How to successfully negotiate your project contracts - Daniel Elizalde

Daniel Elizalde, PMP

How to Successfully Negotiate Your Project ContractsDaniel Elizalde, PMP@delizalde | ManagersBuild.com

Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP

Why contracts are critical

71% of IT Projects are EITHER over budget, over schedule, or deliver incomplete scope.

Source: Standish Group (2004). CHAOS Report.

Via contracts PMs can enforce these constraints and reduce Risk!


Agenda

• Key Rules for Contract Negotiations

• Common Contracts – Definitions & Top 3 Wachouts– NDA– MSA– SOW – CO


Key Rules for Contract Negotiation

1. Stay involved from start to finish.

2. Everything is negotiable. Everything.

3. Always have everything in writing.

4. Negotiate when you are still friends.


…

NDA

MSA

SOW 1

CO 1

CO 2

SOW 2 SOW n

Frequently Used ContractsNon-Disclosure Agreement

Master Services Agreement

Change Order

Scope of Work


Non-Disclosure Agreement (NDA)


NDA | Non-disclosure Agreement

Agreement to not disclose proprietary info with anybody outside the companies.

– Client: protect trade secrets & plans – Vendor: protect procedures & “secret sauce”


NDA | Key Watchouts

1. Sign an NDA before sharing too much product/ project info

2. Company vs Individual NDAs

3. Who has signing authority?


Master Services Agreement (MSA)


MSA | Master Services Agreement

MSA (a.k.a. Master Contract) defines how two companies will do business together

• Umbrella contract – governs every SOW

• Negotiations and redlines can take weeks or even months


MSA | Key Watchouts

1. Ownership of IP.

2. Payment terms.

3. Limitation of Liability.


Statement of Work (SOW)


SOW | Statement Of Work

SOWs define the details of what will be provided in an engagement, including:

• Deliverables• Timelines• Payment amount• Milestones• Invoicing


Two Main Types of SOWs

Time & Materials Fixed PriceOverview Client pays for hours worked.

Vendor does not commit to deliverables

Client pays a fixed amount for specific deliverables

When to use Scope is vague Scope is clearly defined

Who bares the risk Client Vendor

Invoicing Recurring (e.g. every 2 weeks) Based on acceptance of milestones


T&M SOWs | Key Watchouts for Clients

1. Be careful of “bait-and-switch”.

2. If possible, buy materials on your own.

3. Demand frequent updates.


T&M SOWs | Key Watchouts for Vendors

1. Be flexible, but keep an eye on the scope.

2. Client has never worked with Vendors before.

3. Client wants specific deliverables.


T&M SOWs | Example – Too Specific

“…the deliverables include wireframes, visual comps, and an HTML prototype…”

vs.

“…deliverables can include items like wireframes, visual comps, and prototypes as time-permitting by the number of hours allocated in this SOW…”


Fixed Price SOWs | Key Watchouts for Clients

1. Low bids = red flag.

2. Ensure realistic review times.

3. Define clear deliverables.


Fixed Price SOW | Example – Clear Deliverable

“…the application will run on mobile devices…”

vs.

“…the application will run on iOS phones, models 4 and up…”


Fixed Price SOWs | Key Watchouts for Vendors

1. Define the number of review cycles.

2. Agree on an objective and measurable acceptance plan.

3. Define invoicing that’s beneficial to you.


Fixed Price SOWs | Invoicing Schedule


Hybrid Projects

It’s OK to combine SOW types…

Discovery Implementation

Fixed PriceT&M


Change Order (CO)


Change Orders

Change Orders document any deviations from the current SOW


Change Order | Key Watchouts

1. Be clear and explicit.

2. Bundle changes to expedite approval.

3. Keep it in writing.


Change Orders | Example – Zero Dollar

“…OK, I agree to the change. Since it’s nothing major, no need to modify the SOW. We have a great relationship…”


Thank You!

ManagersBuild.comDaniel Elizalde, PMP

Keep in touch:@delizalde

[email protected]

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How to successfully negotiate your project contracts - Daniel Elizalde