor, including as many of the promises made in the sales meetings and as many of the RFP requirements as possible; and (2) it must be made a part of the contract by way of an integrated attachment or exhibit. If possible, your lawyer should help prepare the SOW since ultimately it may fall on her shoulders to enforce the contract. Of course, even a great SOW does nothing for you unless the contract well harmonizes with it as a legal and tactical matter, but more on that later.
I know what you are thinking: “Preparing a long, detailed SOW that describes everything we want is hard.” Yes, a good SOW is hard, and you cannot see the future. But imagine that you take the full RFP, the vendor’s full response to the RFP, all the sales literature and all the emails and text messages from the sales person promising you that, “yes, it will do that” and staple them to the contract so that they all collectively become, in essence, the SOW. That is a metaphor for what a complete SOW might look like, since it would delineate all the expected performance metrics.
In another commentary, I’ll address key points for the CONTRACT that will supplement and support the SOW to give you a remedy when you find that your IT implementation has gone off the rails. Until then, involve an IT-savvy lawyer early and often on your IT implementations.
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